Real estate is tightly controlled, so many real estate enterprises raise capital through the bond channel. (Photo: SGGP)
More than 40 percent of corporate bonds are without collaterals
According to the Vietnam Bond Market Association (VBMA), in the first quarter of this year, the total amount of issued corporate bonds was VND37.4 trillion, down nearly 24 percent over the same period last year. Of which, the value of bonds issued by real estate enterprises accounted for a large proportion of about 62 percent, worth nearly VND15.59 trillion, of the total value of bonds issued to the market of more than VND25 trillion. However, the value of real estate corporate bonds still dropped by nearly 20 percent compared to that in the first quarter of last year. This development is considered to be due to the Government's Decree No.155/2020 guiding specifically the implementation of some articles of the Securities Law, which has tightened the issuance of corporate bonds of real estate enterprises.
Besides, with regulations on investment conditions for private placement bonds to be professional securities investors, the number of individual and non-specialist investors participating in the market also dropped sharply from the level of 27 percent in the first quarter of last year to just 8 percent in the first quarter of this year. Individual investors only bought nearly VND1.53 trillion of corporate bonds in the primary market in the first three months of this year, equal to only 16 percent of the purchase volume in the same period last year.
However, worryingly, according to recent statistics of SSI Securities Company, of the total number of corporate bonds issued in the first quarter of this year, more than 40 percent are unsecured, and nearly 10 percent have stocks as collaterals. This unit also said that the demand for capital mobilization through the bond channel of real estate enterprises is still quite high, especially enterprises with limited collateral for loans. Therefore, the average interest rate of real estate corporate bonds in the first quarter of this year has increased compared to the fourth quarter of last year, to 10.41 percent per annum, and real estate, currently, is the group of corporate bonds with the highest interest rates in the market.
“The State Bank of Vietnam (SBV) is strictly controlling credit flowing into potentially risky sectors, such as real estate and securities, especially real estate credit. Therefore, the demand for capital mobilization of real estate enterprises through the corporate bond channel remains fairly high, so the interest rate of real estate corporate bonds will possibly increase and be more attractive than other bond groups. In that context, investors should be extremely cautious, especially with unsecured bonds or bonds backed by stocks," the representative of this unit added.
Corporate bonds still offer extremely high-interest rates
Although the corporate bond market has shown signs of cooling down compared to before, because bank interest rates are low, many enterprises have issued corporate bonds with attractive interest rates to draw cash flow from individual investors. Even, many enterprises have sent emails and advertised on websites and social networks to offer corporate bonds with interest rates doubling or tripling the bank interest rates with commitments on low risk, high profit, and high liquidity.
Mrs. Chau Dan in District 2 said that an employee of M. Securities Company advised she and her husband to withdraw a savings book of VND300 million to buy AB corporate bonds with an interest rate of up to 13 percent per annum, and interest being received directly via ATM card. “Through my research, I found that this lot of bonds is secured by assets of the enterprises, worth nearly VND2 trillion, and can be liquidated when needed after three months from the date of issuance while the procedures are simple so I decided to invest in the 24-month term because this interest rate level now doubles the deposit interest rate at the bank where I keep my savings," said Mrs. Dan.
Mr. Hung Nguyen in Tan Binh district said that on the recommendation of a friend, an employee of V.G. Group offered him corporate bonds of this enterprise with interest rates from 14 percent to nearly 19 percent per annum, depending on the amount of money and the investment term of 1-5 years. To get the highest interest rate of 18.8 percent per annum, he has to invest about VND1 billion. If he buys corporate bonds now, he will also receive a 10-percent discount immediately. Customers buying corporate bonds will sign contracts directly with enterprises without going through an intermediate underwriter, which is a bank or a securities company. During the effective duration of corporate bonds, when he wants to withdraw investment capital, the company will find someone to transfer and charge a fee of 3 percent of the total value of the bonds.
However, when he read the information about the bond issuance announcement of this company, he did not see any mention of collaterals, as well as an intermediate underwriter, so he was still considering, Mr. Nguyen said.
Noticeably, while enterprises are still offering corporate bonds, two domestic corporate credit rating companies, which were already licensed by the Ministry of Finance (the first company was licensed in 2017, and the second in March 2020, have not operated yet. “The lack of corporate credit rating poses great risks to the bond market and the financial sector, especially when individual investors currently own nearly a quarter of the total issued corporate bonds," said the Asian Development Bank (ADB).
Experts also said that credit rating activity plays an important role in the development of the financial market in general and the corporate bond market in particular. Because through the determination of the credit rating, investors have more information to assess the financial ability and debt solvency of the object they want to invest in. Therefore, individual investors need to avoid corporate bonds without collaterals or those secured by stocks, carefully study the terms of the bond purchase contracts, including transaction fees, and the commitments to buying back of bond issuers or intermediaries, and reputation of the corporate bond distributors. Currently, many enterprises borrowed money from banks but are unable to repay their debts, so they issue bonds to restructure debts. Recently, the SBV has sent an official dispatch to its branches in provinces and cities and commercial banks, requesting strict control of credit flowing into risky sectors, including corporate bonds.
For investors, Dr. Nguyen Tri Hieu, a finance and banking expert, warned that investors should choose to invest in corporate bonds with the participation of banks and securities companies in supervision and guarantee, instead of just looking at the high-interest rates of corporate bonds because it would be extremely risky. Even in the case of corporate bonds with collateral, there is still a certain level of risk. Because in the case of bankruptcy, the assets of the enterprise will be prioritized to pay bank debts, taxes, and then other debts, including bonds.
