SSI reported that as of the end of November 2019, the value of bonds issued had reached VND237 trillion, or $10 billion, an increase of 5.8 percent over 2018.

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Of this, VND94 trillion worth of bonds was issued by commercial banks, which accounted for 45.5 percent of total value, and VND71.312 trillion by real estate firms, accounting for 34.5 percent.

Explaining the bond market boom in 2019, analysts said the banks’ tightening credit forced enterprises to seek capital through issuing bonds. The new regulations have made it easier to issue bonds. Enterprises just need to have audited finance reports to be able to get capital through bond issuance.

If borrowing money from banks, enterprises have to pay high interest rates of 11-13 percent for long term loans, and follow very complicated procedures to get disbursement and bear inspection over the use of capital.

 

If borrowing money from banks, enterprises have to pay high interest rates of 11-13 percent for long term loans, and follow very complicated procedures to get disbursement and bear inspection over the use of capital.


Meanwhile, bond issuers do not have to satisfy the requirements. Therefore, enterprises, especially real estate firms, accepted to issue bonds at high interest rates, according to Pham Nam Kim, a respected economist.

A report showed that 44 out of 108 large real estate firms issued bonds in 2019. While the average bond interest rate offered by commercial banks was 6.5 percent per annum, real estate firms accepted to pay 10.24 percent, much more attractive than deposit interest rate.

There are signs showing that enterprises are issuing corporate bonds to get money to pay due debts. In many cases, banks bought up the batches of bonds issued by enterprises. The rollover can bring benefits to both banks and enterprises. Banks can ‘embellish’ their financial reports as overdue debts can be cleared, while bond issuers have money to pay bank debts.

It is estimated that Vietnam’s corporate bond market had the value of VND260 trillion in 2019.

Risks

The Ministry of Finance (MOF) and economists have warned about risks of the hot development of the bond market.

Since the level of information transparency of Vietnamese enterprises it not high, investors may face risks when buying bonds issued by unprofitable enterprises.

Many enterprises have limited financial capability and unfeasible business projects. They lack professional accounting work and have bad management skills. Meanwhile, bond issuers do not bear supervision in the disbursement process. Therefore, no one knows if they use the capital for right purposes.

In principle, real estate firms have collateral in the form of land use rights. However, analysts said it is very difficult to determine the legitimacy of the land plots.

Linh Hai 

Banks rush to issue bonds ahead of capital requirement deadline

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Local G-bond market value reaches over 25% of GDP

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