Fruitful territory for bond issuance

Banks are showing strong desire in bond issuance activities, while real estate developers have lowered the extent of their bond-related capital mobilisation efforts.

In the first 10 months of 2021, commercial banks continued to be the main contributor for the total corporate bond issued value, recorded at $5.73 billion. In which, tier 2 capital-raising bonds accounted for nearly 25 per cent, according to KIS Securities.

In particular, some banks issued bonds with a duration of under five years, including ACB, VPBank, OCB, LienVietPostBank, SHB, TPBank, and VPBank, whilst BIDV and VietinBank have longer-term bonds over five years.

The property sector ranked second, recording 35 per cent of issued corporate bond total value in the first nine months of 2021. However, this sector is the leader in terms of bond rate at an average of 8 per cent annually and a short duration averaged at three years. Some active issuers include Novaland, Vinhomes, Phat Dat Real Estate, Nam Long Group, and Dat Xanh Group. Notably, 15 per cent of real estate corporate bonds were unsecured or secured by common shares.

In the first 10 months of the year, there were three issuances on the international market – Vingroup at $500 million, convertible bonds of Novaland at $300 million, and green bonds from BIM Real Estate JSC at $200 million.

“Investors could find more investment opportunities across the real estate sector when the issued bonds have a rate ranging from 8-13 per cent annually, especially with short duration. However, investors need to be aware of bonds which are unsecured or secured by common shares,” said KIS Securities. “We expect that bonds will keep being a major instrument for mobilising capital as banks continue to focus on short-term lending, whilst there is high business demand (especially real estate firms) for mid- and long-term lending.”

The sustained growth momentum since 2017 demonstrates the importance and attractiveness of the capital mobilisation route via corporate bonds. In the first nine months of 2021, the total issuance value of corporate bonds climbed by 27 per cent over the same period the previous year. This is a slower pace of increase than the 30-40 per cent seen in the previous three years.

According to data provider FiinGroup, this growth rate reflects two main factors – the huge demand for medium and long-term capital issuance due to the pandemic, and spillover effects of new regulations aimed at stricter control of bond issuance, especially public offerings.

The biggest policy change, specifically, is the regulation that private placement bonds, besides being sold to institutional investors, can only be purchased by professional individual investors with specific conditions.

According to recent moves from the Ministry of Finance on strengthening the management of the corporate bond market, private placement of corporate bonds without collateral or with a low reputation of the issuer will be watched under strict monitoring and surveillance.

Circular No.16/2021/TT-NHNN, dated November 10, contains the notable provision that credit institutions are only permitted to buy corporate bonds if their bad debt ratio is less than 3 per cent based on the latest classification period. Credit institutions are forbidden to obtain corporate bonds issued with the intent of settling the issuing firms’ debts, and prohibited from purchasing corporate bonds issued for the purpose of raising capital or acquiring shares in other businesses.

In compliance with the State Bank of Vietnam’s requirements, domestic commercial banks enhance their use of bond channels to raise tier 2 capital and improve the ratio of short-term capital to medium- and long-term loans.

Corporate bond issuance continues to offer numerous benefits in a low-interest-rate environment in Vietnam, but an updated legal framework has exerted significant influence on the intensity and scope of issuance activity.

Decrees No.153/2020/ND-CP and No.155/2020/ND-CP, which took effect on January 1, define the prerequisites for bond issuance. New restrictions aimed at improving and standardising issuing circumstances, as well as restricting participation to professional investors, have resulted in considerable delays in issuance.

Prior to the implementation of Decree No.81/2020/ND-CP amending and supplementing several articles related to corporate bond issuance on September 1, 2020, the total value of bonds issued in August 2020 reached $4.5 billion), accounting for 25 per cent of total issuance value in that year, and then plummeted to $956.5 million the following month.

Individual investors’ engagement in the primary market has reduced dramatically since only professional individual investors are permitted to participate in a private placement. Nevertheless, securities corporation participation has increased.

In the first nine months of this year, institutional investors, mainly commercial banks, have been the most active participants with 55.9 per cent purchase value of the total issuance value, although their proportion had decreased relative to securities companies. The proportion of individual investors in the primary market has decreased significantly compared to 2020, from 13 to 5.3 per cent.

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