Companies to pump out bonds as trade will soon be restricted
The corporate bond market will flourish in the third quarter of this year but will then step back in the fourth quarter in anticipation of regulatory amendments which will impose restrictions on bond trading from early September.
The forecast was made by SSI Securities Incorporation (SSI) in the company’s report on Viet Nam’s bond market in the first six months of 2020.
The report said a total of VND122.3 trillion (US$5.3 billion) worth of bonds were issued in January-March, up 69.7 per cent year-on-year. The figure for the first six months was VND171.5 trillion, up 61.3 year-on-year and much higher than the growth of 37 per cent in the same period last year.
Of the total bond value issued during six months, VND10 trillion or 5.8 per cent of the total value was issued by Masan Group to the public. The other 94.2 per cent was issued by 133 enterprises via private placement, divided into 826 tranches.
Regarding the issuance structure in the first six months, the group of real estate businesses issued the largest bond volume worth VND71.6 trillion, accounting for 41.8 per cent of the total issued volume and up by 57.5 per cent year-on-year.
The banking group ranked second with a total issuance value of VND47.3 trillion, accounting for 27.6 per cent and up 31.2 per cent year-on-year.
Energy and minerals group issued VND10.5 trillion, accounting for 6.1 per cent of total issued value and 5.3 times higher than the same period in 2019.
The rest was issued by infrastructure development groups, financial services companies and other businesses.
The size of the corporate bond market has risen 15.6 per cent compared to the end of 2019, reaching VND791 trillion and equal to 12.9 per cent of the country’s total GDP.
Viet Nam’s proportion of corporate bonds in the country's GDP is far ahead of Indonesia, surpassing the Philippines but still far short of Thailand, 23 per cent of GDP; China, 33-35 per cent of GDP; Malaysia, 51 per cent of GDP; and South Korea, 80 per cent of GDP.
According to SSI, compared to other capital mobilisation channels in Viet Nam, the corporate bond channel is still quite modest in scale. The economy still relies heavily on bank credit. The total credit scale as of June 30 reached VND8.48 quadrillion, equivalent to 138.5 per cent of GDP and 10.75 times higher than the corporate bond channel.
SSI noted that the development of the corporate bond market is indispensable to create a balance and improve the quality of Viet Nam's financial market. However, the overheated growth has posed potential risks to the sustainability of the market.
Since the beginning of this year, the Ministry of Finance has continuously issued warnings about risks which might arise from the abuse of this capital raising channel, giving out recommendations to investors and market participants.
The ministry has made public a draft Decree 81/2020/ND-CP to amend several points of Decree 163/2018/ND-CP about corporate bond issuance for comments, which included amendments of conditions for corporate bond issuance, rates, issuance in domestic and international markets, information disclosure and reporting mechanisms.
Decree 81/2020/ND-CP has been submitted to the Government and is expected to officially take effect in early September.
Under the draft, regulations about bond yields and bond transactions would be tightened.
Accordingly, bond yields would not be allowed to be higher than 20 per cent per year.
This aimed to prevent firms from offering high bond yields which would negatively affect the capital market.
In addition, bonds issued in the domestic market would be restricted from trading among less than 100 investors while under the current regulation, the restriction was applied only in the first year. This aimed to protect bond investors, the ministry said.
Two issuances must be at least six months apart, according to the draft.
Notably, issuing companies must ensure the outstanding value of bonds issued would not exceed three times their charter capital. The Ministry of Finance said that this regulation would help prevent firms from issuing bonds in a too large volume and value which would create risks for both issuers and investors.
SSI experts said companies would accelerate issuing bonds in July and August, before the issuance conditions are tightened.