Production at Kido Joint Stock Company, which issued corporate bonds at the beginning of 2021. (Photo: SGGP)
Setting higher standards
According to VNDirect Securities Company, in the first two months of this year, 22 companies had made private placements, with a worth of nearly VND11.43 trillion of bonds. The issue prices of bonds decreased by 40.9 percent compared to the same period last year, mainly at three-year and five-year terms. Enterprises with the highest value of private placement include Nhat Quang Real Estate Development Joint Stock Company with VND2.15 trillion, Smart Dragon Investment Joint Stock Company with VND1.9 trillion, and Vincommerce General Commercial Services Joint Stock Company with VND1.5 trillion. Thus, in the first two months of this year, the total value of issued bonds exceeded VND15.56 trillion, down 19.6 percent compared to a total of more than VND19.34 trillion in the same period last year.
VNDirect's experts assessed that this cool-down was due to tighter regulations on corporate bond issuance of the State. Specifically, Decree No.155/2020 of the Government guiding the implementation of some articles of the Law on Securities stipulates that only professional securities investors with financial capacity or expertise in securities, or individuals holding an investment portfolio of at least VND2 billion, and individuals with taxable income of at least VND1 billion in the past year are eligible to purchase corporate bonds through private placement.
Along with that, Decree No.153/2020 of the Government on the offering and transaction of private-placement corporate bonds and corporate bonds to the international market is built in the direction that related activities must be transparent. Accordingly, bond issuers must make information on operations transparent for investors. Enterprises can be criminally prosecuted if they intentionally commit violations of the law. At the same time, the State also stipulates the responsibilities of the Stock Exchange and the State Securities Commission in supervising information disclosure, operating the information disclosure website, managing and supervising securities companies that provide corporate bond offering and transaction services. It has created a significant change in the corporate bond market.
Still attractive to investors
According to the Ministry of Finance, in 2020, the volume of bond issuance in the domestic market increased by 29 percent compared to 2019, reaching about VND430 trillion, of which, private-placement bonds accounted for 93.4 percent of the total bond issuance volume, an increase of 30.4 percent compared to 2019; public offering increased by 33 percent compared to 2019. Credit institutions and real estate companies are still the two groups of enterprises with the largest bond issuance value in the market.
Despite the aforesaid changes in the State's regulations on corporate bonds, according to Fiin Ratings - a licensed credit rating agency in Vietnam - the operation of the corporate bond market this year will still be vibrant. Although in terms of scale, it will hardly reach the issuance value as in 2020 because of the restriction on buyers.
In fact, the demand for medium and long-term capital of Vietnamese enterprises is tremendous, but the capital capacity of the commercial banking system is insufficient. Therefore, the general policy of the management agencies is still to prioritize the medium and long-term capital channel through bonds and mobilization in the stock market. Moreover, from the perspective of demand, the demand for investment and ownership of corporate bonds will increase when banks’ deposit interest rates are at low levels.
Ms. Nhu Kim, a resident in District 2, said that she has two savings accounts at the bank, with the amount of VND2 billion each. However, after her savings accounts matured in March this year, the interest rate of the 12-month term declined from 6.8 percent per annum to below 6 percent per annum, so she decided to withdraw her savings from one of her accounts to invest in corporate bonds. Currently, she has bought corporate bonds of a securities company at an interest rate of 8.1 percent per annum. Interest is paid each month, and after six months, she can transfer these bonds to the company or they can be offered by the company to other people in need.
Similarly, Mr. Hoang Le, living in Tan Binh District, had an idle amount of about VND500 million. Savings interest rates at banks were not high, so he decided to buy corporate bonds. He said that despite knowing that investing is risky, he still chose to buy corporate bonds because of the desired interest rate.
However, experts warned that individual investors should not take risks when only taking interest rates into account when they make the decision to invest in corporate bonds. Because the characteristic of corporate bonds is a debt instrument, issued by enterprises on the principle that they borrow, repay, and take responsibility for the efficiency of capital use by themselves. The repayment ability of enterprises depends greatly on their financial situation and business results. In 2020, many enterprises were affected by the Covid-19 pandemic and suffered losses but still promoted capital mobilization through corporate bond issuance. In fact, many companies issued bonds, not actually to mobilize capital to implement their investment programs and projects, but only to restructure their debts. Of course, individual investors still have many opportunities with corporate bonds compared to other investment channels, such as real estate, stocks, and savings. However, risks are existing; the opportunity of finding low-risk bonds with reasonable interest rates in the market is only suitable for professional investors, capable of analyzing and assessing risks.
