Corporate bond market develops rapidly

Amid the context that banks limit medium and long-term loans, many enterprises have shifted to a new capital mobilization channel – corporate bond issuance. Statistics by the Ministry of Finance showed that in the first four months of this year, the corporate bond market developed rapidly, exceeding VND58 trillion.
An individual investor is opening an account at a securities company. (Photo: SGGP)
An individual investor is opening an account at a securities company. (Photo: SGGP)

The leader of the Department of Banking and Financial Institutions under the Ministry of Finance said that in the past time, the number and types of enterprises participating in corporate bond issuance have become more and more diverse, including manufacturing, service, and construction sectors.

Of which, real estate enterprises mobilized the largest amount of capital in the bond market in the first four months of this year, accounting for 49.1 percent of the total VND58 trillion worth of corporate bonds issued, increased sharply compared to an increase of 16 percent in the same period last year.

Not only bond debt is high but the average mobilizing interest rate of real estate enterprises is also at a high level of more than 11 percent per annum compared to the average level of 9.63 percent per annum of the market. Some enterprises were recorded to have bond debts 30-47 times higher than their equity.

Meanwhile, last year, corporate bond activities of real estate enterprises reached VND106.5 trillion, accounting for about 38 percent. In which, 84.2 percent of enterprises issued bonds with a total value 3 times less than the equity and the average interest rate of 10.3 percent so they could ensure the safe and reasonable factor.

It was recorded in the market in the first months of this year that I.VN Company issued corporate bonds with an interest rate of up to 13 percent per annum and the interest rate of D.D Company was 12 percent per annum. The leader of the company which issued corporate bonds with an interest rate of 13 percent said that this interest rate is higher than the market average but in comparison with the cost that the company has to pay when borrowing money from banks, this interest rate is not much different, merely at 1-2 percentage point.

“Currently, it is very difficult for us to get credit loans because banks are tightening lending to the real estate sector. Therefore, businesses are forced to find ways to raise capital from other sources to meet business needs," he said. 

A recent report of the Hanoi Stock Exchange (HNX) also said that the successful issuance of corporate bonds in April this year reached more than VND30.12 trillion. Meanwhile, the first quarter of this year was more than VND47 trillion. Especially for real estate businesses, corporate bond issuance is an effective capital mobilization channel when banks tighten control on credit.

In fact, in April this year, real estate businesses have a large number of corporate bonds issued, with more than VND9.65 trillion, and in the first four months of this year, the capital mobilized through the bond channel of this sector exceeded VND29.2 trillion.

A survey from the Center for Economic Research of Vietnam Maritime Commercial Joint Stock Bank said that although the group of institutional investors is still the main investor group in the corporate bond market, accounting for nearly 74 percent, there is a sharp increase in the group of individual investors.

Particularly, last year, the number of individual investors participating in the primary market accounted for 8.8 percent of the total issuance volume but in the first four months of this year, this figure increased to nearly 30 percent.

Although having not continuously offered as previously, if asked any securities companies, their employees are willing to offer corporate bonds of real estate companies to individual investors. Because the interest rates of real estate corporate bonds are usually the highest, about 3-4 percent per annum different from the deposit interest rates for the 12-month term of banks.

Specifically, BV Securities Company is issuing bonds of H.D Real Estate Company with an investment yield for one to three months at 8.5 percent per annum, four to six months at 9 percent per annum, seven to twelve months at 9.5 percent per annum, and above 12 months at 10.5 percent per annum.

TV Securities Company is also selling bonds of S.G Company with interest rates for three months, six months, and 12 months at 8.8 percent, 9.2 percent, and 9.8 percent per annum respectively.

Ms. M., a brokerage of TV Securities Company, said that many investors invest in corporate bonds because this is the most effective fixed interest rate channel with interest rate up to 11 percent per annum, higher than those of banks.

In reality, not only issuing corporate bonds via securities companies and commercial banks, but some enterprises are also accelerating the approach to individual investors to make a private placement with many attractive incentives other than the interest rate, such as gifts, gold, free travel coupons at five-star resorts if investors buy a large number of corporate bonds.

An employee of a commercial bank with many corporate bond products said that the majority of individual investors chose to buy corporate bonds mainly because of more attractive interest rates, especially in the context of the Covid-19 pandemic. Commercial banks are reducing deposit interest rates to reduce lending rates following the policies of the Government and the State Bank of Vietnam to support enterprises to overcome the difficult time.

Giving comments on the current corporate bond market, many people said that the development of the corporate bond market has helped enterprises, especially real estate enterprises, to access the capital mobilization channel in the past months, replacing the credit channel of banks in the context that the State Bank of Vietnam tightens real estate credit. However, with the increase of individual investors, especially small individual investors, the potential risks are not only posed to the investors but also the market.

Ms. A. said that in February this year, at the invitation of an employee of T. bank, she bought corporate bonds of an enterprise that she is not allowed to reveal its name, with an interest rate that is 4 percentage points higher than the deposit interest rate at that time; The interest is paid periodically every six months or one year, helping customers have a steady cash flow and earn double interest on the amount of periodic interest received. Customers can choose more term liquidity packages or use the online connection service to sell corporate bonds to other people easily, while still maintaining a good return on investment.

Besides, this corporate bond can be mortgaged to borrow money at T. bank in case customers need money but do not want to sell corporate bonds. However, after buying, because she needed money, she asked the employee of the bank to resell it, but she could not sell it. The mortgage was not easy either. It took nearly four months for Ms. A. to sell the corporate bond package for VND200 million and suffered a loss of nearly VND10 million because she had to lower the price to have a buyer.

An expert in the industry said that this investment channel is different from savings at banks and only suitable for professional investors who are capable of analyzing and assessing risks. Therefore, the Law on Securities 2019, which will take effect from January 1, 2021, also clearly regulates that private placement of corporate bonds will only be issued to professional securities investors. Investors should not buy bonds just because of high-interest rates.

With individual investors tending to increase corporate bond purchases, the Ministry of Finance has issued a written document recommending that investment should be carefully considered and prudent. The agency also recommends that investors need to distinguish clearly the method of the public offering and private placement. The issuance of corporate bonds to the public must comply with the principles of information disclosure, carry out the registration process, and be certified by the State Securities Commission.

Meanwhile, with the private placement, enterprises only need to meet the conditions of issuance, disclose information directly to the buyers, and the Hanoi Stock Exchange.

The Ministry of Finance also warns that investors must be very cautious with the commitment to buy back from issuance-underwriting organizations (commercial banks and securities companies) due to the risk that these organizations may not fulfill the repurchase commitment, because it must meet the financial safety criteria prescribed by the law, or may not repurchase due to financial difficulties.