An individual investors search information on corporate bonds. (Photo: SGGP)
High interest rates
Recently, police have continuously prosecuted Trinh Van Quyet, Chairman of FLC Group, and Do Anh Dung, Chairman of Tan Hoang Minh Group, causing Anh Nhat, an individual investor in Ho Chi Minh City, to sit on pins and needles because she bought corporate bonds of a real estate company with a total value of VND2 billion nearly a month ago. The collateral is a housing project that is undergoing legal procedures and has not had a land-use rights certificate. When the securities company offered to sell those bonds, she was attracted by the relatively high interest rate. The bank deposit interest rate is less than 6 percent per annum, whereas the interest rate of corporate bonds with a term of six months is up to 9 percent. Therefore, instead of investing in other profitable channels, Anh Nhat chose corporate bonds with the expectation of receiving high interest rates.
Following the corporate bond market on financial investment websites, many businesses offer corporate bonds to individual investors. Many nameless enterprises are not listed on the stock market and have no collateral or collateral of poor quality, but their corporate bonds are still selling like hot cakes because of attractive interest rates. Especially, corporate bonds of real estate companies have fairly high interest rates, generally at 10-11 percent per annum. Companies under Tan Hoang Minh Group have even mobilized capital with interest rates of up to 12 percent per annum - nearly three times higher than the bank interest rates.
Financial experts explained that in the context that gold prices drop sharply; the stock market is difficult to invest in; the real estate shows signs of bubbles and requires large capital; the bank deposit interest rates remain at a low level, the corporate bond channel still attracts a large investment from individual investors, even though authorities constantly give warnings about risks. Noticeably, at present, many non-professional individual investors have participated in the market. Although statistics on the primary corporate bond market show that individual investors only account for 5-6 percent, according to experts, the actual figure is dozens of times higher.
Financial experts said that with public offerings, corporate bonds must be transparent in information, reducing risks to the market and bringing about system safety in general, as well as increasing the interests of investors in particular. However, the corporate bonds in Vietnam are mostly issued through private placement. In 2021, the total issuance value of corporate bonds reached the highest level in history with over VND650 trillion, an increase of about 40 percent compared to 2020. Of which, the volume of bond issuance through private placement accounted for 94.5 percent.
According to the Vietnam Bond Market Association, in the first two months of 2022, the market recorded eight public offerings of corporate bonds with a total value of nearly VND5.51 trillion and 26 private issuances with a total value of VND22.18 trillion. Thus, the total value of private corporate bond issuances is four times higher than that of public ones, with the real estate corporate bonds alone accounting for nearly 60 percent of the value, as well as the total issuance volume.
Many risks
According to credit rating company FiinGroup, out of a total VND1.16 quadrillion of outstanding debt of corporate bonds, up to 40.7 percent of the outstanding bond value will mature in 2022 and 2023, which means that issuers will have to repay the debt of more than VND500 trillion to investors. Before the maturity date, FiinGroup said that it is necessary to assess the risks to the safety of the system, including bank credit immediately, otherwise, it will affect the national financial system.
To rectify the corporate bond market, from January 1, 2022, the State Bank of Vietnam issued Circular 16/2021 regulating the investment in corporate bonds of commercial banks, in the direction of tightening banks in buying corporate bonds because, over the past time, many banks had bought a large volume of corporate bonds, mainly real estate bonds, then split them into smaller lots of corporate bonds to distribute to individual investors.
However, with the current market, it shows that the above solution of the State Bank of Vietnam has not brought effectiveness. To aim at sustainable development of the corporate bond market, the Ministry of Finance has been developing a draft amendment to Decree 153/2020 of the Government, regulating the private offering and trading of corporate bonds in the domestic and international markets to make the bond market transparent and healthy. Accordingly, the revised decree provides more detailed regulations on information disclosure responsibilities, centralized depository activities, and conditions for registration, change, and cancellation of transactions, to develop the secondary market; requires credit ratings for corporate bond issuers and corporate bonds in case of issuing bonds to individual investors.
However, many economic experts believe that corporate bonds have gradually become an effective capital raising tool for many businesses. The authorities need to put forward regulations and policies to correct the market but should not prevent the rights to mobilize capital of enterprises. The problem is that when issuing corporate bonds, businesses must be transparent about information, especially when making offerings to individual investors.
Recently, police have continuously prosecuted Trinh Van Quyet, Chairman of FLC Group, and Do Anh Dung, Chairman of Tan Hoang Minh Group, causing Anh Nhat, an individual investor in Ho Chi Minh City, to sit on pins and needles because she bought corporate bonds of a real estate company with a total value of VND2 billion nearly a month ago. The collateral is a housing project that is undergoing legal procedures and has not had a land-use rights certificate. When the securities company offered to sell those bonds, she was attracted by the relatively high interest rate. The bank deposit interest rate is less than 6 percent per annum, whereas the interest rate of corporate bonds with a term of six months is up to 9 percent. Therefore, instead of investing in other profitable channels, Anh Nhat chose corporate bonds with the expectation of receiving high interest rates.
