Will demand for corporate bonds become weaker because of a new law?
Under the amended Enterprise Law ratified by the National Assembly on June 17, nonprofessional investors are prohibited from trading corporate bonds issued in private offerings from January 1, 2021.
The Ministry of Finance (MOF) reported that the corporate bond market has been growing rapidly in recent years and the number of individual investors has also increased sharply.
In 2019, the total value of bonds that individual investors bought in the primary market just accounted for 8.8 percent of total value, while the figure soared to 26.8 percent in the first four months of the year.
There is a high risk when more individual investors join the market when they don’t have sufficient information about the purposes of the bond issuance and enterprises’ debt payment capability, and lack analysis capability.
According to Bao Viet Securities (BVSC), the total value of corporate bonds issued in May was VND27.061 trillion, a slight decrease compared with April (VND30.121 trillion). However, the total value of bonds registered to buy rose sharply to VND65.704 trillion from VND47.997 trillion in April.
The total value of bonds issued in the first five months reached VND91.616 trillion. The figures show high market demand.
|Commercial banks remained the biggest issuers in May, with VND11.512 trillion worth of bonds issued (42.54 percent). VP Bank issued 10 lots of bonds totaling VND5.8 trillion, BIDV issued 9 lots of bonds, worth VND3.09 trillion.|
Commercial banks remained the biggest issuers in May, with VND11.512 trillion worth of bonds issued (42.54 percent). VP Bank issued 10 lots of bonds totaling VND5.8 trillion, BIDV issued 9 lots of bonds, worth VND3.09 trillion.
Observers said the demand for issuing bonds to ensure banks’ CARs has decreased, but the demand for issuing short-term bonds to reduce capital costs still exists. HD Bank plans to continue issue $1 billion worth of bonds more in international market.
The businesses in the service and construction sectors also had high value of bonds issued in May. The former issued VND5.628 trillion worth of bonds which accounted for 20.8 percent (the figures were VND1.4 trillion in April and 4.65 percent), while the latter VND2.6 trillion, accounting for 9.61percent (VND300 billion and 1 percent in April).
Management agencies’ worries
A securities expert commented that individual investors do not pay enough attention to the quality of goods and the financial health of issuers, but only consider interest rates.
Businesses tend to approach individual investors for their private offering campaigns. The Ministry of Finance (MOF) warned that the wave of individual investors pouring money into corporate bonds under private placement campaigns will bring risks to themselves and the market.
With the new law, investment by nonprofessional individual investors would be prohibited.
Securities companies have warned that the new law will make it more difficult for enterprises to seek capital from the public, thereby adversely affecting market development.
The recent skyrocketing demand for corporate bonds, fuelled by lowered interest rates and ebb and flow of the economy, has raised questions of high-yield coming with high risks.
The Ministry of Construction (MoC) has asked the Prime Minister to strictly control corporate bond issuances made by real estate enterprises, especially small and medium enterprises, to reduce risks.