return icon

Investors warned of the possibility of corporate bond default

In the financial market, investors need to keep in mind the principle of high risk, high return. Therefore, the higher the bond yield, the greater the probability of default.
Illustration of corporate bonds. — Photo: VNN

As some companies have been late in paying the principal and interest when bonds mature, market participants fear that the phenomenon may result in a corporate bond default in the near future.

However, risk is a part of investment activities that investors should tolerate, experts have said. 

According to experts, this is a sensitive issue since bonds are a new channel to raise capital for businesses. Meanwhile, for the banking system, the problem of bad debt has existed for several decades, so the market has had time to get used to it.

For commercial banks, the ratio of bad debt to total outstanding loans published in the financial statements is usually around 1.5-2 per cent. Therefore, in the bond market, investors also have to accept the reality of bad debt, like bank credit.

In the corporate bond market, the current outstanding debt is about VND1.5-1.6 quadrillion (US$62.8-67 billion), so there is no surprise if there is about 1 per cent or even 3 per cent of businesses that are late paying the principal and interest, which is worth about VND30-50 trillion, Nguyen Quang Thuan, general director of FiinRatings, said at a conference at the end of September.

Experts believe that investors and regulators should be calm regarding reports of a number of cases of late payment of principal and interest upon maturity of bonds. 

In addition, the market expects the regulator to soon issue detailed regulations on corporate bond defaults.

“These regulations not only protect investors but also ensure stable business operations,” Thuan said. 

“In many situations, businesses only lose liquidity temporarily and can't pay interest for a few days, but they all become hot headlines, then the market withdraws money, and enterprises are dead. We need to be fair.”

According to Thuan, by the end of September, the pressure to mature private bonds had decreased by 50 per cent.

The reason is that before Decree 65 was issued, many financial institutions had supported businesses to deal with the problem depending on the situation, thereby extending debt and restructuring. This is reflected in the purchase of many corporate bonds before maturity in recent months.

To have an objective view of default and bad debt in the bond market, experts recommend investors look at markets in the region.

For example, in China, the size of its bond market is $800 billion with a bad debt of about 1.35 per cent. However, in order to develop the market, it is necessary to accept a certain percentage like that.

Do Ngoc Quynh, general secretary of the Vietnam Bond Market Association, said that in the financial market, investors need to keep in mind the principle of high risk, high return.

Therefore, the higher the bond yield, the greater the probability of default. Investors should evaluate the situation and decide based on their risk tolerance.

For the market to develop stably, it is necessary to diversify the investor base, especially professional investment funds, and limit the participation of small retail investors in the market. Because only professional investment funds have the ability to diversify investment assets. 

Source: Vietnam News


How will Vietnam escape the 'middle-income trap'?

Vietnam aims to become a higher average income country and a high income country by 2035 and 2045. However, to reach that goal, it will have to overcome challenges, especially institutional ones.

HCM City develops food streets to attract tourists

Ho Chi Minh City is focusing on developing food streets to attract more tourists and make them spend more during their stay in the city.

Int’l experts, organisations believe in Vietnam's sustainable growth potential

Experts, and representatives of international organisations, and investment funds have shown their belief in the potential for sustainable growth in Vietnam in the coming tỉme.

Why has HCM City removed 'residential people’s groups'?

With the elimination of over 25,000 "residential people’s groups", HCM City has cut 38,000 part-time officers.

Duan wins Hanoi Midnight marathon title, eyes SEA Games slot

Almost 10,000 elite and amateur runners registered to participate in the event. The number was double that of the first edition in 2020.

HCM City seeks to prevent illegal waste dumping

HCM City’s environmental sector is taking steps to prevent illegal dumping of domestic waste transported from neighbouring provinces to the city.

Macroeconomic and monetary policies key to improving economy

A volatile global market, the COVID-19 pandemic, approaching the limit to horizontal expansion and inefficient macroeconomic policies in the past...

Domestic tourism increases but spending remains low

The domestic tourism market was a lifesaver during the difficulties of the COVID-19 pandemic, but local spending on tourism is still low and needs a boost, experts have warned.

Transparent practices help farmers sell more produce

The optimal requirement of farm produce is safety, and without it, sales would be low.

Hanoi's tourism shows strong recovery since March 2022

Eight months after the reopening of international travel, Hanoi has seen substantial development in the tourism sector.

The natural beauty of Trang An

Trang An Landscape Complex is a mixed cultural and natural property within three protected areas, including the Hoa Lu Ancient Capital, the Trang An-Tam Coc-Bich Dong Scenic Landscape, and the Hoa Lu Special-Use Forest.

Screening tool to bump up FIE quality

Achecklist for appraisal of foreign-invested ventures in Vietnam will help the country woo desired foreign funding.

Lacking money, work on privately funded thermal power projects stalls

The thermal power projects developed by private investors all have been going slowly because of multiple problems.

Boosting international railway transport investment

The initial successes of the railway container transport network from Vietnam to Europe have inspired engagement with the international railway network.

Entertainment and cultural events of the week (November 28-December 4)

Upcoming entertainment and cultural events in Vietnam's major cities on November 28-December 4.