Many enterprises, particularly actual property ones, at the moment are beneath enormous stress to settle bonds upon maturity, together with bond curiosity, which stems from an absence of oversight within the current overheated progress of the capital market.

To douse the hearth on the bond market, all eyes are on the draft amendments to Decree 65/2022 on provides and transactions of bonds issued by way of non-public placement. Nevertheless, with the intention to keep away from dangers repeating themselves sooner or later, management over the supply of company bonds to people must be tightened.

Smaller fireplace however nonetheless extraordinarily scorching

In three years, from 2019 to 2021, the amount of company bonds issued soared by leaps and bounds. The quantity in 2019 jumped by 110% towards 2018, from VND155 trillion to VND322 trillion, and the tempo continued, rising by 42.5% yr on yr in 2020 and 60.5% in 2021. The overall quantity of company bonds issued within the three years exceeded VND1,500 trillion, equal to US$62.5 billion.

The company bond bubble was deemed bursted when the court docket instances of Tan Hoang Minh and Van Thinh Phat (An Dong) had been initiated, triggering a domino impact as different bond issuers confronted the chance of insolvency. Many panic-strickened bondholders wished to take again their cash, and sought to dump their holdings at a excessive low cost, even at practically 20% as seen at a significant bond funding fund. On the secondary market, sure company bonds had been supplied at a far larger low cost. The domino impact was additionally presumably attributable to cross holdings when a bond issuer invested in one other issuer’s bonds. Because the cashflow turned unstable, insolvency turned contagious.

The company bond market cooled down in 2022, as the quantity of this debt instrument plunged 66% towards 2021 to VND255 trillion, whereas the typical worth of every subject additionally plummeted to solely VND562 billion. Issuers additionally purchased again their bonds earlier than due date with a complete worth of VND210 trillion. Within the fourth quarter of 2022, the quantity of bonds on supply plunged by 99% yr on yr, whereas bonds price VND40 trillion had been purchased again.

Nonetheless, a report by the Vietnam Bond Market Affiliation (VBMA) acknowledged that the stress of bond maturity this yr and subsequent stays enormous. That is evidenced when the Hanoi Inventory Change currently has made public an inventory of 54 enterprises that delayed paying curiosity and principal to bondholders.

Awaiting amendments to Decree 65

A draft decree to amend Decree 65/2022 has been submitted to the Authorities, which is anticipated to present the nod quickly. Aside from new modifications to the {qualifications} {of professional} traders, credit score rankings and deadlines for bond distribution, two noteworthy factors are modifications to the bond tenure and conversion of bond curiosity and principal sums into different belongings.

For company issuers grappling with difficulties, the extension of bond tenures or utilization of different belongings to service bonds might be seen as coming to their rescue, particularly for actual property enterprises at present beneath enormous fee stress regardless of having properties as high-value belongings.

Nevertheless, whether or not the upcoming decree would be the proper remedy or not will depend on the themes of the amendments. For reainstance, if the forthcoming decree applies to bonds now in circulation, that may be seen a rescue; but when it solely applies to bonds issued after the brand new laws take impact, there isn’t any help to enterprises having issued bonds and been going through difficulties.

Tips on how to hold the market from being distorted

Company bonds are a particular sort of securities primarily for institutional {and professional} traders. Knowledge present monetary establishments maintain round 86% of company bonds issued within the U.S. and Japan, some 93% within the eurozone, and 98% within the UK. In China, this fee in 2018 was even steeper, at some 99%. Many of the institutional traders are insurance coverage companies, pension funds, funding funds, and financial monetary establishments.

In Vietnam, the company bond market has seen quite a few particular person traders who will not be rated as skilled. These traders have participated available in the market by way of distribution channels of banks, securities companies, fund managers, with some even buying bonds with out understanding they’ve carried out so.

Many of the bonds have been issued by way of non-public placement. The quantity of bonds issued to most people accounted for simply 7.1% in 2020 and 4.1% in 2021. Such a state of affairs spelt out enormous dangers for bondholders as they weren’t able to assessing bond dangers. Additional, as much as 60% to 70% of bonds had been issued with out collateral, or with collateral being shares of issuers. In case issuers struggled financially and have become bancrupt, bondholders couldn’t claw again their cash because of the absence of collateral, and even in case shares had been used as collateral, costs of such shares would additionally plunge attributable to difficulties confronted by such issuers.

Though company bonds are a needed instrument for enterprises to mobilize funds and an indispensable funding channel, such bonds ought to solely be reserved for institutional traders and professionals because of the excessive dangers. Particular person traders ought to solely be supplied company bonds beneath particular circumstances, comparable to by way of a fund providing investment-grade bonds solely. On the identical time, the proportion of bonds issued to most people needs to be elevated, alongside the event of credit standing companies to attenuate dangers for particular person traders.


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