Enterprises mobilise bonds for debt restructuring

09-Feb-2021 Intellasia | The Leader | 6:02 AM Print This Post

Since the Covid-19 epidemic had had a big impact on short-term cash flows, enterprises needed more time to restore their production and business activities, as well as capital to restructure debts, while the business model in the long term was reasonable and their business status remained to be very good.

Despite the quietness in Q4/2020 after the effective date of Decree No. 81/2020, the issuance of corporate bonds was generally very active in 2020 with new issuance value reaching 429.5 trillion dong, up 28.3 percent compared to 2019.

This new issuance scale had helped the corporate bond market to reach 950.3 trillion dong, equivalent to 15.1 percent of the gross domestic product (GDP) and 10.3 percent of the total credit balance of the whole banking system.

In the context of tightening lending standards, especially with limited credit sectors such as real estate, BOT transport and infrastructure projects, businesses, without collateral to borrow directly from banks, had considered the bond channel as an alternative capital mobilisation channel.

In fact, in the last two years, a number of large enterprises had actively changed their loan structure from bank loans to bonds, including some enterprises such as Masan Group, Sovico Holdings, Novaland, Vinhomes, TNR Holdings, and so on.

Some real estate enterprises were still the largest publishers of bonds with the value of up to 162 trillion dong (accounting for 38.5 percent of total release), increasing by 100 percent compared to 2019. In the remaining sectors, besides banking and financial institutions (accounting for 31.6 percent of total issuance value), the energy investing sector was also catching attention thanks to policies to encourage investment in renewable energy. The issuance value of this field reached 33.8 trillion dong, up 193 percent compared to 2019.

Assessing the need to mobilise capital via corporate bonds in the near future, FiinGroup’s research team had surveyed 1292 listed companies on the Hochiminh Stock Exchange (HSX), Hanoi Stock Exchange (HNX), Unlisted Public Company Market (UPCoM) on the demand for medium and long-term capital of the business.

The research team found that medium and long-term capital needs tended to focus on sectors such as real estate, construction, electricity, or construction materials when the annual new investment spending of firms in this group remained large and quite stable. With the characteristics of these industries that often required a large amount of investment and a relatively long project life, the demand for medium and long-term capital would continue to be high in the near future.

In addition, due to the impact of the Covid-19 epidemic, many businesses were affected by the disease, which had negative influence on short-term operating cash flows. In terms of general ground, the ability to pay interests of businesses was significantly affected, with the average rate of four times in previous years declining to only three times in Q3/2020.

The report of FiinGroup stated that the need for loans to restructure debt, which was similar to the rescheduling of the bank credit channel directed in Circular No. 01, would be a great demand of the corporate bond channel. Enterprises still needed more time to restore their production and business activities, as well as capital to restructure their debts, while their long-term business models and status were still very good.

In addition, medium and long-term bank credit was unlikely to have room for strong growth to meet the medium and long-term capital needs of businesses. Therefore, continuing to seek long-term capital from the bond channel would go on in 2021.

In the general trend to ensure the safety and sustainable development of the banking system, credit growth was expected to continue at 12 percent to 14 percent in 2021 as in the past three years. Accordingly, commercial banks would focus on the short-term credit channel more. The medium and long-term credit channel would refer to the corporate bond channel and be issued in the stock market.

Although banks had increased their portfolios of corporate bonds instead of promoting long-term lending, the recent State Bank of Vietnam (SBV)’s regulations had also constrained this activity (e.g., the draft of the new circulars from SBV). In fact, the proportion of corporate bond portfolio as of September 2020 accounted for 7.12 percent of the bank’s credit balance and was on a downward trend.

The fact that the interest rate level was expected to remain at a low level would also create favourable conditions for the mobilisation of corporate bonds in 2021. Lending rates were currently low and expected to maintain the low level in 2021, especially with the current deposit interest rate at 5 percent to 5.5 percent for the long term over 12 months. Meanwhile, the bond investment channel with interest rates of 8 percent to 12 percent would still attract capital of the public in general and depositors in particular.

With the boom in the bond market, the regulators had repeatedly issued new regulations aiming at making this market more transparent. After Decree No. 81/2020, the year of 2021 would witness many of the latest regulations related to the corporate bond market (Decree No. 153, Circular No. 122, and Decree No. 155).

Decree No. 153, despite having removed the conditions for corporate bond issuance, limited the buyers of bonds to be professional securities investors with specific conditions. This would reduce the absorption of individual issuing channels in the short term and therefore, from a demand-side perspective, the private placement might be less active in 2021.

On the other hand, the standardisation of requirements and procedures for public release would help this mobilisation channel become more active, despite the higher procedures and requirements for approval and release.

Therefore, the FiinGroup research team believed that the corporate bond market would still be active in 2021, but in terms of scale, it would be difficult to achieve the same issuance value as in 2020. Private issuance activities would still account for a large proportion. However, issuing to the public would catch attention and account for a larger proportion in the near future, instead of only accounting for 6.5 percent of the total distribution value as in 2020.


Category: Finance, Vietnam

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