Unlisted real estate companies account for 80% of the market share of real estate bond issuance and the remaining 20% ​​belongs to listed real estate firms.

According to the Ministry of Finance, in January-November 2021, Vietnamese businesses issued more than VND495 trillion of bonds. Credit institutions and real estate businesses were the largest bond issuers, accounting for 33% and 40% respectively.

Risk indicators show that capital mobilization from bonds of listed companies only accounts for 4% of total assets. For unlisted enterprises, this figure is up to 38%. This shows the dependence of unlisted enterprises on bonds. In 2020, unlisted real estate companies accounted for 80% of the market share of real estate bond issuance.

According to Fitch, for the real estate group in general, of over 100 companies that issued individual bonds since early 2021 to November 30, 2021, 26 companies recorded losses. Bonds outstanding on total loans of listed real estate companies were up to 46% in the first nine months of 2021. 

The need for credit rating

Looking back at the development of Vietnam's real estate bond market since 2007, there have been many interesting issues:

Firstly, many firms issued bonds in the most difficult periods of the economy, in the years 2007-2008 and 2020-2021.

Secondly, no case of bond insolvency has been recorded.

Thirdly, no bank has ever gone bankrupt because of bond issuance.

While China has announced many insolvency bond cases, in Vietnam, since 2008 with the first bond issuance deals, the market has not officially recorded a single case.

However, the fact that real estate businesses own banks, so that the bank's capital circulates in the complicated system of "subsidiaries", still happens despite restrictions on lending.

How to control the problem through a monitoring information system of relevant agencies is a thorny issue.

According to VCBS, by 2021, Vietnam had only two organizations licensed to perform credit rating activities, namely Saigon Phat Thinh Rating Company and Fiin Ratings. Fiin Ratings participated in many corporate bond deals, including Viet Credit and Bamboo Capital.

With a draft amending Decree 153/2020 on the offering and trading of individual corporate bonds in the domestic and international markets, the mandatory credit rating requirement was set, directed mainly at bonds without collateral or payment guarantee, the bond issuer with loss for the year before the year they plan to issue bonds. 

Using credit rating standards is expected to be a step in the right direction for a healthy and sustainable market development.

Credit ratings for businesses in general, including real estate businesses, is needed to increase the transparency of the market. Expanding licensing for Vietnamese credit rating agencies will contribute to increasing differentiation. Investors will also have a more diversified, multi-dimensional analysis and perspective on debt instruments.

The issuance of Circular 16 by the State Bank of Vietnam in late 2021 on the buying and selling of corporate bonds of foreign credit institutions and bank branches has clearly had a significant impact on bankers and business owners, especially real estate businesses.

Circular 16 is also compared with recent policies issued by China's financial-banking supervisory authorities to control the huge debt of tycoons in the real estate sector in this country. In the last quarter of 2021, the insolvency of leading real estate groups in China has been reported; for example, the case with Evergrande (over $300 billion in debt) and the then Kaisa Real Estate Group.

Dr. Truong Quang Thong