VietNamNet Bridge - Large corporations say they would rather issue corporate bonds to mobilize capital than borrow from banks because of the lower cost. 

An SSC report shows that corporate bonds accounted for less than 1 percent of GDP in 2010-2014. Businesses mostly issued bonds to targeted buyers (99.26 percent of total value of bonds issued in 2013-November 2015) and only 0.75 percent of bonds were issued to the public (VND7 trillion).

However, analysts said that businesses now tend to issue corporate bonds when they need capital. In October, Vietcombank and Gelex, an electrical equipment company, announced plans to mobilize VND4 trillion worth of capital through bond issuance.

The VND2 trillion bond issuance campaign is just a part of Vietcombank’s plan to seek VND8 trillion worth of capital this year through bond issuance.

Financial institutions, including SSI and ACB, and real estate firms have also succeeded in issuing bonds to raise funds. Vingroup, for example, has successfully issued VND3 trillion worth of dong bonds. The bonds, 5-year and 10-year term, have interest rates of 7.75 percent and 8.5 percent, respectively, and are guaranteed by CGIF, a trust fund of ADB.

This was the first time CGIF acted as a guarantor for a South East Asian real estate firm. It was also the biggest transaction with a Vietnamese company so far.

Large corporations say they would rather issue corporate bonds to mobilize capital than borrow from banks because of the lower cost.

In last August, TCBond Novaland bonds were put on sale by Techcombank Securities. Sacomreal, a subsidiary of Thanh Thanh Cong Group, has announced it would issue VND200 billion worth of bonds in the fourth quarter of the year. 

Meanwhile, Thanh Thanh Cong Tay Ninh JSC issued VND1 trillion worth of 5-year bonds to two investors – VIB and TP Bank in May 2016.

An analyst commented that the bonds were issued on a small scale and to some specific subjects, but opportunities are always available for eligible institutions.

He said that many businesses do not want to share information that they seek capital through bond issuance, and that the majority of public companies prefer issuing convertible bonds. 

This means that after 3, 5 or 10 years, depending on the bond terms, bond holders will become shareholders of the companies.

Not all businesses are confident that they can succeed with bond issuance campaigns. Most successful issuance campaigns were ones launched by enterprises with large total assets and prestige, such as Vietcombank and Vingroup. Smaller businesses tend to issue convertible bonds with collateral and high discount rates.

In general, the corporate bond yield is 2-5 percent higher than government bond yield and equal or 1-3 percent higher than the bank lending interest rate.