Transparency needed for healthier corporate bond market
Transparency needed for healthier corporate bond market
To develop a healthy bond market and reduce risks for investors, quality of information disclosure and transparency of corporate bond issuance need to be enhanced.
The country's corporate bond market has been on an upswing in recent years. The Ha Noi Stock Exchange (HNX) estimated that about VND89.5 trillion (US$3.85 billion) worth of corporate bonds were issued in the first half of 2019, up 34 per cent from the same period last year.
Credit growth has been cooled as commercial banks must reduce short-term funding mobilisation for medium- and long-term loans to comply with the State Bank of Viet Nam's regulations.
Therefore, firms would have to find other ways to raise capital including issuing corporate bonds, according to Nguyen Hoang Duong, deputy director of the Ministry of Finance’s Department of Banking and Financial Institutions.
By June 24, the outstanding value of corporate bonds accounted for 10.22 per cent of 2018’s Gross Domestic Product (GDP), more than 3 per cent higher than the goal for 2020 set by the Government.
However, it was relatively small compared to the scale of banking credit channels and the level of other countries in the region (20-50 per cent of GDP). Most firms still look for funding via bank loans.
According to analysis from MB Securities Co (MBS), the banking sector accounted for the largest proportion of corporate bond issuance, followed by the real estate, construction and infrastructure sectors.
Le Hoang Chau, president of the HCM City Real Estate Association (HoREA), said the State Bank had implemented a roadmap to limit credit in the real estate sector, making the bond issuance channel become important for real estate enterprises to supplement their capital and enhance their finance capacity.
Bond rules had also been relaxed, Chau said. To issue bonds, a company was no longer required to be profitable in the year before the proposed issuance, though this did pose greater risks to secondary investors, he said.
Some companies even raised their bond yield rates twice as high as bank deposit interest rates to attract investors, but this was a risky approach.
To solve the problem, the Government has issued a decree on the issuance of corporate bonds which sets higher requirements for information disclosure to protect the rights and interests of investors.
Previously, issuers only needed to publish information before issuing and announcing issuance results for investors who registered to buy bonds.
Under the new decree, enterprises must disclose information on the HNX website, including pre-trade information, results of the issuance, periodic information and anomalies.
Draft amendments to the securities law have also been submitted to the National Assembly, which contain rules on professional investors.
It suggests that the private placement of bonds should only be made to high net-worth individuals or companies with experience in finance.
Additionally, the amended draft law requires issuers to receive credit ratings before issuing bonds to the public to better support investors, especially individuals who are less experienced.
The Ministry of Finance has licensed one credit rating provider and is taking moves to invite other foreign providers to Viet Nam.
The State Securities Commission is also working to standardise requirements and procedures of corporate bond issuance and cut the time required for the first public offering.
