Corporate bonds should be considered as a channel for realty firms quenching their thirst for capital to develop their property projects along with other, traditional capital sources, though such mobilisation has yet to be standardised and properly regulated.
Speaking at a seminar themed ‘Capital Channelling for Development in the Real Estate Market’ at the Sheraton Saigon Hotel & Towers in downtown HCM City yesterday, many realty experts reckoned that although bonds were seen as an effective capital source, few companies had applied the form.
Le Chi Hieu, chair and general director of Thu Duc Housing Development Corporation, better known as Thu Duc House, remarked that normal property market conditions with typical products required huge capital for development. Thus capital mobilisation is a real challenge for reforms in the face of the economic downturn.
Hieu shared his experience saying property developers have sought funds via different ways for their projects, such as using their own capital, issuing shares, corporate bonds, taking out bank loans, pooling capital from customers, joint ventures and associations with local and foreign corporations.
But there is another form called Real Estate Investment Trusts (REITs) which has yet to be applied in the local property market. It depends on companies’ conditions to choose a proper one to call capital, he said.
Hieu showed that corporate bonds boast advantages, as capital can come from different sources with high financial potential such as investment funds, insurance, and finance companies, while legal formalities are not complicated. Moreover, issuing such bonds does not need collateral assets and issuers can apply flexible interest rates.
Reality shows there are some property developers mobilising funds by issuing corporate bonds, offering a right to buy a would-be property as a promotion to woo customers.
This practice has stirred up controversy, however. Tran Duy Canh, managing partner of LuatViet Advocates & Solicitors, told the seminar that such a way of capital mobilisation triggers accusations of dodging regulations.
Canh said that offers that include the right to buy an apartment and a villa were just in the interests of the issuer and not regulated by the housing or property trading laws. In other words, the deal does not violate legal prohibitions, since the future buying right is disvalue added right endowed to the bondholders.
Some however stressed that such mobilisation is legal and pointed to article 19.9 of the Property Trading Law that permits condo developers to do just that. Article 77.3 of the Enterprise Law regulates that shareholding companies can issue derivatives such as bonds and stocks as a channel to mobilise capital. Decree 52/2006/ND-CP permits companies to issue bonds to raise funds for property projects.
Related to the issuance of company bonds, Saigon Thuong Tin Real Estate JSC (Sacomreal) last year issued bonds worth about 100 billion dong under six month terms. Each bondholder who owned bonds having a par value of 500 million dong would be given priority to buy an apartment with a 8 percent discount and still could earn an 8 percent annual interest.
In March, Sacomreal made a second bond issuance worth 750 billion dong to deploy a condo project in HCM City’s District 7. With a 1.5 billion dong-par-value bond, the holder has the right to buy an apartment with a discount of 8 percent on the par value of each. Some property developers, including Phat Dat Corp, are mulling over similar actions to fund their property projects.