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Corporate bond market: what will happen if tighter control is imposed?

The Vietnamese corporate bond market is experiencing tough days. Experts say that restoring confidence in bonds and protecting investors are both necessary.

According to the Ministry of Finance (MOF), the outstanding bonds in Vietnam are equal to 14.8 percent of GDP, which is much lower than countries with developed bond markets, such as South Korea (87.7 percent), the US (56.2 percent) and China (36.46 percent).

The corporate bond market has cooled down after the arrest of Tan Hoang Minh’s president with charges related to bond issuance. Analysts predict that the watchdog agency will tighten control over bond issuance and expressed their concern about the development of the bond market if this is done.

Pham Xuan Hoe, a respected economist, warned that if Vietnam shifts from loosening to tightening the bond market, it will be contrary to the development trend.

The possible strict regulations, for example, are not in line with market principles. The regulations would require that bond value issued not be 3 times higher than stockholder equity; and that enterprises not be allowed to issue bonds to contribute capital, buy into other businesses, or re-lend to other businesses.

He warned that extreme measures would shrink the corporate bond market and businesses would lose an important long-term capital mobilization channel.

Lawyer Truong Thanh Duc said in current conditions, when the global supply chain has been disrupted and enterprises lack capital for production and businesses, it is necessary to encourage the development of the bond market, which businesses can use to seek capital, or they will become paralyzed. 

He noted that watchdog agencies in Vietnam can tighten business conditions if they find it difficult to control the market.

For the corporate bond market, many strict regulations have been designed and Duc has found that 10 business conditions are much tighter than other business fields.

“The regulations will close the bond market,” he warned.

The thing that needs to be done is not closing the bond market, but building an open and transparent market.

Bonds are investments, not deposits, and there are latent risks in all types of investments. To protect investors, it is necessary to develop the credit rating in Vietnam to be sure that the issuance is transparent. The transparency will allow investors to make decision whether to buy bonds or not.

Can Van Luc, a finance expert, also said that the state should not make too much intervention in the market. The market is not faulty, and it is necessary to classify risks for investors to consider risks and make investment decisions.

The Government has approved the finance strategy by 2030, which says that outstanding corporate bonds would be equal to 20 percent of GDP by 2025 and 25 percent by 2030.

Tran Thuy


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