Corporate bond issuance surges in March after prolonged inactivity

Vinhomes Ocean Park 2 in Hung Yen province. Hung Yen Urban Investment and Development Co issued two lots of bonds worth total 7.2 trillion VND on March 16 with collateral of property rights arising from business cooperation contracts at Vinhomes Ocean Park 3 project. (Photo courtesy of Vinhomes)

The corporate bond market is showing signs of recovery after a prolonged period of inactivity with a notable increase in both the number of issuers and value of issuance.

Data on the Hanoi Stock Exchange showed as of March 24, eight companies issued bonds worth more than 23.8 trillion VND (over 1 billion USD), of which real estate firms dominated the market with total issued value of 19 trillion VND, accounting for 80% of total value.

This number was a significant increase compared to the value of 500 billion VND in February and 110 billion VND in January.

On March 16, two realty firms – Hung Yen Urban Investment and Development Co Ltd and Southern Star Urban Development and Trading Investment JSC – issued bond worth 7.2 trillion VND and nearly 4.7 trillion VND, respectively.

In the first half of March, four other real estate enterprises also issued bonds including Dream City Villas Real Estate Trading LLC (2.3 trillion VND), Nam An Investment and Trading JSC (4.7 trillion VND), Thu Do Import Export Trading and Investment JSC (40 billion VND) and Ha Thanh Trading and Production Investment JSC (45 billion VND).

Also in March, two consumer companies had successful bond issuances, of which Luxury Living Furniture Trading Co Ltd mobilised 4.8 trillion VND and HDE Distribution JSC issued bonds worth 40 billion VND.

The average interest rate of corporate bonds was around 12-13% per annum. However, some businesses offered lower interest rate of 6-9% per year for the initial period, followed by a floating rate.

Only Hung Yen Urban offered zero coupon for 12-month bonds (pay no interest but instead trades at a deep discount) with collateral of property rights arising from business cooperation contracts at Dai An urban area project (Vinhomes Ocean Park 3) between Vinhomes JSC (project's investor) and Hung Yen Urban Co.

Market analysts have predicted the corporate bond market will recover in the near future following the implementation of Decree 08 on private corporate bond placements, which came into effect on March 5. This decree will provide a legal framework to address the current bottlenecks in the corporate bond market, potentially increasing the success rate of issuances by deferring certain provisions such as professional investor regulations or extending distribution time.

VNDirect Securities Co estimates the maturity value of corporate bonds in 2023 to be around 252 trillion VND, representing a 64% year-on-year increase, with strong maturity pressure focusing in the second and third quarters./.