Corporate bonds

Capital raising through corporate bonds could decline sharply

VIETNAM, April 14 –

Data from FiinRatings shows that the size of bond credit is currently VNĐ273.9 trillion ($12 billion) at the end of 2021. VNA/VNS Photo

HÀ NỘI The scale of capital raising through corporate bonds is expected to decline sharply, but there will be a drastic shift in quality, according to research on the corporate bond market by FiinRatings.

A number of breaches related to corporate bonds dealt with recently, as well as ongoing policy changes, including SBV Circular 16 on Regulation of Bond Trading by Credit Institutions and Amendments and additions that are expected to be included in the proposed Private Placement Executive Order 153, are likely to significantly reduce the size of the corporate bond market by 2022, FiinRatings said.

In 2021, the scale of mobilization through the channel of domestic corporate bonds reached VNĐ 682 trillion. This meant that the bond market was a very important channel for raising capital, as this figure represents 54% of the annual percentage change in the credit growth balance of the whole system in 2021.

The corporate bond market has proven to play an important role as a medium to long-term capital channel for business development in many different sectors in the context of COVID-19.

A qualitative change

Assessing the trends and outlook for the corporate bond market in the second half of 2022 and 2023, FiinRatings experts said that companies with a good foundation and better transparency, especially listed companies, will continue to promote bond issuance activities.

The bond channel remains an effective channel for raising capital in a context of very low interest rates on bank deposits.

Raising capital through the stock exchange also attracts investors, but the stock market is still in a phase of uncertainty. In addition, this activity is more suitable for issuers that are public companies with transparency in information in accordance with the regulations in force.

FiinRatings analysts expect a change in the quality of the corporate bond market and this could be reflected in massive growth in public offering, especially from companies with transparent credit histories in the market.

The private placement will still be made, although it may be less active than in previous years and aimed at a broader investor base, including professional individual investors, financial institutions such as insurance, bond funds, pension funds, instead of focusing primarily on commercial banks and securities firms.

Commenting on the impact of the quality of corporate bonds on the credit quality of the banking sector, according to FiinRatings, together with stockbrokers, commercial banks participated in the purchase of corporate bonds through the channel of primary issue to a relatively large extent, representing 36% in 2021 of the total issue value of real estate companies.

Application of State Bank Circular 16 on bond transaction regulation, according to FiinRatings, is necessary to control the quality of bad debts, especially banks with low asset quality, control the size of credit real estate and control credit transfer activities between the two channels of bonds and bank loans.

Data from FiinRatings shows that the size of bond credit is currently VNĐ273.9 trillion ($12 billion) at the end of 2021, which is only 2.16% of total earning assets and 2.63 % of total outstanding commercial bank credit in Việt Nam.

The popularity of the corporate bond investment channel is not only large-scale, but also benefits from the strong participation of individual and professional investors through the redistribution of bonds issued in the form of private placement by related organizations such as consultants and distributors in the market. VNS