Insecurity with real estate bonds

VCN - Looking at Vietnam's corporate bond market, especially real estate bonds, many uncertainties have been pointed out, which can lead to risks in the future. Meanwhile, after many efforts to deploy a credit rating system, it has not developed commensurate with the expectations of regulators as well as the issuance size of the market.
In the last five years, corporate bonds is the important mobilized channel of real estate enterprise. Sketched by Fiin Group
In the last five years, corporate bonds is the important mobilized channel of real estate enterprise. Sketched by Fiin Group

Increase "the heat"

Real estate bonds continue to be the focus of attention in the primary corporate bond market with attractive interest rates for investors.

According to a report by the Bond Association (VBMA), in the first 11 months of 2021, real estate businesses have issued over VND187 trillion of bonds, accounting for 38% of the total issued value. Notably, Evergrande's default in China did not make the real estate bond market less exciting, having risen to the top position in terms of issuance value since October 2021. Even in October, the issuance value of real estate bonds reached more than VND16,000 billion, accounting for 42% of the total issued value of the month.

Notably, according to a report by SSI Research, the proportion of unlisted real estate enterprises participating in capital mobilization activities in the bond market is relatively high compared to other industries. According to statistics in the first nine months of 2021, the total issuance value of listed real estate companies only accounted for about 27% of the total real estate bonds, which was about VND58,000 billion. Meanwhile, in the remaining industries, this rate was 70%. This makes it difficult for investors to access information about the financial situation of enterprises.

Taking a closer look at unlisted real estate companies, Mr. Nguyen Nhat Hoang, Deputy Head of Credit Rating Division - Fiin Rating, found that there were issuers with weaker financial capacity than Evergrande. For listed real estate developers, a preliminary assessment showed a relatively better financial position compared with Evergrande, with lower financial leverage, profitability and inventory turnover. However, changes in credit policy or unexpected difficulties in sales due to the impact of the pandemic may cause the financial status of these enterprises to change in a more negative direction.

In addition, according to VBMA, about 30% of the value of real estate bonds issued are unsecured or secured by stocks and this percentage is increasing. According to SSI Research, this would be a big risk for investors in case the cash flow of real estate businesses was not guaranteed. If production and business activities faced difficulties, they would not be able to pay the principal and interest of the bonds for investors. Ensuring the obligation to pay bond principal and interest by shares does not make much sense because when the enterprise becomes insolvent, the value of the shares (usually of the issuer or related to the issuer) would also drop significantly.

Credit rating is still "ignored"

In order to promote transparency and protect investors' interests in the corporate bond market, Decree 155/2020/ND-CP which took effect from the beginning of 2021, stipulated credit ratings of public offerings of a certain size or a certain level of financial security. However, Mr. Nguyen Minh Tu, Executive Director of FiinRating Credit Rating Services division of Fiin Group - one of the two units licensed by the Ministry of Finance to provide social services, said that up to now this enterprise has only performed credit ratings for six issuers. In particular, there was only one enterprise in the real estate and renewable energy industry that was Bamboo Capital.

Mr. Nguyen Minh Tu said, after the communication and dissemination of the management agency and Fiin Group, many businesses expressed interest in credit rating activities. However, the number of enterprises implementing credit ratings was not high because legal regulations have not yet required the implementation of credit ratings when issuing bonds, so the actual demand was still low compared to the potential.

“We have encountered a number of cases where businesses hired us to carry out credit ratings but when the results we gave were not as expected, that enterprise did not agree to announce them and changed the bond issuance plan to focus on a few investors instead of offering it to the public," Tu said.

In fact, many businesses still do not really understand the role of independent credit rating in building credit profiles in the long-term capital market, optimizing capital costs, and diversifying the investor basis to serve their investment and expansion strategies.

Specifically, at Fiin Group, there are some businesses that ask the company to help them reduce interest rates or help them successfully issue new bonds then they would implement credit ratings.

“That is something that a credit rating unit like us or any other organization cannot commit to or do. Because that will lose the independence of a credit rating unit and the ranking results will no longer be valid because of the loss of objectivity. We can only give implications and conclusions based on which investors will understand and make lending and investment decisions and businesses themselves will understand to change their related factors to be able to have a better credit record and then the benefits will come,” Tu said.

