Corporate bond market focuses more on quality

HANOI: The corporate bond market is developing towards a more in-depth approach, focusing on quality, says Nguyen Quang Thuan, chairman of FiinGroup.

At the Vietnamese Corporate Bond Market Development Solutions Seminar organised by FiinRatings last Thursday in Hanoi, Thuan said that it was crucial to review and address the remaining problems of the corporate bond market.

The corporate bond market currently has a slow recovery pace, making it difficult to achieve a breakthrough in issuance volume in the next 12 months, he said.

“In investment, the higher the profit, the higher the risk,” said Trinh Quynh Giao, CEO of PVI Asset Management Co.

“Bond interest rates depend on many factors, including the financial health of the issuing organisation, the stability of the industry, bond liquidity, payment guarantees from banks, and collateral assets,” she said.

“For real estate businesses, if they issue bonds with a 15% interest rate but their project generates a 30% profit, then that interest rate is not considered high, and even a 20% interest rate is acceptable.”

“Usually, banks face stricter risk management by the State Bank of Vietnam, so the possibility of losing capital invested in bank bonds is low, and therefore, interest rates range from 5%-7%,” she said.

According to Nguyen Quang Thuan, chairman of FiinGroup, transparency of information is the key issue.

“In reality, the average interest rate of corporate bonds in the first quarter of 2023 is 9% and there have been successful transactions with bonds issued at an interest rate of up to 14%.

Therefore, it should not be assumed that high interest rates are bad or low interest rates are good for the market,” he said.

In the second half of 2023, the corporate bond market is unlikely to recover as robustly as in previous years because bond maturity pressure will persist until the end of the year, according to VNDIRECT Securities Co.

In the third quarter of 2023, VNDIRECT’s estimates indicate that more than 75.9 trillion dong of corporate bonds will come due, a rise of 14.9% compared to the second quarter of 2023.

The real estate industry continues to represent the most substantial proportion, with nearly 43.6% of the total value of bonds due in the third quarter of 2023.

Concurrently, developers are grappling with construction delays due to liquidity challenges, potentially leading homebuyers to withhold mortgage payments and adversely affecting market sentiment.

According to the Vietnam Bond Market Association, there were 30 private bond issuances in August with a combined value of over 30.6 trillion dong. These had an average interest rate of 9.18% a year and a term ranging from two to five years.

However, September has seen no issuance tranche.

From the beginning of the year to mid-September, the total value of corporate bond issuances stood at nearly 140 trillion dong.

This comprised 17 public issuances and 111 private issuances, which made up 88% of the total issuance.

VNDIRECT estimates that in September 2023, corporate bonds worth more than 25.8 trillion dong will mature.

As of Aug 24, about 67 companies were on the list of late payment obligations for either interest or principal on corporate bonds, as per Hanoi Stock Exchange’s notification.

VNDIRECT’s calculations suggest that the total outstanding bond debt of these companies amounts to approximately 173.68 trillion dong.

This represents about 15.9% of the total outstanding debt of individual corporate bonds across the market.

The majority of these issuers belong to the real estate sector. — Viet Nam News/ANN

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