According to the Ministry of Finance (MOF), the Vietnamese corporate bond market by the end of 2021 had value of VND1.3 quadrillion, or 15 percent of GDP. Of this, 70 percent of total bonds had been issued by credit institutions, real estate firms and securities companies. Real estate bonds had accounted for 30 percent of total bonds issued.

According to securities companies, about VND540 trillion worth of corporate bonds will mature in 2022-2023, which accounts for 36 percent of total bonds in circulation. The figure is VND231.243 trillion in 2022, mostly in Q4. Most of the bonds are in real estate.

After recent scandals related to bond issuance, the Vietnamese market has shifted from loose to tight control, which has resulted in the sharp fall of real estate bonds. 

In Q1, real estate bonds accounted for 50.9 percent of total issued bonds, while the figure dropped to 11.6 percent in April. Investors’ confidence in corporate bonds has fallen, which makes it more difficult to issue bonds.

The Government has asked for better supervision of the corporate bond market performance, while the Ministry of Finance is building a legal framework with stricter regulations for bond-issuing institutions, especially for private offerings. 

The State Bank of Vietnam (SBV) is in charge of supervising and examining credit institutions that make investments in corporate bonds and provide bond issuance guarantee services.

The central bank has also asked commercial banks to reduce lending to the real estate sector. The growth rate of lending to the sector has dropped from 26 percent in 2018 to 12 percent in 2021, while the figure is expected to drop to 9-10 percent in 2022.

As such, the two most important capital mobilization channels for real estate firms – bank loans and corporate bond issuance – have been put under strict control.

Analysts have warned that because of the move, businesses not only lack capital to develop projects, but they cannot arrange big amounts of money to pay bonds that are due.

Real estate firms have undergone two tough years because of Covid-19, while market liquidity is weak, which may cause businesses to fall into insolvency.

‘Debt bomb’ 

A report from the Ministry of Construction (MOC) found that many real estate firms have issued bonds with value much higher than their stockholder equity (the figure is 40 times higher in one case). While the bonds are 3-5 years, businesses use the capital to develop long-term projects (over 5 years).

The other risk comes from mortgaged assets. In many cases, the secured assets are overvalued which poses high risks for buyers.

The National Assembly’s Economics Committee has also expressed its concern that some businesses have issued bonds in large quantities, five times higher than their stockholder equity.

The report from the committee found that some bond-issuing institutions are unlisted companies and are not public companies. It is difficult to seek information about the operation of the businesses and their financial situations. Some of them don’t have official websites.

Meanwhile, some issuers incur losses or have a return on equity ratio of below 1 percent. The transfer of capital raised from bond issuance through many enterprises and the use of capital for wrong purposes are serious issues.

It is difficult to identify the relations between enterprises as it is difficult to access information about business ownership, especially non-public companies. If businesses fall into insolvency, investors may lose both principal and interest and this may cause a domino effect in the bond market.

This will cause big losses for individual investors. An MOF report showed that individual investors buy 19 percent of total bonds issued. There are also individual investors buying shares not in their names.

Observers note that many banks and securities companies buy bonds to resell to individual investors through their networks. The attractive commissions of up to 3-5 percent prompt many banks and securities companies to distribute bonds. Many people, when depositing their idle money at banks, are advised to buy corporate bonds at high interest rates.

Tran Thuy