Hanoi (VNS/VNA) – As the corporate bond market has shown signs of rapid growth, this capital raising channel will be closely inspected and monitored this year.
The corporate bond market flourished with an estimate annual issue value over VND500 trillion (21.9 billion) in 2021, bringing the total value of recent outstanding corporate bonds to nearly VND1.2 quadrillion, representing approximately 11.4% of the total outstanding credit to the entire economy and representing approximately 14.5% of 2021 GDP.
In the context of banking tightening credit growth, corporate bonds have become an increasingly important medium- and long-term capital channel for companies. In the residential real estate sector, corporate bonds even account for almost half of the total loan balance.
As the corporate bond market has shown signs of rapid growth, market failures are becoming increasingly evident. Due to easy issuance conditions, a series of loss-making companies still managed to raise trillions of đồng. Most corporate bonds in the market are unsecured. The rest is guaranteed mainly by future projects or by inventories. In other words, if a company collapses, investors are left empty-handed.
The risks prompted market regulators to start inspecting the market. At the end of 2021, a series of bond issuers were sanctioned by the State Securities Commission for violating the provisions of the law.
In a recent announcement, the state Securities Commission said it will continue to closely inspect and monitor the issuance of corporate bonds in the future. In addition, the State Bank also issued Circular No. 16/2021/TT-NHNN, toughening the corporate bond trading activities of credit institutions.
Dinh Trong Thinh, an economist, told Dau Tu (Vietnam Investment Review) newspaper that it was necessary to “purge the corporate bond market to avoid collapse.
“Only a few issuers breaking the law would cause investors to lose confidence in the broader corporate bond market,” he said.
“Although the corporate bond market is in its early stages of development, its recent magnitude has significantly reduced credit pressure for banks. However, if a ripple effect occurs, the entire national financial system will be plunged into turmoil,” he said.
While corporate bond issuance activity is tight, the maturity dates of most bonds in the market are approaching.
Nguyen Quang Thuan, Chairman of the Board of FiinGroup, said that out of a total of nearly VND 1.2 quadrillion of recently outstanding corporate bonds, up to 40.7% will reach their maturity dates. due in 2022 and 2023.
Outstanding corporate bonds in the non-financial sector currently stand at 780 trillion VND, nearly 69% of the total value. Over the next three years, companies (excluding banks, securities companies and finance companies) are under pressure to pay their investors over VND 500 trillion in debt.
The Ministry of Finance is preparing a decree amending and supplementing a number of articles of Decree No. 153/2020/ND-CP of December 31, 2020 stipulating the private placement of corporate bonds on the domestic market and the international market. As a result, investment conditions will be tightened and companies will have many difficulties in raising capital to pay their debts when the bonds come due.
To ensure the source of debt repayment, experts said companies need to standardize their operations to meet the conditions for issuing bonds. Companies should also consider other sources of capital to pay debts to investors.
Securities and corporate bonds are medium to long term capital raising channelFor the economy, it is necessary to facilitate their development in order to reduce the capital dependence of companies on the banking system, said Dao Minh Tu, vice-governor of the State Bank of Vietnam.
“However, corporate bonds are only good for the economy if this market develops seamlessly,” he said.
The State Securities Commission is urgently building a secondary bond trading floor and tightening the conditions for issuing corporate bonds. Amendments to Executive Order No. 153 are expected to be officially released in 2022. Under these amendments, unsecured companies doing business at a loss will not be eligible to issue bonds on the floor.
Vu Thi Thuy Nga, deputy managing director of the Hanoi Stock Exchange (HNX), said the secondary bond trading floor will be launched by the end of 2022, helping to increase liquidity and reduce risk for investors. /.