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

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.
The corporate bond market will be more vibrant in the second half of the year

The corporate bond market will be more vibrant in the second half of the year

VCN - In the first half of 2024, with bond maturity pressure continuing to increase, corporate bond issuance has shown many positive signs compared to the previous year. According to forecasts, businesses' need to borrow and issue corporate bonds will accelerate in the second half of 2024.

Latest News

M&A activities show signs of recovery

M&A activities show signs of recovery

Mergers and acquisitions (M&A) activities in Vietnam have been showing signs of recovery in recent months as several large companies announced finished deals, which may create a ripple effect in the M&A market.
Fiscal policy needs to return to normal state in new period

Fiscal policy needs to return to normal state in new period

VCN - To recover the economy during and after the Covid-19 pandemic, fiscal policy has been flexibly and promptly managed, becoming a solid foundation to help businesses and the economy gradually overcome difficulties. After nearly 5 years, although there are still difficulties, the economy is gradually returning to a high growth trajectory. In that context, it is necessary to let fiscal policy return to normal state.
Ensuring national public debt safety in 2024

Ensuring national public debt safety in 2024

VCN - Since the beginning of the year, public debt management has been conducted proactively and effectively, meeting the need of raising capital for development investment. At the same time, debt indicators by the end of 2024 are guaranteed within the ceiling and safety threshold approved by the National Assembly, ensuring national financial security, increasing proactive response to risks arising from external and internal causes of the economy.
Removing many bottlenecks in regular spending to purchase assets and equipment

Removing many bottlenecks in regular spending to purchase assets and equipment

VCN - Decree No. 138/2024/ND-CP, which has just been issued, is expected to contribute to resolving bottlenecks in allocating funds for purchasing assets and equipment; renovating, upgrading, expanding, and constructing new construction items in projects that have been invested in and constructed in the past.

More 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.
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.
Read More

Your care

Latest Most read
M&A activities show signs of recovery

M&A activities show signs of recovery

Mergers and acquisitions (M&A) activities in Vietnam have been showing signs of recovery in recent months as several large companies announced finished deals, which may create a ripple effect in the M&A market.
Fiscal policy needs to return to normal state in new period

Fiscal policy needs to return to normal state in new period

VCN - To recover the economy during and after the Covid-19 pandemic, fiscal policy has been flexibly and promptly managed, becoming a solid foundation to help businesses and the economy gradually overcome difficulties. After nearly 5 years, although there
Ensuring national public debt safety in 2024

Ensuring national public debt safety in 2024

VCN - Since the beginning of the year, public debt management has been conducted proactively and effectively, meeting the need of raising capital for development investment. At the same time, debt indicators by the end of 2024 are guaranteed within the ce
Removing many bottlenecks in regular spending to purchase assets and equipment

Removing many bottlenecks in regular spending to purchase assets and equipment

Decree No. 138/2024/ND-CP, which has just been issued, is expected to contribute to resolving bottlenecks in allocating funds for purchasing assets and equipment
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.
Mobile Version