The primary supply of corporate bonds has dropped sharply as the epidemic has upset enterprises’ business plans. Many have postponed bond issuance plans.
A report on private offerings released by the Hanoi Stock Exchange (HNX) showed that the total value of corporate bonds issued in Q1 2020 was VND29.384 trillion, a sharp decrease of 76 percent compared with the previous quarter.
The value of bonds issued by commercial banks dropped by 98 percent. They only issued VND1 trillion worth of corporate bonds in Q1, while the figure was VND45 trillion in Q4 2019. The bonds, with maturity in 7-10 years, were issued to increase 2-tier capital.
Meanwhile, the epidemic has had significant impact on the financial plans of real estate firms, which, together with banks, were big issuers. Therefore, the value of bonds issued by the firms has also decreased by 40 percent.
|A report on private offerings released by the Hanoi Stock Exchange (HNX) showed that the total value of corporate bonds issued in Q1 2020 was VND29.384 trillion, a sharp decrease of 76 percent compared with the previous quarter.|
However, the high success rate of 88 percent showed that though the volume of bonds issued decreased, the demand for bonds remained.
The biggest bond holders are domestic institutional investors, mostly securities companies. The companies buy bonds in the primary market for secondary distribution.
The other big bond holders are commercial banks. Techcombank and MB Bank bought relatively high amounts of bonds as of the end of February.
Domestic individual investors also have increased the purchases of corporate bonds with the market share surging to 30 percent from 9 percent in 2019.
The average interest rate and bond term of the corporate bonds issued recently are higher than the previous quarter. The interest rate is 10-11 percent per annum, while the bond term is 3.9 years, much higher than the bank deposit interest rates for the same terms and equal to the medium- and long-term lending interest rates.
The Economics Research Center under the Maritime Bank (MSB) believes that there are latent risks in the corporate bond market.
The researchers at the center pointed out that some real estate firms issued short-term bonds with the maturity time in 1-2 years, but offered very high interest rates of 11.5-12 percent per annum. The noteworthy thing is that the institutions issued bonds with no mortgaged assets and the buyers were mostly domestic investors.
There are risks in the bonds if the issuers face problems in liquidity. Meanwhile, the mechanism to protect domestic investors still has not been perfected.
The researchers also pointed out the low transparency of the market as the information exposed by issuers doesn’t show in detail the purpose of the capital use and plans to pay principal and interest.
The other risks include the lack of information about bond holders, the absence of credit rating firms and legal loopholes.
Property firms were the top bond issuers in the first four months of this year, but the race of issuing bonds to raise capital in the context of tightened credit was creating risks as many had much higher outstanding bonds than their equities.
The Ministry of Construction (MoC) has asked the Prime Minister to strictly control corporate bond issuances made by real estate enterprises, especially small and medium enterprises, to reduce risks.