Efforts done to increase attractiveness of corporate bond market

After the crisis period in 2022, the corporate bond market in Vietnam has gradually recovered. Credit rating is supposed to greatly boost the attractiveness of this market.

Commercial banks are the group with the largest bond issuance from the beginning of the year until now (Photo: SGGP)

Statistics recorded a large issuance value in the corporate bond market this April for the two groups of real estate and commercial banks. By May 2, there had been 13 issuance rounds of corporate bonds, with a total value of more than VND13.9 trillion (US$545.7 million), a rise of nearly 30 percent compared to the previous month.

On the secondary market, the total transaction value of individual corporate bonds in April 2024 reached VND68.41 trillion ($2.69 billion), most of which were issued by commercial banks.

Since the beginning of this year, 31 individual issuance rounds of corporate bonds have happened with a value of more than VND29 trillion ($1.14 billion), along with 6 rounds of public issuance worth VND8.88 trillion ($348.6 million). Among them, the bonds of accredited corporates comprised 7.5 percent of the value.

Dragon Capital Investment Fund said that such a bustling issuance of corporate bonds displays a remarkable improvement compared to the first months of the year, and it will be livelier from the second quarter this year.

Fiin Ratings, a leading credit rating in Vietnam, attributed the facilitation of commercial banks on corporate bond issuance to reduced excess bank liquidity, making overnight interbank interest rates jump to over 4 percent a month this April and urging the State Bank of Vietnam to continuously absorb liquidity via Open Market Operation (OMO).

Meanwhile, deposits from the community and credit organizations saw a decline in the first quarter of 2024. At the same time, commercial banks have increased financial mobilization via the bond channel to supplement the medium and long-term capital when regulations on the ratio of short-term capital for medium and long-term loans are tightened.

In the conference ‘Developing the Corporate Bond Market by 2030: a Perspective from Credit Ratings’, Prof Dr Hoang Van Cuong, member of the National Assembly’s Finance and Budget Committee, shared that the corporate bond market crisis in 2022 reduced the outstanding debt ratio from 16 percent of GDP to about 11 percent.

At present, this market remains rather stable; yet recent movements have displayed a promising future since many enterprises are entering their recovery phase. They wish to expand their business and process more order but find trouble approaching credit capital because they are still in debt, which means they depend more on corporate bonds for financial aid.

Even though the corporate bond market has been healthier and more transparent after the 2022-2023 crisis, it still has a lot of risks. Statistics from VIS Rating reveal that 20 percent of the circulating corporate bonds come from shell businesses with no core operations but still able to mobilize late-payment-rate capital of up to 38 percent. The rest has a late payment rate of 10 percent.

At present, the proportion of corporate bonds issued by accredited or rated companies in Vietnam accounts for a tiny minority of 6 percent compared to neighboring countries, whose figures are normally more than 40 percent.

Therefore, VIS Rating proposed that to develop this corporate bond market in the country, besides completing necessary mechanisms and polices related to market controlling and transparency increase, credit ratings for corporate bonds should be prioritized to boost the participation of investment organizations.

Decree No.65/2022 by the Government stipulates that in 2024, any businesses issuing individual corporate bonds must receive credit ratings based on their operation scale. This is a new point in the new issuance cycle because previous credit rating activities were not able to reflect internal issues of a business.

Dragon Capital Investment Fund agreed with this, saying that better credit ratings are the key to increasing the quality of the corporate bond market.

Director Duong Duc Hieu of the Rating and Research Department in VIS Rating said that credit ratings have been carried out since the 1980s. Thanks to them, investors are more confident joining the market. This displays the critical role of credit ratings in the growth of the corporate bond market.

General Director Tran Le Minh of VIS Rating further informed that there are now three global credit rating companies, namely Moody’s, Fitch, and S&P. They comprise more than 90 percent of the total credit ratings of the two markets with the largest stock and corporate bond activities: the US and Europe. Their counterparts in Asian countries always keep a strong link to these three.

The size of Vietnam's corporate bond market is about $47 billion, with 740 businesses issuing corporate bonds. There are four credit rating organizations for those bonds. In 2024, the total number of companies in need of rating is no more than 100. When carrying out this essential activity, there are three factors to consider, namely complying with regulations of management bodies, having time-proven ranking methods, and having integrity in all operations.

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