Property firms top bond issuers, having risks as outstanding bonds much higher than equities
Property firms were the top bond issuers in the first four months of this year, but the race of issuing bonds to raise capital in the context of tightened credit was creating risks as many had much higher outstanding bonds than their equities.
Property firms were the top bond issuers in the first four months of this year. — Photo gocnhin.com.vn
The Ministry of Finance's statistics showed that more than VND58 trillion (US$2.5 billion) worth of corporate bonds was issued in the January-April period, with 49 per cent by real estate companies. Real estate firms also had average corporate bond yield about 1.5 percentage points per year higher than the market’s average.
Some real estate firms had outstanding bonds around 30-47 times higher than their equities, according to the ministry.
Although institutional investors remained the major buyers in the corporate bond market, accounting for 74 per cent, the market saw a rapid increase in the participation of individual investors.
Individual investors bought 26.8 per cent of the value of bonds issued in the primary market in the first four months of this year, a jump from 8.8 per cent in 2019.
Given the current corporate bond market situation together with the increased participation of individual investors, most were unable to analyse the financial situations as well as risks when investing in corporate bonds, this could pose risks to the market and the investors, deputy director of the ministry’s Department of Banking and Financial Institutions Nguyen Hoang Duong said.
With corporate bonds, the risks arose when the issuer companies fell into difficulties or failed to implement their projects efficiently and they could not pay for the bonds, Duong said, urging investors to not only focus on yields but also analyse their financial capacity and investment risks.
Core factors to be focused on include bonds issued by which companies, for what purposes, asset-guaranteed or not, issuers’ commitments, terms and yield payment, and the financial situation of the issuers.
Duong also asked companies to comply with the established regulations about bond issuance and provide transparent information to investors.
“The Ministry of Finance will enhance supervision to prevent violations in the bond market,” he stressed.
Regarding the information that there was a firm issuing bonds with the yield of 19.5 per cent, the ministry denied the rumour. Duong said that according to Ha Noi Stock Exchange, no firm issued bonds with yields of 19.5 per cent in the first four months of this year.
The Ministry of Construction recently proposed the management on corporate bond issuances made by real estate enterprises, especially small and medium enterprises, to be tightened to reduce risks. — VNS
The lack of independent credit rating firms is hindering the development of the corporate bond market.
There are two typical characteristics of the real estate firms’ race to issue bonds – the high amount of bonds issued and the high interest rates.