Ensuring the healthy development of the corporate bond market

Illustration Photo: Internet

Not much impact on bank credit

Commenting on the decision to cancel nine corporate bond issuances of three enterprises under Tan Hoang Minh Group, Vietcombank Securities Company (VCBS) said, according to information published on the Portal of Corporate Bonds, the bonds of the above enterprises are all bonds with collateral secured by land-use rights with valuation certificates or by mortgaged stocks with the value stated in valuation certificates worth 130%-200% of the value of the mobilization.

However, it should also be noted that these are mostly unlisted enterprises, so the possibility of liquidation of collateral will be less feasible and take a long time in the process of collateral recovery.

In fact, most of the bond lots have been distributed to individual investors with flexible value and terms packages. Along with that, among eight bond lots that have been announced, two lots have completed the first interest payment period for bondholders.

According to VBSC, this has many potential complications in the process of canceling bond issuances of these enterprises. Therefore, it needs more time to wait for the guidance documents of the management agencies ịn the settlement for bondholders.

“In the case that the management agencies can coordinate with Tan Hoang Minh to properly settle the interests of bondholders that are organizations and individuals, the extent of damage will be limited to a narrow scope. On the contrary, if Tan Hoang Minh defaults or goes bankrupt, then the financial market, as well as the banks involved in granting credit to Tan Hoang Minh, will suffer stronger spillover effects," VCBS said.

On the side of banks, VBCS believed that the direct impact of the cancellation of Tan Hoang Minh bond issuance results was not much. As for banks as bond buyers, according to available information, credit institutions have participated in buying at least three bond issuances of Tan Hoang Minh group. However, the scale of VND3,000 billion bond of the three issuances as mentioned above and the bond of VND10,000 billion of all nine issuances were still a low proportion compared to the total credit of the whole banking system.

Meanwhile, for real estate companies, the cancellation of Tan Hoang Minh bond issuance results in the short term will have a multi-dimensional impact on the ability to mobilize capital of the group of enterprises in the same industry when investors will have a much more selective perspective on the accompanying terms of real estate corporate bond products in the context that corporate bonds have become an important capital mobilization channel for real estate businesses since 2018 when sources of credit for real estate projects began to tighten.

Opportunity for quality corporate bond products

In another aspect, VCBS believed that this event is an opportunity for quality corporate bond products to affirm their foothold with professional investors when deposit interest rates are still significantly lower than before the pandemic. Thereby, creating a premise for the corporate bond market to continue performing the important function of the capital market - providing long-term capital for the economy.

Moreover, from the perspective of a regulatory agency, this is a necessary step to ensure the healthy and sustainable development of the corporate bond market in the long term, closely following the development goal of the securities market as a stable, safe and effective operation, reasonable structure, balance between currencies market and capital market, between the stock market and bond market and derivative securities market have been approved by Prime Minister in Decision No. 368/QD-TTg on the Financial Strategy to 2030.

Accordingly, the target by 2025 is that the outstanding debt of the corporate bond market will reach at least 20% of GDP and 25% by 2030.

The amendment of Decree 153/ND-CP on private placement of corporate bonds will focus on tightening terms for bonds with no collateral, no credit rating, and no payment guarantee or bonds with unclear capital use purposes, or incorrect use purpose for mobilization.

In general, the recent movements of the regulatory agencies with the violations in the financial and securities sectors will contribute to the purification of the market, increasing investors' confidence in the stock market in particular and investment capital flows into Vietnam in general.

Regarding the impact of corporate bond quality on the credit quality of the banking system, from the perspective of a credit rating agency, Fiin Ratings said that, according to Fiin Ratings data, the size of the bond credit bonds is currently at VND273.9 trillion at the end of 2021, accounting for only 2.16% of total earning assets and 2.63% of total credit outstanding of the commercial banks in Vietnam. Therefore, current events are unlikely to have too great an impact on the credit quality of the commercial banking system.

However, this factor would be low risk if the issuer and related parties such as the guaranteed debt repayment obligations unit put efforts to fulfill the commitments on debt repayment obligations with a clear schedule to ensure the interests of investors.

This is important because the popularity of the corporate bond investment channel is not only large in scale but also has the strong participation of individual and professional investors through redistribution of bonds which are issued in the form of private placement from related organizations such as consultants and distributors in the market.

Regarding the impact on the real estate industry, this unit said that the important issue is the pressure to pay the debt of bonds due in the next 2-3 years. The size of corporate bond debt of the real estate industry is about VND189 trillion at the end of 2021. Fiin Ratings data showed that 73% of this value would have a maturity point in the next 3 years (2022 - 2024).

According to Fiin Ratings, it not only creates greater debt repayment pressure for real estate businesses in the context of the gradual recovery post-pandemic and legal changes and recent events but also impacts the risks of liquidity of distribution agents with commitments to buy back bonds, which are financial institutions such as securities companies and banks.

In addition, this debt repayment pressure can affect the risk of the stock market because stocks are pledged as collateral for bonds or pledged to buy low-quality or problem bonds as indicated by the regulatory authorities.