return icon Vietnamnet.vn

Bonds maturity worry real estate businesses

From the end of this year onwards, real estate businesses will face a worrisome period due to cash flow shortages as corporate bonds will begin to mature.

Bonds maturity worry real estate businesses ảnh 1 Illustrative photo

This will be in sharp contrast to the enthusiasm with which these businesses raced with each other to issue bonds in the years 2019 until 2021.

Demand for capital

The years between 2019 to 2021 witnessed a boom in the corporate bonds market with a huge spike in issuances.

In these three years, the issuance value reached nearly VND1,600,000 bln, accounting for 64 percent of the total issuance from 2005 until 2022, causing the GDP to increase from 7.3 percent in 2018 to nearly 18.9 percent in 2021.

In terms of industry structure, banking and real estate accounted for the highest portion of corporate bonds issuances, upto 65 percent in value and 60 percent in the number of issuances, during the period 2005 to 2022. Both these industries are in constant need of large amounts of capital.

Real estate enterprises actively issued corporate bonds in the period 2019 to 2021 due to difficulty in accessing loans from the banking system, when the State Bank of Vietnam clearly stated its policy of strict monitoring of real estate credit.

In addition, many real estate enterprises did not meet the conditions for loans from banks and switched to corporate bonds with high interest rates that did not require collaterals. They were also subject to supervision of money disbursement activities like borrowing from banks.

After a period of hot growth, the issuance of corporate bonds in the first six months of 2022 suddenly dropped sharply.

The reason why the issuance volume in the second quarter dropped sharply was due to the Government's tough stand in the financial market and the influence of the Tan Hoang Minh event.

In the second quarter, the issuance volume reached VND119,000 bln, down 45 percent over the same period. In particular, the real estate group continued to rank second in terms of total issuance value, despite a sharp decline over the same period.

However, excluding more than US$500 mln in international bonds made by Vingroup, the issuance value in the second quarter was only 16 percent over the same period.

Pressure of bonds maturity

The real estate enterprises strongly promoted bond issuances in the period 2019 until 2021 which has now increased the pressure of maturity in 2022 until 2026.

According to estimates of KB Securities Vietnam (KBSV), the total maturity value of corporate bonds will reach VND374,300 bln in 2023, and VND381,200 bln in 2024. In this the real estate group accounts for the second largest portion.

Therefore, businesses are facing challenges in mobilizing capital to repay debts. One of the plans under consideration by businesses is to raise capital by issuing new bonds to pay off old debts. However, the implementation of this plan is not easy, because several difficulties can arise from policies and actual needs.

Recently the 5th draft amendment of Decree 153/2020/ND-CP regulating the offer of corporate bonds was published, with changes in the direction of further tightening for issuers and investors. The first is the decision to ban enterprises from issuing bonds to contribute capital in the form of capital contribution or purchase of shares in other enterprises, or lending capital to other enterprises.

Next, it is required that the total outstanding debt of bonds does not exceed three times of equity if business activities in the preceding year were profitable and there is no accumulated loss.

Another strict requirement for professional investors is that individuals can only buy individual bonds issued by public companies and must have collaterals or payment guarantees.

If this draft is approved, it will make businesses that have financial difficulties face limit in accessing bank credit and will not be able to issue individual bonds.

Impact of recession

From the end of this year until 2023 and 2024 it will not be an easy period in terms of cash flow for real estate businesses with mature bonds. Small and medium-sized enterprises with low asset quality will face many difficulties in finding capital to rotate.

These businesses are facing difficulties due to three factors, namely, difficulty in accessing bank loans, tight capital from bond issuance, and the absorption of the real estate market in 2023 and 2024 not being high due to the impact of the economic recession.

On the other hand, the large group of real estate enterprises is somewhat less pressured because of a large land bank and collaterals to borrow from banks, along with being eligible to issue new bonds as well as being able to borrow international bonds.

However, these enterprises still have to continuously accumulate and deploy new projects, despite periods of rapid market growth and high valuations, in order to mobilize more debt sources to supplement cash flow to pay due obligations.

