Investors should be cautious in corporate bond market: experts

The risk of corporate bond defaults will keepnbsp;increasingnbsp;unless legal loopholes in the market are plugged, according to experts.

Việt Nam's corporate bond market amounts to nearly 16 per cent of GDP and is the fastest-growing market in Asia over the past 15 years. Photo vneconomy.vn

The risk of corporate bond defaults will keep increasing unless legal loopholes in the market are plugged, according to experts.

Nguyễn Hoàng Dương, deputy director of Department of Banking and Financial Institutions, noted that total corporate bond issuance in Việt Nam had been rising steadily since Q2/2021.

Around VNĐ658 trillion (US$29.1 billion) worth of bonds were issued in 2021, up 42 per cent year-on-year.

Private placement took up the lion’s share of over 95 per cent of bond issuance, whereas the rest went to public offering.

The rapid growth of the corporate bond market has attracted much interest from inpiduals.

However, inpiduals are not eligible for private placement according to securities law. It is only available to strategic investors and professional investors.

Given such a legal barrier, some banks, financial institutions and counselling organisations have begun to exploit loopholes to turn inpiduals into professional investors.

This practice is not illegal but puts non-professional bondholders at risk of bond defaults.

“Inpiduals are just inpiduals. They are not fully aware of the risks carried by the bonds they’ve bought or by the issuers,” said the deputy director.

By late Q3/2021, nearly 300,000 inpiduals had put their money in corporate bonds.

According to Dương, many loss-making firms and small firms with low equity have managed to raise a large amount of money through bonds.

Some bond issuers do not use the proceeds for their stated purposes. Instead, they transfer the money to other organisations, which turn out to be the actual beneficiaries of the bond revenues.

Several securities firms also get in on the act by providing issuers with favourable issuance documents to help them draw in money more easily.

The risk of bond defaults is high. Regardless, a lot of investors keep pouring their money into corporate bonds and turn deaf ears to any warnings.

“Many experts advised the Ministry of Finance to allow several bond defaults to occur, so inpiduals and investors could become more aware of the risk," Dương said.

Nguyễn Quang Thuân, chairman of FiinGroup JSC, said that a large number of bond issuers were financially weak with a low ability to repay, notably unlisted ones.

According to Thuân, 94 out of 383 issuers in 2021 had been accumulating losses, 81 were running at a loss in 2020 and 121 offered bonds with no collateral.

“I want to remind investors, especially non-professional investors, that even professional banks have bad debts. Accordingly, bonds are not risk-free or default-free. It is all about when a default will occur,” warned the chairman.

Đỗ Ngọc Quỳnh, general secretary of Vietnam Bond Market Association, believes both professional and non-professional investors will be at risk if the exodus of inpiduals to the bond market is left unchecked.

To reduce the risk of a bond default, he called for a crackdown on issuers that have manoeuvred to raise money from investors.

Dương believes bond defaults would be detrimental to the financial system as there might be strong links between bonds and banks and financial institutions.

The deputy director urged authorities to continue to refine the legal framework to reduce the market's risks, safeguard investors and maintain the market's stability.

In 2021, 56 per cent of corporate bondholders were banks and securities firms. Professional inpiduals accounted for 8.6 per cent.

Regarding bond issuers, listed firms took up about 54 per cent, whereas unlisted firms took about 46 per cent. — VNS

Source: VNA
vietnamnews.vn

Related News

Transparency evates the standing of listed companies

Transparency evates the standing of listed companies

VCN - According to the Hanoi Stock Exchange (HNX), the number of companies placed under warning, control, or restricted trading on the listed and registered markets has increased over the past two years compared to 2022.
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.
Many positive signals in the corporate bond market

Many positive signals in the corporate bond market

VCN - The corporate bond market is expected to enter a new development phase, gradually improving quality, continuing to develop and deepen.
Transparent and stable legislation is needed to develop renewable energy

Transparent and stable legislation is needed to develop renewable energy

VCN - Achieving net zero emissions by 2050 is a development goal that Vietnam has committed. This is mainly achieved through a strong energy transition and low-emission development. However, the transition to clean energy is not easy for Vietnam because building a clean energy supply system requires large investments. In addition, technology in the production and storage of renewable energy is still limited, making it difficult to ensure a stable energy supply.

