Banks and real estate businesses still thirst for capital

19-Aug-2021 Intellasia | VnEconomy | 7:02 AM Print This Post

The latest report of the Vietnam Bond Market Association (VBMA) showed that in July 2021, the total value of bond issuance reached 235.094 trillion dong.

Real estate and banking groups continued to heat up the bond issuance race when successfully issuing 170.8 trillion dong of bonds, accounting for 72.7 percent of the total issuance value. However, the issuance of corporate bonds in July declined by 32.66 percent over the previous month, reaching only 38.905 trillion dong.

According to the VBMA, in July 2021, there were a total of 53 issuances of corporate bonds in the domestic with a total value of 38.905 trillion dong, including 52 private placements and one issuance to the international market worth 300 million US dollars of Novaland. The group of banks recorded the largest issuance value which accounted for 59 percent of the total issuance value in the month, reaching 22.968 trillion dong. Banks with high value of issuance included Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank) with six trillion dong of two to three-year bond issuance and Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV) with 7.648 trillion-dong issuance of bonds on terms of six, seven, eight and 10 years.

The group of real estate businesses ranked the second with a total private placement value of 10.832 trillion dong and an issuance to the international market of Novaland Group Corporation worth 300 million US dollars (convertible bonds with interest rate in US dollar of 5.25 percent per annum).

From the beginning of the year to the end of July 2021, according to the VBMA, there were a total of 376 corporate bond issuances in the country with a total of 235.094 trillion dong, including 363 private placements with a total value of 225.509 trillion dong, 13 public issuances worth 9.584 trillion dong, and three issuances of bonds to the international market worth a total value of one billion US dollars.

In the first seven months of this year, the group of banks still took the lead with a total issuance value of 95 trillion dong. Banks that reported high value of bond issuances with low interest rates and terms of less than five years include Asia Commercial Joint Stock Bank (ACB) with 17.7 trillion dong, BIDV with 12.397 trillion dong, LienVietPostBank with 10.9 trillion dong, and Vietnam Prosperity Commercial Joint Stock Bank (VPBank) with 9.9 trillion dong.

The group of real estate businesses ranked the second with a total issuance value of 75.8 trillion dong. Some notable names and projects are Alpha City which mobilised 8.060 trillion dong of bonds issued by Golden Hill Joint Stock Company and Voyage Investment Joint Stock Company, Vingroup with 4.375 trillion dong, Hung Thinh Quy Nhon with four trillion dong, etc.

Notably, while up to 79 percent of the bonds were issued by banks with terms from two to four years and low interest rates from three to 4.2 percent per annum, the interest rates of the bonds issued by real estate businesses are two to three times higher, ranging from eight to 13 percent per annum, showing that many real estate businesses are in the thirst for capital in the context when banks have tightened the capital flows into real estate industry in recent years.

In addition, of nearly 76 trillion dong of bonds issued by real estate businesses, about 15 percent of them are unsecured or secured by shares. In the first months of the year, there were three issuances of bonds to the international market, including the issuance worth 500 million US dollars of Vingroup, the green bond issuance worth 200 million US dollars of BIM Real Estate Joint Stock Company, and the convertible bond issuance worth 300 million US dollars of Novaland.

The market showed signs of cooling in July

Looking at the picture of the market at the beginning of the year, it can be seen that the market was relatively quiet in the first quarter. Many experts said that since in the early year, many legal documents simultaneously came into force, it takes time for market members to adapt and adjust.

In the second quarter, the bond market gradually became active again, while the savings interest rates remained at low levels, making corporate bonds to be attractive to investors and the issuance value of bonds to increase.

However, in July, the corporate bond market seemed to slow down because the fourth Covid-19 outbreak has hit key economic centers such as Hanoi, HCM City and numerous key industrial parks. Many localities have to carry out large-scale social distancing for a long time, causing the economic activities to stall and businesses to face difficulties in production and business.

According to the research team of KB Vietnam Securities Company (KBSV), it is highly likely that businesses that need to mobilise a lot of capital will return to using credit channel, when the Securities Law 2019 and a number of decrees related to the more tightening of regulations on private bond offering and trading take effect.

In addition, the State Bank of Vietnam (SBV) has extended the credit growth limit for commercial banks, so there is still room for banks to boost lending in the near future, and most banks have decrease lending interest rates by one percent per annum in July to support businesses and individuals facing difficulties due to the impact of the pandemic.

Although the market has some gloomy times, experts are optimistic that the corporate bond market will continue to prosper and the demand for corporate bonds will remain at a high level. On the other hand, the size of Vietnam’s corporate bond market is still fairly modest compared to the Gross Domestic Product (GDP) of regional countries, so the bond market is still wide open. With the new legal documents, the corporate bond market is gradually forming a medium and long-term capital supply channel for businesses, easing the pressure on banks’ lending and supporting businesses to mobilise capital for production and business.

Escalating risks

However, according to experts, in the Vietnam’s market, corporate bonds are mainly issued privately so they are not yet transparent and the level of market participation is still very limited, partly due to the lack of information disclosure and transparency for potential investors and partly due to the lack of sufficiently high-quality analysis.

Talking to VnEconomy, banking and finance expert Nguyen Tri Hieu said that “investing in bonds in Vietnam is very risky. Many small and medium-sized businesses with poor financial conditions and no credit rating have been unable to successfully mobilise capital”.

Experts and managers have also repeatedly noted that corporate bonds are actually corporate debts based on the principle of self-borrowing and self-paying. In the context when business activities are in difficulty, the higher the leverage used by businesses, the higher the debt ratio, and that gives warning of escalating risks.

Some businesses even issue bonds without secured assets or secured by shares with no guarantee and no warrants, which pose risks to investors. Thus, experts believed that the big challenge for Vietnam is to build a deeply rooted credit rating system. Thereby, risks are objectively measured and valued through high standards of information disclosure, so that investors can make informed decisions before buying bonds.

 

Category: Finance, Vietnam

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