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‘Three-no bonds’ raise concerns

Some lots of real estate bonds issued under private offerings are expected to become due by the year end. The solvency of issuers amid the difficulties caused by Covid-19 remains questionable.



A report by VnDirect Securities showed that the total value of the corporate bonds issued in Q3 2021 was VND111.744 trillion, a decrease of 25 percent from the previous quarter and 2.2 percent from the same period last year. As many as 88 businesses issued VND107.944 trillion worth of private offering bonds and VND3.8 trillion worth of public offering.

Real estate has replaced banking to become the sector with the highest proportion of bonds issued in Q3, accounting for 46.8 percent of total value, or VND52.287 trillion, an increase of 60 percent over the previous quarter.

Real estate bonds accounted for 46 percent of total value in the first nine months of the year. The bond issuers offered relatively high interest rates, between 7.4 and 13 percent per annum.

Since the State Bank of Vietnam (SBV) has tightened control over lending to risky business fields, including real estate, realtors have to mobilize capital through bond issuance. This explains why real estate firms have rushed to issue corporate bonds recently.

The problem, according to analysts, is that the bonds issued by many real estate firms are subprime ones, or ‘three-no bonds’ as they are called – no credit rating, no mortgaged assets and no guarantor.

There are also risks in real estate bonds mortgaged by shares of real estate firms. Using shares to mortgage for bonds won’t have much significance if issuers fall into insolvency. If issuers cannot pay debts, the prices of their shares will fall and lose their value.

Nguyen Duc Do, Deputy Head of Economics and Finance Institute, pointed out that investors are lacking information. Issuers don’t provide enough information, which puts investors at risk.


Using shares to mortgage for bonds won’t have much significance if issuers fall into insolvency. If issuers cannot pay debts, the prices of their shares will fall and lose their value.


The corporate bond market has recently witnessed an increase in the number of individual investors who cannot access information and don’t have professional knowledge. Meanwhile, most of the transactions are not listed, so they cannot be put under control.

Credit rating

Pham Nam Kim, a respected economist, said that Vietnam’s corporate bond market is not ruled by strict regulations. While in other countries, a credit rating is a must for bond issuers, this is not mandatory in Vietnam.

Under the Securities Law and Decree 153/2020, businesses mobilize capital through private offerings under the principle of self-issuance, self-payment and self-responsibility, while state management agencies don’t license the issuance.

To date, Vietnam has two credit rating firms and rating businesses is still not a ‘habit’. The corporate bond market is developing rapidly, while the demand for rating remains modest. In many cases, the demand for ratings is not from issuers, but from creditors. In other cases, businesses don’t publicize the results of ratings, so the rating has no significance.

Investors need to know about issuers’ credit ratings to assess risks before making investment decisions. In Thailand, for example, most C-class businesses go bankrupt, while only A-class businesses are healthy.

According to Kim, like China, in Vietnam many businesses overstate their value and ‘fabricate’ real estate projects to make their bonds more attractive to investors.

But he knows some businesses which spend only hundreds of billions of dong out of trillions of dong worth of capital mobilized through bond issuance on project development.

The remaining money is used to pay debts and invest in other channels. Some real estate firms have abnormally high debts. When their investments have troubles, the investors who hold their shares will suffer.

President of Fiin Group Nguyen Quang Thuan said that since a credit rating is not a must for bond issuers, investors have to assess risks themselves. They should be cautious when buying bonds with abnormally high interest rates of 12-15 percent or more.

Analysts are waiting to see what will happen with bonds expected to become due later this year. Some of them believe that, as all businesses have been hit hard by Covid-19, it’s highly possible that some issuers may fall into default.

Others believe that as businesses continue issuing bonds, they will still have money for refinancing. So default may not occur, and this won’t be a worrying problem for now.

However, many bonds will become due in 2024 and 2025. By that time, many issuers will have to pay principal and interest. If the real estate market is cold from now to that time, this will be a danger. 

Tran Thuy

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