The outlook for maturing real estate corporate bonds might be more positive in 2024 compared to 2023

Financial expert Nguyen Tri Hieu

Data on corporate bond issuance for the first four months of 2024 showed that the number of corporate bonds issued by real estate companies was higher than those issued by banks. How do you evaluate the recent issuance of real estate corporate bonds, sir?

The fact that real estate companies have issued more corporate bonds than banks recently is a positive sign. However, I believe this is also a situation of necessity, meaning that real estate companies are facing difficulties in obtaining bank credit, prompting them to issue bonds as an alternative funding source. Meanwhile, banks currently have excess capital, but lending activities are slow, which explains why they are not issuing many bonds. Therefore, we should not view the high issuance of real estate corporate bonds as overly positive, because such bonds carry significantly higher risks compared to those issued by banks.

The issue of corporate credit ratings is currently being highlighted. Do you think this could be a solution to boost capital mobilization through corporate bonds, sir?

Absolutely. When companies have credit ratings, it brings transparency to the market. Credit ratings allow investors to assess companies more accurately. For instance, if a company is rated as “investment grade,” its bonds are likely to be well-received by the market. Even for bonds rated as “non-investment grade,” the credit ratings provide investors with insights into the financial health and debt repayment capabilities of the issuing companies. Therefore, attention to corporate credit ratings is a very positive signal.

How do you assess the challenges posed by the pressure of maturing corporate bonds for real estate companies in 2024?

The pressure of maturing corporate bonds for real estate companies this year is significant, with balances potentially reaching around VND200 trillion. This is not only a pressure but a systemic risk, as issuers have three main options if they cannot repay: delaying debt repayment, selling assets at low prices to pay off debts, or declaring bankruptcy. With this pressure, issuers will likely first attempt to delay repayment.

However, delaying repayment carries risks, as the debt will accumulate and become even larger in the future. Despite the pressure, I believe the implementation of the amended Land Law in mid-2024 will positively impact the real estate market by resolving many project difficulties. The real estate market is expected to improve in the second half of the year, making the situation of maturing corporate bonds more optimistic compared to 2023.

Currently, access to capital for businesses has improved thanks to reduced bank lending rates. Does this help real estate companies in repaying maturing bonds, sir?

If we say that capital flows have been strongly unlocked, I would disagree. Bank loans are still slow due to the risks in the real estate market. Although there has been improvement in the first months of 2024, it is still slow compared to before, and obtaining bank loans remains difficult. Hence, real estate companies are looking for alternative funding through bond issuance. The situation may improve towards the end of the year as the real estate market becomes more accessible, allowing cash flow to return to companies through property sales. However, we might also see interest rates increase in the latter half of 2024, as banks will need to raise more funds to meet the demand from a rebounding economy, which will drive up lending rates.

In this context, what recommendations do you have for real estate companies regarding solutions to overcome difficulties, promote bond issuance, and ensure they can repay maturing bonds on time?

One solution that real estate companies should consider is lowering property prices. Real estate prices in major cities are very high, making it impossible for many people to afford homes. Companies should adopt business strategies that align with market conditions and help people acquire housing. Reducing property prices is crucial to reviving the real estate market. This will not only restore cash flow to real estate companies but also address housing issues and ensure macroeconomic stability.

Thank you, sir!