This will also cause a cash flow imbalance and reduce operational efficiency in coming years.

Recently, the State Bank of Vietnam has expanded the credit room for the banking system to fulfill the target of 14 percent credit growth in 2022.

This move will partly have a positive impact on the cash flow of real estate businesses as per two angles.

First, businesses have new sources of money to borrow against the due debt. However, this option is only applicable to enterprises with new projects and good quality assets.

Second, the real estate market is expected to warm up again in the last months of the year when credit flows are cleared, and businesses can release inventories and have more money to pay off debts.

With rising inflation, the move to raise interest rates is becoming common in countries around the world. Vietnam is expected to find it difficult to avoid the general trend to ease the pressure on the exchange rate.

However, high-interest rates will directly affect the cost of real estate investment capital for businesses as well as individuals.

This will lead to the absorption capacity of the market to decrease while the accumulated inventory is still very large.

Source: SGGP/Saigon Investment

MORE NEWS

10 houses with special architecture in Vietnam

With bold ideas, architects can create houses that are both aesthetic and functional. Here are 10 interesting houses in Vietnam.

89 people killed in traffic accidents during seven-day Tet holiday

A total of 152 traffic accidents occurred nationwide, killing 89 people and injuring 111 others during the 2023 Tet Lunar New Year holiday from January 20-26, reported the Traffic Police Department.

End of Tet holiday marked by high traffic congestion around major cities

In a bid to avoid the congestion, many people opted to return on Wednesday afternoon or Thursday morning.

Water resources planning scheme for 2021-2030 announced

The Ministry of Natural Resources and Environment (MONRE) has announced a water resources planning scheme for the 2021-2030 period with a vision to 2050, which was approved by the Prime Minister in December 2022.

Vietnamese businesses could join global supply chains with sound strategies: experts

A survey conducted by the association showed 63% of Japanese enterprises said they would continue investing in operation expansion in the next 1-2 years, reflecting that investors have great expectations for Vietnam's economic growth.

Ba Ria-Vung Tau welcomes nearly 2,400 international cruise tourists

International cruise ship Mein Schiff 5 with 2,370 tourists docked at SP-PSA port on January 26.

VIETNAM NEWS HEADLINES JANUARY 26

Da Lat faces traffic congestion due to tourist surge

VIETNAM BUSINESS NEWS JANUARY 26

Cashless payments continue to grow in popularity

What is the driving force for economic growth ahead in 2023?

The impressive growth momentum during the past year is expected to be a premise for Vietnam to achieve the growth target of 6.5% in 2023, according to economic experts.

Almost 3,000 tonnes of farm produce exported to China via Lang Son's border gates

Exports of agricultural and fruit products, mainly dragon fruit and mango, reached almost 2,700 tonnes to China through Lạng Sơn Province border gates on January 24, the third day of the Lunar New Year.

Should the personal income tax law be amended before 2026?

While analysts and workers hope the personal income law (PIT) will be amended as soon as possible, the Ministry of Justice (MOJ) says it plans to amend the law in 2026.

Singer Ha Phuong releases three songs, turns fairy in Tet photoshoot

During her visit to Vietnam on the occasion of the Lunar New Year 2023 (Tet), Vietnamese American singer Ha Phuong has released three new songs and an Ao Dai photoshoot.

Stronger FDI inflows expected this year

Despite enduring the long-term impact of the COVID-19 pandemic, Vietnam still managed to attract a large amount of foreign direct investment (FDI) in 2022, with the outlook forecast to be optimistic moving into 2023.

Blockchain technology used in many fields in Vietnam

Vietnam is now among the leading countries using blockchain. Many people often associate blockchain with Gamefi or cryptocurrency, but it is used in many areas.

Hoang Sa exhibition centre affirms national sovereignty

The Hoang Sa exhibition centre in Da Nang City displays and archives historical documents, exhibits and images which testify to Vietnam’s legitimate sovereignty over the two archipelagos.
back_to_top