Commercial banks tighten control over real estate loans, property firms and developers have to seek alternative ways to raise their capital
In the last two recent months, many real estate businesses looked to other channels like bond issuance to attract capital; therefore, they issued a high number of corporate bonds just after banks whereas, in April 2022, no real estate companies thought of issuance of corporate bonds.
According to the Vietnam Bond Market Association, in May 2022, real estate businesses sold bonds worth VND6,900 billion (US$296 million) and in June 2022 it was more than VND7,500 billion. Specifically, Vingroup issued international corporate bonds of US$525 million in May 2022 and US$100 million in June 2022 while NoVa Real Estate Investment Group Stock Company issued domestic corporate bonds of VND5,774 billion, Phu Quoc Tourism Development and Investment Joint Stock Company issued VND1,229 billion, Sunbay Ninh Thuan Company issued VND900 billion, My Phu Real Estate Trading and Investment Company Limited issued VND700 billion and Nam Long Investment Company issued VND500 billion.
General Director of Fiin Group (a licensed credit rating agency) Nguyen Quang Thuan analyzed that bond issuance is an important channel for realty firms to add more capital for business operations when banks do not satisfy. Bank credit at first glance plays an important role, but it is observed in most large-scale enterprises, the ratio of loan capital on the bond channel is still larger. In particular, real estate bonds accounted for 40 percent of the total amount of bonds issued on the market.
According to businesses, the pressure to mature real estate bonds is currently very high because the issue size of bonds is approximately VND487,000 billion at the end of April 2022 and 63 percent of this value about VND305,000 billion will have a maturity point from now until 2024.
Meanwhile, the biggest challenge is the weak credit quality records of real estate companies, especially unlisted ones. In addition, the Covid-19 epidemic slowed down the project implementation progress, and sales volume also decreased, making real estate businesses' access to capital from other channels face many limitations. They have to count on other sources such as the issuance of corporate bonds to solve the above problems, said Mr. Thuan.
Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association, also said that real estate businesses in Ho Chi Minh City began to suffer great pressure on capital after the incidents in the corporate bond market over the past time. Therefore, according to Mr. Chau, it is necessary to quickly put the corporate bond market into healthy operation again so that the real estate market operates smoothly, otherwise, the country’s economy will be affected.
Being an expert, Mr. Tran Du Lich, a member of the National Financial and Monetary Policy Advisory Council, said that the role of the corporate bond market is very important, helping businesses gradually transition from mobilizing capital through bank intermediaries to mobilizing capital directly on the capital market.
Therefore, violations in the field of corporate bonds, as well as the real estate market, must be handled, but it is not advisable to cause stagnancy in the whole corporate bond market as in the past time. It is even necessary to enhance the role of this capital market.
The solution is to synchronize the two markets because they are interconnected and cannot be separated. The capital market and the money market are like two pillars of the financial market as one side is the medium- and long-term capital market, ie the stock market and the other has a banking system, and insurance and investment institutions.
But now, the capital market and the money market are under the supervision of two different responsible agencies. The State Bank supervises bank credit while the State Securities Commission supervises securities and insurance companies. For example, corporate bonds are issued and supervised by the Ministry of Finance but the issued bonds are sent through commercial banks to distribute, the reputation of commercial banks is used for businesses to issue bonds.
Obviously, there is an overlap between banking activities and stock market activities, but the supervision undertaken by the two different agencies leads to many inadequacies in the market. Therefore, experts said that it is necessary to have a financial market supervision model that is powerful enough to monitor all activities of this market.
Last but not least, it is necessary to complete the Government's Decree 153/2020 on trading and private sale of corporate bonds by clarifying the responsibilities of corporate bond issuers including securities companies. Criteria and regulations in corporate bond issuance need to be clearer, and responsible agencies should keep an eye on issuers because there is no clear monitoring mechanism. When these issues are solved completely, the corporate bond market will develop, said Dr. Tran Du Lich.