According to VNDirect Securities Company, in the first two months of this year, 22 companies had made private placements, with a worth of nearly VND11.43 trillion of bonds. The issue prices of bonds decreased by 40.9 percent compared to the same period last year, mainly at three-year and five-year terms. Enterprises with the highest value of private placement include Nhat Quang Real Estate Development Joint Stock Company with VND2.15 trillion, Smart Dragon Investment Joint Stock Company with VND1.9 trillion, and Vincommerce General Commercial Services Joint Stock Company with VND1.5 trillion. Thus, in the first two months of this year, the total value of issued bonds exceeded VND15.56 trillion, down 19.6 percent compared to a total of more than VND19.34 trillion in the same period last year.
VNDirect's experts assessed that this cool-down was due to tighter regulations on corporate bond issuance of the State. Specifically, Decree No.155/2020 of the Government guiding the implementation of some articles of the Law on Securities stipulates that only professional securities investors with financial capacity or expertise in securities, or individuals holding an investment portfolio of at least VND2 billion, and individuals with taxable income of at least VND1 billion in the past year are eligible to purchase corporate bonds through private placement.
Along with that, Decree No.153/2020 of the Government on the offering and transaction of private-placement corporate bonds and corporate bonds to the international market is built in the direction that related activities must be transparent. Accordingly, bond issuers must make information on operations transparent for investors. Enterprises can be criminally prosecuted if they intentionally commit violations of the law. At the same time, the State also stipulates the responsibilities of the Stock Exchange and the State Securities Commission in supervising information disclosure, operating the information disclosure website, managing and supervising securities companies that provide corporate bond offering and transaction services. It has created a significant change in the corporate bond market.
Still attractive to investors
According to the Ministry of Finance, in 2020, the volume of bond issuance in the domestic market increased by 29 percent compared to 2019, reaching about VND430 trillion, of which, private-placement bonds accounted for 93.4 percent of the total bond issuance volume, an increase of 30.4 percent compared to 2019; public offering increased by 33 percent compared to 2019. Credit institutions and real estate companies are still the two groups of enterprises with the largest bond issuance value in the market.
Despite the aforesaid changes in the State's regulations on corporate bonds, according to Fiin Ratings - a licensed credit rating agency in Vietnam - the operation of the corporate bond market this year will still be vibrant. Although in terms of scale, it will hardly reach the issuance value as in 2020 because of the restriction on buyers.
In fact, the demand for medium and long-term capital of Vietnamese enterprises is tremendous, but the capital capacity of the commercial banking system is insufficient. Therefore, the general policy of the management agencies is still to prioritize the medium and long-term capital channel through bonds and mobilization in the stock market. Moreover, from the perspective of demand, the demand for investment and ownership of corporate bonds will increase when banks’ deposit interest rates are at low levels.
Ms. Nhu Kim, a resident in District 2, said that she has two savings accounts at the bank, with the amount of VND2 billion each. However, after her savings accounts matured in March this year, the interest rate of the 12-month term declined from 6.8 percent per annum to below 6 percent per annum, so she decided to withdraw her savings from one of her accounts to invest in corporate bonds. Currently, she has bought corporate bonds of a securities company at an interest rate of 8.1 percent per annum. Interest is paid each month, and after six months, she can transfer these bonds to the company or they can be offered by the company to other people in need.
Similarly, Mr. Hoang Le, living in Tan Binh District, had an idle amount of about VND500 million. Savings interest rates at banks were not high, so he decided to buy corporate bonds. He said that despite knowing that investing is risky, he still chose to buy corporate bonds because of the desired interest rate.
However, experts warned that individual investors should not take risks when only taking interest rates into account when they make the decision to invest in corporate bonds. Because the characteristic of corporate bonds is a debt instrument, issued by enterprises on the principle that they borrow, repay, and take responsibility for the efficiency of capital use by themselves. The repayment ability of enterprises depends greatly on their financial situation and business results. In 2020, many enterprises were affected by the Covid-19 pandemic and suffered losses but still promoted capital mobilization through corporate bond issuance. In fact, many companies issued bonds, not actually to mobilize capital to implement their investment programs and projects, but only to restructure their debts. Of course, individual investors still have many opportunities with corporate bonds compared to other investment channels, such as real estate, stocks, and savings. However, risks are existing; the opportunity of finding low-risk bonds with reasonable interest rates in the market is only suitable for professional investors, capable of analyzing and assessing risks.
Mr. Nguyen Quang Thuan, Chairman of the Board of Directors of FiinGroup - a company specializing in providing financial information services, added that the debt outstanding balance of corporate bonds hit VND950.3 trillion last year, equal to 15.1 percent of gross domestic product and 10.3 percent of the total credit outstanding balance of the whole banking system. However, up to 75 percent of the corporate bond portfolio is held by banks while the public offering remains modest. Therefore, the size of the bond market seems large but it is not actually large. Currently, Vietnamese corporate bonds are in a confusing period because many enterprises have good business performance but offer low-interest rates on a par with weaker ones.
