Corporate bonds

Capital raising through corporate bonds may decline

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

A number of violations related to corporate bonds addressed recently, as well as ongoing policy changes, including the State Bank of Vietnam (SBV) Circular 16 on the Regulation of Bond Trading by institutions and the changes and additions that are expected to be included in the draft Private Placement Executive Order 153, are likely to significantly reduce the size of the corporate bond market by 2022, FiinRatings said.

In 2021, the bond market was a very important capital-raising channel, as the numbers accounted for 54% of the annual change in the system-wide credit growth balance in 2021.

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

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 for 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 companies.

Commenting on the impact of the quality of corporate bonds on the credit quality of the banking sector, according to FiinRatings, along with securities companies, commercial banks have 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.

The application of SBV Circular 16 relating to the regulation of bond transactions, according to FiinRatings, is necessary to control the quality of bad debts, in particular banks with low quality of assets, control the size of real estate credit and control credit transfer activities between the two bond and bank loan channels.

Data from FiinRatings shows that the size of bond credit is currently 273.9 trillion VND ($12 billion or RM50.6 billion) at the end of 2021, which is only 2.16% of the total. productive assets and 2.63% of total commercial bank credit outstanding in Vietnam.

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 than consultants and distributors in the market. – Vietnam News / ANN