Commercial banks’ purchase of real estate corporate bonds is considered indirect lending to real estate firms, experts say.
Corporate bond rush
Thanh Nien cited a July report from the Vietnam Bond Market Association as showing that 22 out of 23 businesses successfully issued corporate bonds which raised VND6.764 trillion and $300 million (VND6.96 trillion) worth of funds.
As such, the total capital mobilized through bond issuance in July alone hit VND13.724 trillion, an increase of VND800 billion compared with June, and the figure has reached VND130 trillion by the end of July.
The common characteristic of the corporate bonds is the surprisingly high interest rate. Phu Chau Investment & Development JSC, for example, issued VND800 billion worth of 3-year bonds with an interest rate of 11.5 percent for the first year.
The interest rates for the following years will be calculated by the average interest rate of three banks plus 4.8 percent.
|The bond interest rates of 10-14.5 percent per annum have caught special attention from the public because they are double bank deposit interest rates. However, the real interest rates bond holders can receive won’t be that high after they pay fees to banks.|
The HCMC Infrastructure Investment JSC issued VND200 billion worth of bonds with the interest rate of 11 percent for the first year. The interest rates for the next years will be calculated by the TP Bank’s one-year deposit interest rate plus 3.5 percent.
The bond interest rates of 10-14.5 percent per annum have caught special attention from the public because they are double bank deposit interest rates. However, the real interest rates bond holders can receive won’t be that high after they pay fees to banks.
Nga, an officer of a bank which is issuing bonds for AD Company, explained that the company pays an interest rate of 11 percent per annum, but bond holders receive 9-9.5 percent only, which is just a bit higher than the bank deposit interest rates and less attractive than the banks’ certificates of deposit (over 10 percent).
At present, the Vietnamese corporate bond market still hasn't developed well, so businesses have to issue bonds through banks or securities companies. This increases the bond issuance costs.
According to Huynh Minh Tuan from VnDirect HCMC, the biggest buyers of real estate corporate bonds are commercial banks and securities companies.
The lending to real estate firms was restricted as per the request by the State Bank because of high risks. Therefore, instead of providing credit directly to real estate projects, banks are buying corporate bonds issued by real estate firms. By doing this, bonds still can pump capital to the real estate sector.
The State Bank of Vietnam (SBV) has officially warned commercial banks of the risks when buying corporate bonds issued by real estate firms. The bonds all have very high interest rates, nearly double that of bank deposit interest rates.
Real estate firms are rushing to issue corporate bonds, which analysts say shows their thirst for capital. But there are risks.
VND9.103 trillion worth of listed corporate bonds were issued in the first quarter of 2019. Vietnamese enterprises are issuing bonds instead of borrowing money from banks when seeking long-term capital.