According to the Vietnam Bond Market Association (VBMA), in the first quarter of this year, the total amount of issued corporate bonds was VND37.4 trillion, down nearly 24 percent over the same period last year. Of which, the value of bonds issued by real estate enterprises accounted for a large proportion of about 62 percent, worth nearly VND15.59 trillion, of the total value of bonds issued to the market of more than VND25 trillion. However, the value of real estate corporate bonds still dropped by nearly 20 percent compared to that in the first quarter of last year. This development is considered to be due to the Government's Decree No.155/2020 guiding specifically the implementation of some articles of the Securities Law, which has tightened the issuance of corporate bonds of real estate enterprises.
Besides, with regulations on investment conditions for private placement bonds to be professional securities investors, the number of individual and non-specialist investors participating in the market also dropped sharply from the level of 27 percent in the first quarter of last year to just 8 percent in the first quarter of this year. Individual investors only bought nearly VND1.53 trillion of corporate bonds in the primary market in the first three months of this year, equal to only 16 percent of the purchase volume in the same period last year.
However, worryingly, according to recent statistics of SSI Securities Company, of the total number of corporate bonds issued in the first quarter of this year, more than 40 percent are unsecured, and nearly 10 percent have stocks as collaterals. This unit also said that the demand for capital mobilization through the bond channel of real estate enterprises is still quite high, especially enterprises with limited collateral for loans. Therefore, the average interest rate of real estate corporate bonds in the first quarter of this year has increased compared to the fourth quarter of last year, to 10.41 percent per annum, and real estate, currently, is the group of corporate bonds with the highest interest rates in the market.
“The State Bank of Vietnam (SBV) is strictly controlling credit flowing into potentially risky sectors, such as real estate and securities, especially real estate credit. Therefore, the demand for capital mobilization of real estate enterprises through the corporate bond channel remains fairly high, so the interest rate of real estate corporate bonds will possibly increase and be more attractive than other bond groups. In that context, investors should be extremely cautious, especially with unsecured bonds or bonds backed by stocks," the representative of this unit added.
Corporate bonds still offer extremely high-interest rates
Although the corporate bond market has shown signs of cooling down compared to before, because bank interest rates are low, many enterprises have issued corporate bonds with attractive interest rates to draw cash flow from individual investors. Even, many enterprises have sent emails and advertised on websites and social networks to offer corporate bonds with interest rates doubling or tripling the bank interest rates with commitments on low risk, high profit, and high liquidity.
Mrs. Chau Dan in District 2 said that an employee of M. Securities Company advised she and her husband to withdraw a savings book of VND300 million to buy AB corporate bonds with an interest rate of up to 13 percent per annum, and interest being received directly via ATM card. “Through my research, I found that this lot of bonds is secured by assets of the enterprises, worth nearly VND2 trillion, and can be liquidated when needed after three months from the date of issuance while the procedures are simple so I decided to invest in the 24-month term because this interest rate level now doubles the deposit interest rate at the bank where I keep my savings," said Mrs. Dan.
Mr. Hung Nguyen in Tan Binh district said that on the recommendation of a friend, an employee of V.G. Group offered him corporate bonds of this enterprise with interest rates from 14 percent to nearly 19 percent per annum, depending on the amount of money and the investment term of 1-5 years. To get the highest interest rate of 18.8 percent per annum, he has to invest about VND1 billion. If he buys corporate bonds now, he will also receive a 10-percent discount immediately. Customers buying corporate bonds will sign contracts directly with enterprises without going through an intermediate underwriter, which is a bank or a securities company. During the effective duration of corporate bonds, when he wants to withdraw investment capital, the company will find someone to transfer and charge a fee of 3 percent of the total value of the bonds.
However, when he read the information about the bond issuance announcement of this company, he did not see any mention of collaterals, as well as an intermediate underwriter, so he was still considering, Mr. Nguyen said.
Noticeably, while enterprises are still offering corporate bonds, two domestic corporate credit rating companies, which were already licensed by the Ministry of Finance (the first company was licensed in 2017, and the second in March 2020, have not operated yet. “The lack of corporate credit rating poses great risks to the bond market and the financial sector, especially when individual investors currently own nearly a quarter of the total issued corporate bonds," said the Asian Development Bank (ADB).
Experts also said that credit rating activity plays an important role in the development of the financial market in general and the corporate bond market in particular. Because through the determination of the credit rating, investors have more information to assess the financial ability and debt solvency of the object they want to invest in. Therefore, individual investors need to avoid corporate bonds without collaterals or those secured by stocks, carefully study the terms of the bond purchase contracts, including transaction fees, and the commitments to buying back of bond issuers or intermediaries, and reputation of the corporate bond distributors. Currently, many enterprises borrowed money from banks but are unable to repay their debts, so they issue bonds to restructure debts. Recently, the SBV has sent an official dispatch to its branches in provinces and cities and commercial banks, requesting strict control of credit flowing into risky sectors, including corporate bonds.
For investors, Dr. Nguyen Tri Hieu, a finance and banking expert, warned that investors should choose to invest in corporate bonds with the participation of banks and securities companies in supervision and guarantee, instead of just looking at the high-interest rates of corporate bonds because it would be extremely risky. Even in the case of corporate bonds with collateral, there is still a certain level of risk. Because in the case of bankruptcy, the assets of the enterprise will be prioritized to pay bank debts, taxes, and then other debts, including bonds.
The issuance of corporate bonds is expected to increase well in the second quarter of this year because normally, corporate bond issuance in the second quarter of 2019 and 2020 both increased by 111 percent and 160 percent compared to the previous quarters. Real estate enterprises are still the largest issuers, and interest rates may increase.
(Source: SSI Securities Company)
