Corporate bonds

Splurge on corporate bonds, but investors face risks

Last year, companies issued nearly 640 trillion VND ($27.6 billion) in bonds, an increase of nearly 40% from 2020.

Ninety-five percent of these were private placements, which is considered easier for the issuer due to less complicated legal requirements.

Banks and property developers were the two largest issuers, as they had a growing demand for capital to expand, and accounted for 69%.

Investors were attracted by high coupon rates, as more than 60% of bonds last year rewarded customers with more than 8% interest, higher than bank deposit rates of 5-6%.

The government has regulations in place to protect amateur investors.

Vietnam only allows “professional investors” to buy private placement bonds, and many companies have worked hard to make their investors “professional” in a short time so they can sell their bonds.

One method is to get an investor to buy a government bond or any listed bond for two to four days so they can get a professional bond investor certificate valid for one year.

An investor with more than 2 billion VND of shares in his account is also considered a professional bond investor.

Real estate developer Tan Hoang Minh adopted a new method of flouting the law: its subsidiaries issued more than VND 10 trillion in bonds, which it bought and sold to investors posing as ‘partners’ , who thus paid for the bonds but never owned them.

Company bosses and others involved in the scam were arrested in early April.

In a recent report, the Department of Finance expressed concern about the health of issuers.

Of 358 companies that issued bonds last year, 57 (or 15.9%) were losing money.

Forty-five of them issued bonds worth 10 times their equity while 10 of them had five times leverage.

Property developer Osaka Garden issued bonds worth VND 7.7 trillion, or 29 times its equity.

Another developer, Mediterranean Revival Villas, issued bonds worth VND7.2 trillion, or 47 times its equity.

The Ministry of Finance is set to further tighten bond regulations and could limit a company to issuing less than three times its equity.

Companies often use their own future projects or actions as collateral, and when one falls, the collateral is of little value and may not be enough to repay investors, the ministry said.