Businesses troll for capital as corporate bond market cools
VietNamNet Bridge – As few investors are buying corporate bonds, businesses are desperately seeking capital.
It is estimated that VND63 trillion worth of government bonds will reach maturity in the second half of the year. However, analysts have said that it is very difficult to drive capital flow into the corporate bond market.
The market heated up in 2013 with VND40 trillion worth of corporate bonds issued in the year, an increase of 20 percent over the year before. However, the market cooled down again in the first six months of 2014.
VCB Securities’ analysts, in their Q2 bond market report, predicted that the corporate bond market will remain quiet. Many corporate bond issuance plans were announced, but very few plans have been implemented.
Ocean Group, for example, in mid-July, decided to cancel a plan to issue VND980 billion worth of bonds because of unfavorable conditions of the market.
The outstanding feature of the Vietnamese corporate bond market is that the bond issuers are mostly large-scale corporations which operate in the field of infrastructure and real estate development.
Medium-sized enterprises do not think of mobilizing capital through corporate bond issuance campaigns. In general, if they cannot meet the requirements to access bank loans, they don’t have the opportunities to access capital mobilization channel.
The other problem which hinders the development of the corporate bond market is that there is no market for corporate bonds to be put into trade. Investors can only expect to make profits from the bond interest rates committed by the bond issuers, while they find it difficult to sell bonds for profit.
In other words, they have to keep bonds until the securities mature, and they cannot sell bonds for money when they need capital for their own business projects.
The report of the Asian Development Bank (ADB) about the Asian bond market in the second quarter of 2014 put Vietnam into a second position in the list of the region’s fastest-growing bond markets (the first position belongs to Indonesia). However, in Vietnam, only the government bond market has been growing fast, while the corporate bond market has been growing slowly.
Vietnamese government bonds’ value makes up 98.3 percent of the total value of the bond market, which is much higher than the 77.2 percent in Thailand and 58.4 percent in Malaysia.
Corporate bonds are also not selling well because a lack of transparency and information. Many corporations issue bonds to investors, but try to keep the issuance campaigns in secret. This explains why there is no liquidity in the secondary market and there are not many bonds to trade.
A representative of Dragon Capital, an investment fund management company, said at a workshop on the capital market in May that while $5 billion worth of corporate bonds was issued, only several hundred millions of dong worth of bonds were listed.