Latest News

Ensuring financial capacity of bonds issuers

Ensuring financial capacity of bonds issuers

VCN - The Ministry of Finance is finalizing the draft Decree amending and supplementing Decree No. 155/2020/ND-CP detailing the implementation of a number of articles of the Securities Law. The amendment aims to continue to perfect the legal framework and overcome some shortcomings arising in the practice of the securities market.
Finance ministry announces five credit rating enterprises

Finance ministry announces five credit rating enterprises

One more company has been granted the certificate of eligibility since August.
The capital market will see positive change

The capital market will see positive change

VCN – Vietnam’s capital market has more balanced, harmonious and sustainable. However, besides the achievements, the market still faces many potential challenges. In order for the capital market to become an effective and sustainable capital mobilization channel, further improving the quality of goods and diversifying investors in the market is a key direction.
Corporate bond issuance value rises by 60 per cent

Corporate bond issuance value rises by 60 per cent

In the first 11 months of 2024, the total value of corporate bond issuances reached nearly VNĐ403 trillion, a 60 per cent increase year-on-year.

More News

Slower mobilization than credit may put pressure on interest rates

Slower mobilization than credit may put pressure on interest rates

VCN - According to the latest data from the State Bank of Vietnam (SBV), deposits in the banking system as of the end of September 2024 reached more than 14 million billion VND, an increase of 4.9% compared to the beginning of the year, but the rate was still slower than credit, which could put pressure on interest rates.
Fed’s foreseen rate cuts affect foreign exchange rate

Fed’s foreseen rate cuts affect foreign exchange rate

After the Fed’s move, the US dollar index (DXY) on December 19 hit nearly 108, the highest level in the past year.
Untying the knot for green finance

Untying the knot for green finance

VCN - Green finance is a crucial resource for greening businesses. Completing the policy framework for green finance is urgently needed to unlock this capital flow.
Ensuring efficiency and transparency in use and management of houses and land at State enterprises

Ensuring efficiency and transparency in use and management of houses and land at State enterprises

VCN - According to the Ministry of Finance, the issuance of Directive on strengthening management, improving the efficiency of use and handling of houses and land at State-owned enterprises to ensure the effective management, use and handling of houses and land for the right purposes, and to avoid loss and waste.
Vietnam

Vietnam's stock market to develop strongly and sustainably

VCN - This was emphasized by Minister of Finance Nguyen Van Thang at the Conference to review the work of 2024 and deploy the work of 2025 of the State Securities Commission (SSC) held on the afternoon of December 18.
Tax sector achieves revenue target of about VND1.7 million billion

Tax sector achieves revenue target of about VND1.7 million billion

VCN – Motivated by the revenue collection by the end of December 2024, the General Department of Taxation has accomplished the revenue collection.
General inventory of public assets raises efficiency of use and management of country

General inventory of public assets raises efficiency of use and management of country's resources

VCN – The implementation of the General Inventory Project by the Ministry of Finance, ministries, central and local agencies has ensured progress according to Project 213 and the plan issued by the Ministry of Finance. This is the information provided by a representative of the Department of Public Asset Management (Ministry of Finance) at the press conference on the implementation of the General Inventory Project of public assets organized by the Ministry of Finance on the afternoon of December 18.
Publicizes progress of public investment disbursement for important national projects

Publicizes progress of public investment disbursement for important national projects

VCN – Important national projects, inter-regional transport projects, riverbank and coastal erosion treatment projects all have disbursement rates lower than the estimated average disbursement rate of the whole country, the Ministry of Finance said.
Six SOEs to be transferred back to industry ministry

Six SOEs to be transferred back to industry ministry

Six State–owned enterprises (SOEs) with a total State stake of 800 trillion VND (31.5 billion USD) will be transferred back to the Ministry of Industry and Trade (MoIT) after six years under the management of the Commission for the Management of State Capital at Enterprises (CMSC).
Read More

Your care

Latest Most read
Ensuring financial capacity of bonds issuers

Ensuring financial capacity of bonds issuers

VCN - The Ministry of Finance is finalizing the draft Decree amending and supplementing Decree No. 155/2020/ND-CP detailing the implementation of a number of articles of the Securities Law. The amendment aims to continue to perfect the legal framework and
Finance ministry announces five credit rating enterprises

Finance ministry announces five credit rating enterprises

One more company has been granted the certificate of eligibility since August.
The capital market will see positive change

The capital market will see positive change

VCN - The capital market is an important component of the financial market that provides medium-and long-term capital, contributing to effectively mobilizing and allocating resources and creating an essential material foundation for the grow of national e
Corporate bond issuance value rises by 60 per cent

Corporate bond issuance value rises by 60 per cent

In the first 11 months of 2024, the total value of corporate bond issuances reached nearly VNĐ403 trillion, a 60 per cent increase year-on-year.
Slower mobilization than credit may put pressure on interest rates

Slower mobilization than credit may put pressure on interest rates

According to the latest data from the State Bank of Vietnam (SBV), deposits in the banking system as of the end of September 2024 reached more than 14 million billion VND
Mobile Version