Following the corporate bond market on financial investment websites, many businesses offer corporate bonds to individual investors. Many nameless enterprises are not listed on the stock market and have no collateral or collateral of poor quality, but their corporate bonds are still selling like hot cakes because of attractive interest rates. Especially, corporate bonds of real estate companies have fairly high interest rates, generally at 10-11 percent per annum. Companies under Tan Hoang Minh Group have even mobilized capital with interest rates of up to 12 percent per annum - nearly three times higher than the bank interest rates.
Financial experts explained that in the context that gold prices drop sharply; the stock market is difficult to invest in; the real estate shows signs of bubbles and requires large capital; the bank deposit interest rates remain at a low level, the corporate bond channel still attracts a large investment from individual investors, even though authorities constantly give warnings about risks. Noticeably, at present, many non-professional individual investors have participated in the market. Although statistics on the primary corporate bond market show that individual investors only account for 5-6 percent, according to experts, the actual figure is dozens of times higher.
Financial experts said that with public offerings, corporate bonds must be transparent in information, reducing risks to the market and bringing about system safety in general, as well as increasing the interests of investors in particular. However, the corporate bonds in Vietnam are mostly issued through private placement. In 2021, the total issuance value of corporate bonds reached the highest level in history with over VND650 trillion, an increase of about 40 percent compared to 2020. Of which, the volume of bond issuance through private placement accounted for 94.5 percent.
According to the Vietnam Bond Market Association, in the first two months of 2022, the market recorded eight public offerings of corporate bonds with a total value of nearly VND5.51 trillion and 26 private issuances with a total value of VND22.18 trillion. Thus, the total value of private corporate bond issuances is four times higher than that of public ones, with the real estate corporate bonds alone accounting for nearly 60 percent of the value, as well as the total issuance volume.
Many risks
According to credit rating company FiinGroup, out of a total VND1.16 quadrillion of outstanding debt of corporate bonds, up to 40.7 percent of the outstanding bond value will mature in 2022 and 2023, which means that issuers will have to repay the debt of more than VND500 trillion to investors. Before the maturity date, FiinGroup said that it is necessary to assess the risks to the safety of the system, including bank credit immediately, otherwise, it will affect the national financial system.
To rectify the corporate bond market, from January 1, 2022, the State Bank of Vietnam issued Circular 16/2021 regulating the investment in corporate bonds of commercial banks, in the direction of tightening banks in buying corporate bonds because, over the past time, many banks had bought a large volume of corporate bonds, mainly real estate bonds, then split them into smaller lots of corporate bonds to distribute to individual investors.
However, with the current market, it shows that the above solution of the State Bank of Vietnam has not brought effectiveness. To aim at sustainable development of the corporate bond market, the Ministry of Finance has been developing a draft amendment to Decree 153/2020 of the Government, regulating the private offering and trading of corporate bonds in the domestic and international markets to make the bond market transparent and healthy. Accordingly, the revised decree provides more detailed regulations on information disclosure responsibilities, centralized depository activities, and conditions for registration, change, and cancellation of transactions, to develop the secondary market; requires credit ratings for corporate bond issuers and corporate bonds in case of issuing bonds to individual investors.
However, many economic experts believe that corporate bonds have gradually become an effective capital raising tool for many businesses. The authorities need to put forward regulations and policies to correct the market but should not prevent the rights to mobilize capital of enterprises. The problem is that when issuing corporate bonds, businesses must be transparent about information, especially when making offerings to individual investors.
Mr. HUYNH MINH TUAN, Founder of FIDT Asset Management Company:
The fact that the State Securities Commission announced the cancellation of nine corporate bond offerings with a total value of VND10.03 trillion of companies under Tan Hoang Minh Group would make the corporate bond market better.
After this incident, the corporate bond market will develop healthier because the supply quality is tightened, which means less risk for investors when buying bonds. The above move is also a tough message from the State management agency in controlling capital flows into real estate, limiting the situation of enterprises “flying by the seat of their pants”. Thereby, enterprises with reputation, transparency and good financial capacity will have advantages in the capital market.
The fact that the State Securities Commission announced the cancellation of nine corporate bond offerings with a total value of VND10.03 trillion of companies under Tan Hoang Minh Group would make the corporate bond market better.
After this incident, the corporate bond market will develop healthier because the supply quality is tightened, which means less risk for investors when buying bonds. The above move is also a tough message from the State management agency in controlling capital flows into real estate, limiting the situation of enterprises “flying by the seat of their pants”. Thereby, enterprises with reputation, transparency and good financial capacity will have advantages in the capital market.
