Unsecured corporate bonds are at risk

Apec Group continued to announce the private placement of bonds to mobilize 400 billion VND, with an interest rate of 10% plus/minus 3%. 

According to information supplied by the Vietnam Bond Market Association (VBMA), there have been 26 private placements worth VND 22,185 billion and eight public offers worth VND5.509 trillion since early 2022. Although public offerings have surged by 31%, private placements have grown even faster (51%).

The real estate industry will take the lead

According to VBMA data, there were 7 public offerings of Thanh Thanh Cong Tourist JSC (VND 500 billion), Nova Land Corporation (VND 1,300 billion), Coteccons Construction JSC (VND 500 billion), Bamboo Capital JSC (VND 500 billion), and 16 private placements in JSC as of January 28, 2022, for a total issuance value of VND 19,500 billion.

Real estate and construction were the two leading industries in terms of total issuance value, accounting for 55.8% and 27.5 percent of total issuance value, with VND 14,470 billion and VND 7,130 billion, respectively.

In the real estate sector, Eagle Side Development and Investment Corporation JSC was the largest issuer in January (VND 3,930 billion) with a one-year tenor, followed by Vietnam Land Development Corporation (VND 1,600 billion) with a three-year tenor. Both Minh Truong Phu Construction JSC and Tuong Khai Construction Investment Corporation issued VND 2,950 billion and VND 2,990 billion in the construction sector, with a tenor of one year.

There were several important issuances in the banking sector as well: To increase tier 2 capital, 3 issuances of Joint Stock Commercial Bank for Investment and Development of Vietnam (VND 2,209 billion) with floating coupon rates (reference rate is the average VND 12 month deposit rate of 4 banks (Agribank, Vietinbank, Vietcombank, and BIDV) plus 0.5-1 percent) and tenors ranging from 7 to 10 years were made.

According to VBMA, a number of corporations plan to issue bonds in early 2022, including IPA Investment Company, which will issue unsecured bonds worth VND 1,000 billion, and DRH Holdings, which will issue unsecured bonds worth VND 400 billion...

"Oil slick"

Given the difficulty of obtaining banking credit, particularly when investors are unable to profit from stock investments, it is not unlikely that a considerable number of unsecured bonds will continue to be delivered to individual investors.

Mr. Nguyen Quang Thuan, Chairman of the Board of Directors of FiinGroup Joint Stock Company, estimates that 51,7% of the 1.2 million billion in corporate bonds in circulation will mature in the next two years. In the meantime, private placements have accounted for the majority of corporate bonds issued in the last three years, with real estate being the most prevalent industry. Furthermore, many issuers are unlisted corporations. As a result, the issuer's ability to satisfy its bondholder obligations is a cause for concern.

Analysts believe that if such a risk is not tightly controlled, it will act like an "oil slick," resulting in a financial disaster for issuers, investors, and the financial market. The lesson of China's "debt bomb," Evergrande, is still relevant.