 |
Banks participating in the trading of corporate bonds contribute to the recovery of bond market. |
The corporate bond market experienced a prolonged period of stagnation, but in the first few months of 2023, it has seen a resurgence with numerous successful issuances. This can be attributed to the government issuing a series of directives aimed at removing obstacles and supporting the market's gradual revival.
Corporate bond market gradually picks up momentum
In March, the Government issued Decree No.08/2023, which amended and suspended the effect of certain articles in the decrees governing the private placement of corporate bonds in both the domestic and international markets. This decree has removed previous obstacles hindering the corporate bond market.
According to the Vietnam Bond Market Association's report for the first quarter of 2023, corporate bond issuance was sparse in the first two months of the year but began to thrive in March. The real estate industry accounted for the majority of issuance value in Q1-2023, with nearly VND24.24 trillion, equivalent to 92 percent. Seven out of eight issuances from real estate companies had assets secured by real estate or were guaranteed by banks.
The corporate bond market, particularly in the real estate sector, has seen improvement in both liquidity and activity following the implementation of Decree No.08/2023. Real estate giants, such as Hung Thinh Company, Novaland, and Tien Phuoc Group Joint Stock Company, have successfully negotiated debt rescheduling with bondholders.
However, experts caution that while Decree No.08/2023 has had a positive impact on the corporate bond market in the short term, it is not a cure-all and cannot defrost the bond market overnight. It is evidenced by the lack of successful corporate bond issuances in the first two weeks of April 2023, indicating that the market has once again become quiet.
Bailout by banks
In the context of tight cash flow pressure, real estate businesses still have to continue to buy back corporate bonds. From the beginning of the year until now, the amount of newly-issued corporate bonds has been lower than the amount of corporate bonds bought back by enterprises.
Statistics show that the total issuance volume of corporate bonds has reached nearly VND29 trillion since the beginning of the year, while the total value of corporate bonds bought back by businesses is over VND38 trillion, an increase of 64 percent compared to the same period in 2022. It poses a significant burden for businesses, especially with a large number of bonds maturing in the last months of the year. According to estimates by FiinRatings, a credit rating company, privately-placed corporate bonds worth VND157.97 trillion and VND341.27 trillion are set to mature in 2023 and 2024, respectively.
In the first quarter of 2023, the volume of corporate bonds issued reached approximately VND24.71 trillion, according to statistics from the Ministry of Finance. Institutional investors were the main buyers, with banks accounting for 77 percent of the purchases. It indicates that the bond market heavily relies on banks. Commercial banks play a critical role in managing corporate bonds that are close to maturity.
Recently, the State Bank of Vietnam (SBV) issued Circular No.03/2023 to promote the development of the corporate bond market, increase liquidity, and remove obstacles. This circular suspends the implementation of Clause 11, Article 4 of Circular No.16/2021, which governs the purchase and sale of corporate bonds by credit institutions and foreign bank branches. Accordingly, from April 24 to the end of December 31, 2023, credit institutions are allowed to repurchase unlisted corporate bonds sold within 12 months.
Experts consider the regulator's decision to allow banks to rescue corporate bonds as a way to increase market liquidity, particularly because banks are the largest bondholders, holding around 34 percent of the total outstanding corporate bonds. Increased bank involvement in the repurchasing of corporate bonds is also expected to boost the real estate market, which is one of the major issuers of corporate bonds. It will enable real estate businesses to raise capital from the bond channel more conveniently.
According to an analyst at VNDirect Securities Company, allowing commercial banks to purchase corporate bonds with certain conditions is expected to improve the corporate bond market to some extent. It is also a way for banks to stimulate lending growth by investing in corporate bonds, especially given the current low credit growth and excess liquidity in the banking system.
However, many experts point out that the success of this strategy will depend on banks' capacity to bail out corporate bonds since risk management and asset quality balancing remain the top priorities for banks rather than pursuing growth targets at any cost.
Dr. Can Van Luc, a member of the National Monetary and Financial Policy Advisory Council, stated that the recently issued Circular No.03/2023 by the State Bank of Vietnam has two main objectives.
Firstly, it aims to help resolve the difficulties faced by the corporate bond market, especially with the high amount of corporate bond debt maturing in the second and third quarters of 2023.
Secondly, it aims to increase flexibility and initiative for credit institutions to lend, invest, and consider buying corporate bonds. In general, Circular No.03/2023 is expected to contribute to improving the liquidity of the corporate bond market, increasing capital resources for businesses to serve their production, business, and investment activities, and promoting the development of the corporate bond market under the Government's policy in the current challenging situation, thereby fostering growth until the end of the year and beyond.
