Ministry tightens corporate bond issuances to prevent risks
The corporate bond market had seen exponential growth in recent years as banking credit for several sectors was narrowed, forcing firms to shift to bond issuance to raise capital.
An overview of the TNR Star Thoai Son project under the TNR Holdings Vietnam Real Estate Investment and Development Joint Stock Company in the southern province of An Giang. TNR Holdings organised 60 bond issuances in January 2020, accounting for more than half of the 102 successful bond issuances in the whole month. — Photo tnrstars-thoaison.com
Nguyen Khac Quoc Bao, head of the Financial and Bank Department at the HCM City Economics University, told Thoi bao Kinh doanh (Business Times): “However, the booming growth of the corporate bond market implied significant risks as firms are issuing more bonds without clarifying the purpose of the capital they're trying to raise, repayment plans or bond yields”.
In a move to change the status quo, the ministry has made public a draft decree to amend several points of Decree 163/2018/ND-CP about corporate bond issuance for comment in order to manage and monitor the current rapid growth of the corporate bond market.
This move would help prevent risks which might arise from the abuse of this capital raising channel, Bao said.
The newly-released draft includes amendments to conditions for corporate bond issuance, rates, issuance approach in domestic and international markets, information disclosure and reporting mechanisms.
Under the draft, bond yields would not be allowed to be higher than 20 per cent per year. This aimed to prevent firms from offering high bond yields which would negatively affect the capital market.
Bonds issued in the domestic market would be restricted from trading among less than 100 investors, while under the current regulation this restriction was applied only for the first year. This aimed to protect bond investors, the finance ministry said.
Two issuances must be at least six months apart, according to the draft.
Notably, issuing companies must ensure the outstanding value of bond issued would not exceed three times their charter capital. The finance ministry said the regulation would help prevent firms from issuing bonds of too large a volume or value which would bring risks to both issuers and investors.
Tightening regulations was a way to fill in legislative loopholes in the bond market, not for the purpose of squeezing it, said an expert.
In the first two months of this year, total corporate bond issuance reached VND19.4 trillion (US$841 million) with an average term of 4.75 years and average interest rate of 10.07 per cent. In particular, real estate businesses issued VND11.6 trillion, accounting for 60 per cent.
According to the Ha Noi Stock Exchange (HNX), multi-sector Sovico Group JSC, the founder of Vietjet Aviation Joint Stock Company, organised four bond issuances from March 3-6, earning VND500 billion with a 100 per cent success rate. The bond lots have a term of 3 years and an interest rate set at 11 per cent per year, The investors were not disclosed.
Since the beginning of 2020, Sovico has offered bonds with a total value of VND2.05 trillion, all non-convertible an interest rate of 11 per cent per year with no collateral.
Since Sovico joined the corporate bond market in the middle of last year, the group has organised 70 bond issuances, earning about VND10 trillion.
Including bond issuances made by Sovico's affiliates in that time, namely Bac My An Tourism Joint Stock Company, Vietjet Aviation JSC, Saigon Vina Real Estate JSC and Thuy Duong Hotel Co Ltd, the total number hit 105, with total earnings of nearly VND15 trillion.
Sovico Group currently has VND9.6 trillion in charter capital.
TNR Holdings Vietnam Real Estate Investment and Development Join Stock Company organised 60 bond issuances in January 2020, accounting for more than half of the 102 successfully held across the whole market in the month.
On February 14, the company revealed it had made another 40 public offerings from November 13, 2019 to February 13, 2020. These bonds were all privately issued with no collateral.
HCM-City based Vinametric Co Ltd in December 2019 organised 24 bond issues - about one a day.
At the end of 2019, Vinametric's equity was recorded at nearly VND1.98 trillion. — VNS
The lack of independent credit rating firms is hindering the development of the corporate bond market.
While foreign investors continue selling in the share market, they have been buying more than selling in the bond market since early 2019.