VietNamNet Bridge – Encouraged by the successful bond issuance campaigns of many big corporations, small enterprises are also considering this method of raising capital. However, there are not many opportunities for them.

Tong Minh Tuan from Vietcombank Securities (VCBS) said three businesses, small and medium scaled, with assets of VND500-3,000 billion, have asked for VCBS’ consultancy for their corporate bond issuance plans.

The three enterprises operate in the fields of construction and real estate, plastic packing and hydropower.

In 2013, VCBS was behind the successful corporate bond issuance of three medium scaled enterprises which sold VND1.5 trillion worth of bonds in total.

Pham Xuan Anh from BIDV Securities Company (BSC) also said that some businesses with VND100-500 billion in chartered capital are seeking BSC’s consultancy on their bond issuance plans. They are real estate, mining firms and a consumer goods manufacturer.

“We can see an increasing demand from small and medium enterprises for issuing corporate bonds this year, since businesses now find an urgent need for capital to serve their restructuring,” Anh noted.

In fact, according to Pham Duy Hung from APEC Securities, 70 percent of the hundreds of businesses APEC Securities has consulted for since 2013 have tried to raise funds through bond issuance.

These include enterprises with modest chartered capital of tens of billions of dong which want to issue less than VND100 billion worth of bonds.

Nevertheless, raising capital through bond issuance seems to be an approach suited only for the “well-endowed”, such as big banks or large corporations. There is a principle followed by many banks that their capital divisions will only consider bond issuances worth VND200 billion at minimum.

Corporate bonds are a financial instrument with higher risk than credit. Lenders only control the disbursement of funds at the time of bond issuance, and cannot control the borrowers’ use of the capital. On the other side of the coin, bond issuers must not only pay interest on the bonds, but also fees for the consultancy and issuance guarantee.

With these two factors, businesses end up having to pay 1-2 percent per annum more for the capital they raise through bonds than through credit.

Big corporations still prefer mobilizing capital through bond issuance, because they want long-term capital in large amounts, and prefer not having to pay out both principal and interest periodically, so as to focus on their business plans.

“If counting on the consultancy fee and other expenses, it would be very costly for small businesses to issue bonds. They’d be better off borrowing capital directly from banks,” a banker said.

In late 2013, Thu Duc Housing Development JSC, with chartered capital of VND400 billion, canceled its bond issuance plan after finding a bank which agreed to provide it with a loan.

Thien Minh Tourism Company in 2013 tried to issue bonds, but failed. It has not as yet revived the plan.

The Ministry of Finance, in a report released early this year, also noted that bond issuers were mostly the large corporations in the national economy. The report considers this a “shortcoming” of the corporate bond market.

VNE