VietNamNet Bridge – The local corporate bond market is seen small compared to other Asian peers, with its outstanding balances totaling some VND70 trillion or only about 2.47% of the nation’s gross domestic product in 2012, said an official of the Ministry of Finance.

Do Viet Dung of the Finance-Banking Department under the ministry told a recent seminar in HCMC that there were few issuances as investors had not shown interest in this financial commodity.

The capital volume registered for corporate bond issuances by local companies totaled around VND19 trillion in the year’s first half, but the total amount worth of bonds really issued in the period was only VND8.3 trillion.

Since 2012 when Decree 90 on corporate bond issuance came out, the finance ministry has received registrations for corporate bond issuance from about 60 companies with a total value amounting to VND60 trillion. Of this hefty amount, only some VND40 trillion worth of bonds had been issued by local entities due to unfavorable business conditions.

In six years earlier, between 2006 and 2011, there were 44 corporate bond issuances, all by State-owned companies, with the total value of roughly VND36 trillion.

Dung noted that the volume of 1-3 year bonds accounts for more than 70% of the actual volume of bonds issued while that of five-year papers makes up 2% only.

Notably, he said, as almost no deals have been struck in the secondary corporate bond market, the target of mobilizing long-term capital for local enterprises through the capital market is not yet achieved.

In other developed countries, corporate bonds are considered as a major long-term capital mobilization channel for companies but the situation is different in Vietnam whose capital market is still young and fails to lure professional investors and big financial funds and institutions.

Investors remain indifferent to local corporate bonds due to the lack of information, especially data needed to weigh bond prices and coupons in a reasonable way.

The local corporate bond market still exposes many shortcomings that need to be repaired, Dung said, citing coupons as an example. Normally, corporate bonds with terms of one to three years have the coupon set at an annual fixed rate of between 9% and 16% while papers having longer terms apply floating rates based on the average deposit rate of commercial banks plus a margin of some 4%.

Vietnam has yet to have benchmarks allowing investors and issuing businesses to identify rational prices. Therefore, the finance ministry plans to map out a decree on the establishment and operation of local credit rating firms set for issuance in October, so that investors have better information regarding corporate bond issuances.

With such credit rating enterprises in place, assessing bond prices will become more reasonable and reliable. This means investors can use these data to make decisions on purchasing corporate bonds, making the local bond market more transparent.

A slew of State conglomerates and big private companies now are going to issue bonds with huge volumes inside and outside the country, with Vietnam National Coal and Mineral Industries Group seeking to mobilize VND5 trillion from local bond sale before the end of the year.

Source: SGT