Vietnam’s corporate bond market has blossomed in recent years with total bond issuance growing from $11 billion in 2012 to $24 billion in 2019. — Photo nld.com.vn

The report which evaluated the attractiveness of the Vietnam bond market pointed out that the Vietnamese corporate bond market grew rapidly since 2019 and issuances of US$12.8 billion in 2019 were larger than those for Indonesia and the Philippines. Private placements accounted for 94 per cent of corporate bond issuance in 2018 and 2019 following the easing of disclosure requirements and issuance conditions.

“However, the lack of a credit culture poses significant risks to the bond market and the financial sector, particularly as individual investors currently own almost a fourth of all bond issues,” the report said.

The report pointed out that the lack of demand for credit ratings in the past had been the limiting factor for domestic crediting rating agencies in Vietnam.

Two domestic rating agencies have been licensed by the Ministry of Finance, Phattinh Rating in 2017 and FiinGroup in March 2020. Both are yet to become operational.

The recently passed 2019 Securities Law requires some public bond issues (but not private placements) to be rated by a domestic rating agency from January 2021.

Further, draft regulations that guided the implementation of the new Securities Law required few, if any, bond issues to be rated, unlike other ASEAN markets that mandated credit ratings for public and often private offerings during their formative years, according to the report.

“Vietnam’s policymakers are keen to see an orderly growth of a healthy bond market and have expressed a strong commitment for a domestic credit rating agency,” the report wrote.

The report added that the urgent need for a domestic rating agency in Vietnam was clear based on feedback from investors, intermediaries, issuers, and Government officials.

The growth in the corporate bond market since 2017 was sustainable and the business case for a global rating agency to enter the Vietnamese market through a technical service agreement was compelling. A technical service agreement would provide low-risk entry, the report said.

Donald Lambert, Principal Private Sector Development Specialist, Southeast Asia Department, ADB, in a blog on ADB’s website wrote that the credible local rating agency was a key missing ingredient in Vietnam’s otherwise flourishing corporate bond market.

“Partnerships with global rating agencies would unlock the market’s potential, but these agencies want certainty that the demand for ratings is real,” he wrote.

“The Government can lay the groundwork through reforms that drive the demand for credit ratings and spur the prudent development of the corporate bond market.”

Vietnam’s corporate bond market has blossomed in recent years with total bond issuance growing from $11 billion in 2012 to $24 billion in 2019.

While Government bond issues grew 63 per cent between 2012 and 2019, corporate bond issuance, including private placements, grew tenfold. However, Government-guaranteed issues declined by 67 per cent and municipal issues declined by 79 per cent during this period.

Issuances totalled VND303.8 trillion ($13 billion) in the first nine months of this year, according to the Hanoi Stock Exchange. VNS

Meeting expectations of the corporate bond market

A new government decree tightens conditions on the issuance of corporate bonds. However, before the decree came into effect, enterprises flooded the market with new issuances.

VN bond market remains underdeveloped despite years of existence

While in developed markets, corporate bonds act as the major channel that conducts capital for the economy, in Vietnam it is still in a very early stage of development.