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Bond redemption and maturity in October

Reducing pressure on debt repayment in the short term

In October 2022, the corporate bond market only recorded one domestic private placement of Nui Phao Mining and Processing Co., Ltd with a value of VND 210 billion for a 5-year term.

Meanwhile, the two leading issuers, real estate and credit institutions, have been absent.

In the recently released corporate bond market report in October 2022, FiinRatings said that both sectors are facing unfavourable factors, including the high-interest rate and new requirements of Decree 65, making the demand for bonds decline and the investor's disinterest in bonds after the recent violation events in the bond market.

The new issuance activities have been almost frozen, and the increase in bond redemption has made the outstanding balance of domestic bonds decrease by more than VND15.8 trillion in October, with the value of redemption and maturity of VND5.81 trillion and VND10.23 trillion, respectively.

According to FiinRatings report, the majority of repurchased bonds belong to credit institutions with a total value of VND 3.09 trillion, accounting for 53.27% of the total redemption value in October, followed by real estate businesses with a redemption value of VND 2.23 trillion, accounting for 21.77% of the total value of matured bonds.

The redemption of corporate bonds and capital withdrawal of investors before the due date of investors has significantly reduced the pressure from the remaining bonds outstanding subject to maturity at the moment. As a result, updated data of FiinRatings shows that the total value of real estate bonds that will mature after November 15, 2022, to December 31, 2022, is only VND21.85 trillion.

Although this outstanding is not large, it still affects the issuance because businesses have neither been listed nor obtained financial information about the issuer. Therefore, FiinRatings expects debt restructuring measures to be implemented soon. Besides, the pressure will remain at a considerable level from 2023 and 2024, with VND119.05 trillion and VND 111.81 trillion, respectively.

In addition to bond redemption, the market also witnessed various forms of debt restructuring, which issuers have increasingly applied. Some common options that have been recognized by FiinRatings include: extending the principal payment deadline with a new interest rate, converting debts into a long-term loan contract with a new interest rate, or converting debts into real estate products.

FiinRatings' expert team assessed that this is a quite positive sign for the current liquidity matter of the market because this measure helps solve the problem of the pressure of debt repayment in the short term before the wave of requests for payment before the maturity date of the bondholders. Moreover, the new interest rate in many recent transactions has also reflected the trend of increasing interest rates (ranging from 12-13%, 4-5% higher than the interest rate on 12-month deposits of big banks).

"However, we expect that the credit quality or solvency of the issuer should be identified, taking into account new risk factors such as when bondholders convert credits into corresponding real estate products, but the legal aspects of the project are still uncertain," - FiinRatings' experts said in the report.

Capital mobilization from international credits is increasing

While the capital mobilization channel through domestic bonds has slowed down, many businesses have succeeded in capital mobilization from international credits. For example, FiinRatings listed 10 recently announced transactions with a total value of US$1.915 billion, including Masan Group (US$600 million), VPBank (US$500 million), SeABank (US$200 million), Viet Capital Securities (US$105 million), VNDirect Securities (US$75 million), F88 (US$60 million), Vinfast (US$135 million), Novaland Group (US$40 million), Loc Troi Group (US$100 million) and Be Group (US$100 million).

Among these successful borrowers, two are rated by FiinRatings, and some international investors also maintain an independent communication channel with the analysts in charge of FiinRatings during the processing of the above capital transactions.

However, due to high-interest rates and the extra cost of exchange rate hedging, the interest rate for these credits may be higher than previous transactions.

According to FiinRatings, the 1-year forward rate for VND/USD is currently at 4-5%. Thus, the actual cost of loans (including nominal interest rate, exchange rate insurance cost, guarantee fee and transaction fee) in foreign currencies may range from 13-17% depending on the term. However, this is assessed positively when domestic capital channels have been tightened.

Credit institutions must declare and pay taxes before collateral settlement

This shows the trust of foreign financial credits in the long-term growth of big enterprises in Vietnam that provide clear information and credit profiles. The capital mobilization activities may continue, and the interest rate shows the risk level. The loan in foreign currencies has contributed to solving the pressure of debt maturity and demand for debt restructuring of some enterprises.