On the side of bond buyers, many investors including institutional investors, also think "it's good if it's already rated" or "if it's already rated, why say there is a possibility of default?".

According to Tu, this view was completely incorrect because credit rating aimed to indicate a relative level of financial health in meeting financial obligations of enterprises to related parties, especially subjects with information asymmetries, such as investors in bonds and debt instruments.

In order to further promote credit rating activities in corporate bond issuance, the draft amending Decree 153/2020/ND-CP is being submitted by the Ministry of Finance for comments has added regulations on credit rating for some types of bonds issuance.

Accordingly, it is required that the bond offering dossier must have the results of credit rating for bond issuers and bond issuance if issuing bonds to individual professional investors, issuing bonds without collateral, no payment guarantee or the issuer has business results of the year immediately preceding the issuance or has accumulated losses up to the year of issuance.

This regulation is expected to contribute to increase publicity and transparency, contributing to improving the quality of issued bonds. At the same time, helping the market get into the habit of using credit rating results to assess the risks of bonds, approaching international practices and limiting investors' risks.

By Khải Kỳ/Thanh Thuy

Related News

Increasing institutional investors – improving quality of corporate bond market

Increasing institutional investors – improving quality of corporate bond market

VCN - The structure and quality of investors have been one of the limitations of the corporate bond market in recent times. To improve the quality of the market, increasing institutional investors and improving the quality of investors, including individual investors, is one of the solutions that have been implemented by management agencies, thereby building a sustainable corporate bond market.
Vietnam to achieve credit rating as set target

Vietnam to achieve credit rating as set target

VCN - With the current credit rating scale, Vietnam is getting closer to the target of raising the investment rating grade by 2030 set out in the National Credit Rating Improvement Project by 2030.
Industrial real estate - "Magnet" attracting foreign capital

Industrial real estate - "Magnet" attracting foreign capital

VCN - Looking back at the development journey over the past 30 years, it can be affirmed that the model of industrial parks and economic zones has been playing an important role, as a driving force for growth and the process of industrialization and modernization of the country; a channel to attract investment resources, especially foreign direct investment (FDI), contributing to improving the business environment and enhancing competitiveness, ensuring sustainable development.
Vietnam has 4 enterprises providing credit rating services

Vietnam has 4 enterprises providing credit rating services

VCN - The Ministry of Finance said that, according to the provisions of Decree No. 88/2014/ND-CP, enterprises providing credit rating services must be granted a Certificate of eligibility to provide credit rating services by the Ministry of Finance.

Latest News

Continue to handle cross-ownership in banks

Continue to handle cross-ownership in banks

VCN - The situation of excess share ownership, cross-ownership between credit institutions (CIs), CIs and enterprises, although has decreased significantly compared to previous periods, is still complicated and requires continued inspection and control.
Striving for average CPI not to exceed 4%

Striving for average CPI not to exceed 4%

VCN - According to the report of the Ministry of Finance, there are still some factors that put pressure on price levels in the remaining months of 2024, so the Ministry has updated 2 scenarios of average inflation in 2024 increasing in the range of 3.7-3.92%.
Delegating the power to the government to waive, lower, or manage late tax penalties is suitable

Delegating the power to the government to waive, lower, or manage late tax penalties is suitable

VCN - Discussing in groups about the project "1 law amending 7 laws" in the financial sector according to the program of the 8th Session on October 29, 2024, National Assembly delegates proposed that the Government should be assigned to make specific regulations on decentralization, granting the right to exempt and reduce taxes, and handling penalties for late payment of taxes...
Removing difficulties in public investment disbursement

Removing difficulties in public investment disbursement

VCN - According to the report of the Investment Department (Ministry of Finance), the estimated disbursement from the beginning of the year to October 31, 2024 is VND 355,616.1 billion, reaching 47.43% of the 2024 plan, reaching 52.29% of the plan assigned by the Prime Minister.

