Removing 5 barriers to promote the corporate bond market

Economic expert Can Van Luc

Please give us your assessment of the current corporate bond market?

- To remove difficulties and restore the corporate bond market, there are two important groups of decisions that have been issued and implemented by the National Assembly and the Government in recent times. Firstly, the group of macroeconomic management policies ensures economic growth at a relatively positive level of 5%, especially being steadfast in macroeconomic stability, controlling inflation, exchange rates, and reducing interest rates are important, helping a positive economic recovery; continue to coordinate and issue unprecedented fiscal and monetary policies to support the economy; Synchronously deploy many different groups of policies and solutions focusing on solving difficulties for real estate, bonds, tourism, health care, education and land.

Regarding the corporate bond market, recently, the Government has had a policy group with 4 decisive policies in recovering this market. The first is to issue Decree 08/2023/ND-CP to directly remove obstacles and difficulties in the market with new, more favorable conditions than before. The second is to put into operation the centralized individual corporate bond trading system. This is an important point to increase liquidity and increase transparency for the market. Third is to develop some conditions to move towards a healthier market development, such as granting an additional license to a credit rating organization. Fourth, cases of violation of corporate bonds have been handled relatively drastically.

All of those policies lead to a recovering corporate bond market. According to our statistics, up to now, about 240 trillion VND has been issued, including 220 trillion VND in private corporate bond issuance, 20 trillion VND in public bond issuance, only a decrease of 10% compared to the same period last year; The circulation volume of the following month is higher than the previous month. If comparing to the same period last year, the issuance results are also higher, the level of increasing is calculated by times. For example, in November 2023, 30 trillion VND was issued, 15 times more than in November 2022. These signs show that, although there are still barriers that need to continue to be removed, the corporate bond market is recovering positively and confidence has been gradually recovering. These are signs that will help the market develop better in the coming time.

Illustration photo: S.T

What are the profound lessons learned in the initial steps of recovering the corporate bond market, sir?

- In all the policy groups just shared, we see two very important ones that can draw lessons for the recovery process of the corporate bond market in the next period as well as very valuable experiences for operating the economy in the coming time.

Firstly, Decree 08/ND-CP is an unprecedented decision, allowing the extension and postponement of bond debt and allowing money-goods swaps, that is, allowing the exchange of bonds for products such as real estate or other properties. This is an unprecedented policy that not only removes difficulties for the corporate bond market but is also a very important key to removing bottlenecks for the real estate market.

Second is the connection between the financial market and the real estate market. That is, in parallel with Decree 08/ND-CP, the Government, the Prime Minister, along with ministries, branches and localities, also have policies to remove credit and real estate channels with a series of decisions of the two markets. This ensures synchronization between the financial market and the real estate market.

Can you clarify the barriers in the current corporate bond market?

- In my opinion, the biggest barrier is the form of release. Currently, preliminary statistics show that the structure of corporate bonds issued is very unbalanced when 90% of corporate bonds are issued privately, only 10% are issued to the public. The process and procedures for issuing private corporate bonds are much simpler and are only issued to professional investors. The second shortcoming is the investor structure. In the primary market, individual investors only account for about 5%, but in the secondary market, individual investors account for about 28.5%. Clearly, many individual investors lack the understanding and capacity to evaluate the risks of corporate bonds and still actively participate in the market. This is an inadequacy in the investor base. Third, transparency is still limit ed, especially for corporate bonds issued privately. Fourth, the process and procedures for issuing corporate bonds to the public are still complicated. There needs to be more improvements in the process and in reviewing documents to speed up and stimulate the issuance of corporate bonds to the public more, instead of just 10% like today. Finally, the compliance and spirit of respect for the law of businesses and some investors are not high, leading to very unfortunate incidents in recent times. These are the shortcomings we need to focus on solving.

So how should the barriers you mentioned above be overcome to further develop the corporate bond market, sir?

- The first group of solutions is to draw profound lessons for authorities, market participants and investors, because we must draw lessons to grow up.

We need to continue to pay attention to improving institutions and policies. For example, currently Decree No. 08/2023/ND-CP is about to expire and in the near future we will return to applying Decree No. 65/2022/ND-CP, including 3 conditions, provisions that Decree No. 08/2023/ND-CP has currently allowed to be extended or postponed, so how do we continue to apply Decree No. 65/2022/ND-CP again in the near future? Personally, I think we should return to Decree No. 65/2022/ND-CP but there should be a roadmap and balance to continue creating for the market to develop. For example, Decree 08/2023/ND-CP extends and postpones regulations on professional investors until the end of 2023. With this regulation, if we want a healthy market, the right objects are experienced and knowledgeable buyers, the terms and conditions of professional investors will continue to be applied according to Decree No. 65/2022/ND-CP. But with the credit rating regulations for issuing businesses, I think there should be a more appropriate roadmap. Currently, there are only 3 credit rating organizations in the market. Besides, the culture and habit of issuing businesses purchasing credit rating services has clearly not been formed immediately. In particular, it is necessary to classify groups, which groups need credit rating, and which groups do not need credit rating. For example, for issuing businesses that are commercial banks, there is no need for a credit rating because they issue for a very clear purpose, which is to increase secondary capital. Besides, they are strictly managed by gorvernment's safety factors.

The second very important solution is to diversify products in the corporate bond market. Currently, the basic market only has corporate bond products, so take this opportunity to have solutions to promote new products in the bond market such as green bonds, construction bonds, sustainable bonds, social bonds, etc. The third solution is to diversify the investor base, especially institutional investors and professional investors. Currently, there are not many institutional investors in the market. We need to promote more institutional investors, especially investment funds.

The fourth solution is to upgrade IT and data infrastructure. I think this is an extremely important soul to develop this market. In particular, it is necessary to simplify the procedures for public issuance. Currently, this process is still complicated and the approval time is long, so publishers are still hesitant.

Finally, there is a solution to strengthen inspection, examination and supervision, especially the need to improve the capacity and tools for this team. Recently, the State Securities Commission has tried very hard, however, the number and capacity of this team still have certain limit ations, so we need to strengthen it further in the future.

Sincerely thank you!