Few firms go ahead with bond sale plans

Few firms go ahead with bond sale plans

Only three of the nine companies with plans for bond issuance in the first half of 2013 have successfully launched their bonds into the market, according to Vietcombank Securities Company (VCBS).

Hoang Anh Gia Lai on July 9 issued VND950 billion worth of bonds with an annual yield of 14%. HCMC Infrastructure Investment Joint Stock Company (CII) has launched VND1 trillion worth of bonds into the market with a yield of 13.2%.

Meanwhile, Safi Transport Joint Stock Company has mobilized VND20 billion from its bond issuance on July 4 with a lower yield of 9% and a one-year term.

Six other firms with plans for bond sale, including Vinh Son-Song Hinh Hydropower Joint Stock Company, Song Da 2 Joint Stock Company and Saigon General Services Corporation, have not made a move on their plans.

The corporate bond market has been sluggish since early this year. Many companies have announced they would issue bonds, but most have refrained from their schemes while few have really done so, which is ascribed to weak demand and low credit growth.

Banks and financial institutions as key bond buyers seem cautious of this risky investment channel since multiple businesses are struggling with high inventory and slow consumption, said VCBS.

In addition, the underdeveloped corporate bond market and poor liquidity make corporate bonds hard to sell.

In a developed market, companies only mobilize funds from bond issuance when the stock market is in trouble. Raising funds from share issuance is more beneficial than bond issuance because companies would not have to pay dividends if they operated inefficiently.

However, in Vietnam, such a relation is ambiguous. Corporate bond issuance is a form of lending since there is no transaction in the secondary market.

Therefore, the corporate bond market is only active with good credit growth, when bank lending rates can be compared to corporate bond yields.

Only listed companies disclose information when issuing bonds. There may be other corporate bond issuances underground.

For example, banks may purchase bonds issued by their corporate debtors as a form of debt restructuring. However, this will not generate funds for the issuers like other types of bond sale.

In the first six months of 2013, outstanding loans only grew 2.8%, while corporate bond sales increased 4.14%, says a report by the central bank. As long as businesses are mired in troubles, investment in corporate bond poses many risks to banks.

Most banks have purchased bonds from construction and realty firms, accounting for 50% of their bond investment, entailing great risks as the real estate market is now frozen.

Corporate bonds are mainly issued to spur capital or to restructure debts. When businesses have not recovered, investment in corporate bonds for debt restructuring is also risky.

Vuong Quan Hoang, a financial expert, said that when buying corporate bonds for debt restructuring, banks could only conceal bad debts, not completely settle them. In this case, they cannot ask for collateral like when they give out normal loans.

In August last year, Hoang Anh Gia Lai issued VND850 billion. Speaking to the Daily back then, Vo Truong Son, deputy general director of the group, said the move was not aimed to mobilize more capital, but to turn short-term debts to banks into corporate bonds, helping the group defer debt repayments.

vietnamnet