More News

State-owned commercial banking sector performs optimistic growth, but more capital in need

State-owned commercial banking sector performs optimistic growth, but more capital in need

VCN - According to the report sent to the National Assembly before the 8th Session of the Government on investment, management and use of state capital in enterprises nationwide in 2023, the business performance of the state-owned commercial banking sector achieved positive growth.
Stipulate implementation of centralized bilateral payments of the State Treasury at banks

Stipulate implementation of centralized bilateral payments of the State Treasury at banks

VCN - The Ministry of Finance (MOF) gathers feedback on the draft Circular regulating the management and use of accounts of the State Treasury opened at the State Bank of Vietnam (SBV) and commercial banks.
Rush to finalize draft decree on public asset restructuring

Rush to finalize draft decree on public asset restructuring

VCN - According to the Ministry of Finance, the draft Decree regulating the rearrangement and handling of public assets is being urgently completed by the Ministry of Finance to submit to the Government for promulgation.
Inspection report on gold trading activities being complied: SBV

Inspection report on gold trading activities being complied: SBV

The State Bank of Vietnam (SBV) has announced that inspections on compliance with legal policies in gold trading activities of credit institutions and gold trading businesses have been completed and an inspection report is being compiled.
Budget revenue in 2024 is estimated to exceed the estimate by 10.1%

Budget revenue in 2024 is estimated to exceed the estimate by 10.1%

VCN -The Government estimates that state budget revenue in 2024 will exceed VND 172.3 trillion, up 10.1% over the estimate, of which tax and fee revenue will reach 13.1% of GDP.
Ensure timely and effective management and use of public asset

Ensure timely and effective management and use of public asset

VCN – In order to promptly and effectively implement public asset management and use, ensuring compliance with legal regulations, the Ministry of Finance has just issued an official dispatch requesting ministries, branches and localities to comply with regulations in the Government’s Decree No. 114/2024/ND-CP dated September 15, 2024.
Accelerating decentralization in public asset management

Accelerating decentralization in public asset management

VCN - Amending the Law on Management and Use of Public Assets aims to improve regulations on accelerating decentralization and improving efficiency in management and use of public assets, and promoting financial resources, ensuring that the unified application the Law on Management and Use of Public Assets and other legal documents.
Difficulty in finding banks eligible to receive compulsory transfers

Difficulty in finding banks eligible to receive compulsory transfers

VCN - Reporting to the National Assembly, the State Bank of Vietnam (SBV) said that one of the difficulties in restructuring the credit institution system is the long process of finding and negotiating banks eligible to receive compulsory transfers.
Businesses can choose a suitable electronic invoice model generated from the cash register

Businesses can choose a suitable electronic invoice model generated from the cash register

VCN - The Ministry of Finance said that individual business households can choose a suitable model to apply electronic invoice solutions from cash registers, depending on the number of invoices used in the year, in the month and the current status of software solutions and technical infrastructure.
Read More

Your care

Latest Most read
Continue to handle cross-ownership in banks

Continue to handle cross-ownership in banks

VCN - The situation of excess share ownership, cross-ownership between credit institutions (CIs), CIs and enterprises, although has decreased significantly compared to previous periods, is still complicated and requires continued inspection and control.
Striving for average CPI not to exceed 4%

Striving for average CPI not to exceed 4%

VCN - According to the report of the Ministry of Finance, there are still some factors that put pressure on price levels in the remaining months of 2024, so the Ministry has updated 2 scenarios of average inflation in 2024 increasing in the range of 3.7-3
Delegating the power to the government to waive, lower, or manage late tax penalties is suitable

Delegating the power to the government to waive, lower, or manage late tax penalties is suitable

National Assembly delegates proposed that the Government should be assigned to make specific regulations on decentralization, granting the right to exempt and reduce taxes, and handling penalties for late payment of taxes...
Removing difficulties in public investment disbursement

Removing difficulties in public investment disbursement

VCN - According to the report of the Investment Department (Ministry of Finance), the estimated disbursement from the beginning of the year to October 31, 2024 is VND 355,616.1 billion, reaching 47.43% of the 2024 plan, reaching 52.29% of the plan assigne
State-owned commercial banking sector performs optimistic growth, but more capital in need

State-owned commercial banking sector performs optimistic growth, but more capital in need

According to the report of the Government on investment, management and use of state capital in enterprises nationwide in 2023, the business performance of the state-owned commercial banking sector achieved positive growth.
Mobile Version