What does 78.9 trillion Vietnamese dong in real estate slow-paying bonds mean?

According to FiinRatings, 69 issuers (IPOs) had failed to pay their debt commitments as of March 17, 2023, totaling VND 94.43 trillion.

According to FiinRatings, 69 issuers (IPOs) had failed to pay their debt commitments as of March 17, 2023, totaling VND 94.43 trillion, or 8.15% of the value of corporate bonds currently in circulation.

The real estate industry accounts for 43 of the 69 overdue bonds, with a total delayed bond value of VND 78.9 trillion, accounting for 83.6% of the total value of corporate bonds from slow-moving firms.

According to FiinRating's investigation, corporate bond issuers with delayed payments have several credit characteristics. For example, 33 delinquent real estate banks increased their financial leverage by 9.5 times since the end of 2017. Nevertheless, their physical assets, which are often profitable assets of real estate enterprises, rose only marginally from VND 25 trillion (2017) to VND 33 trillion (2018). (2021).

Their receivables (often from related-party credit arrangements) and long-term investments (mostly in subsidiaries and associates) more than doubled. As a result, profits from core companies do not expand in proportion to debt, because cash flow is not directed toward investing in productive assets. As a result, the debt repayment capabilities of these businesses plummeted, with EBITDA growing just four times while debt grew fifteen times.

"In addition to general business environment factors such as credit control policies, high interest rates, a sharp decline in bond mobilization channels, project legal stagnation, or policy changes, issuers who default on their debt obligations share key characteristics of poor credit quality for an extended period before defaulting." These characteristics include: 1) Very high levels of debt leverage; 2) Weak cash flow for debt repayment due to increased debt, with capital primarily tied up in receivables and long-term financial investments rather than tangible fixed assets or finished inventory, leading to high and very high liquidity risks; 3) Maturity imbalances, with debt maturities being short while operating cash flows remain negative for several consecutive periods prior to the default; and 4) Maturity imbalances, with debt maturities being short while operating cash flows remain negative for several", said FiinRatings.

According to FiinRatings, the real estate business has the biggest amount of bonds in circulation and the largest corporate bond issuance. Regrettably, it also has the highest delayed bond repayments, totaling VND 94.43 trillion as of March 17, 2023, representing for 8.15% of the value of corporate bonds in circulation.

The real estate sector owns 43 of the 69 overdue bonds, accounting for 83.6% of the total value of bonds with delayed repayment. According to FiinRating's study, these issuers have excessive financial leverage and low physical assets, which results in low profitability and a lack of cash flow for lucrative assets. As a result, their ability to repay loans has significantly deteriorated.

The debt-to-earnings EBITDA ratio for these companies is likewise high, with a correlation of up to 30.5 times in 2020 and 23.5 times in 2021, which is excessive when compared to these companies' average bond maturity and debt obligations.

According to analysts, if these enterprises, particularly those in the real estate and energy sectors, do not have access to capital assistance programs, they risk breaching their cross-debt repayment responsibilities. As a result, experts advise that these regulations be implemented as quickly as possible in order to alleviate the strain of having more bonds with late payments from the same issuer and to minimize the list of struggling enterprises.

Bond issuance of 69 issuers

Individual corporate bond market capitalization is now VND 1.15 million billion based on circulation value as of March 8, 2023. With a market value of VND 396.3 trillion, real estate bonds account for about 50% of non-bank bonds and 34% of total outstanding corporate bonds. FiinRatings analysts believe that the bond bad debt ratio will continue to rise in the foreseeable future as policy reforms take effect and the business climate improves considerably.

Recent supporting measures, such as lower lending interest rates, are projected to help to debt relief through debt restructuring, the issuance of new bonds to restructure previous debts, or the awarding of new loans to legally clean projects that are efficiently realized.