Investors should not buy corporate bonds without assessing the risks of the bonds as well as the issuing company

VCN - This is Nguyen Hoang Duong’s talk, Deputy Director of the Finance Department of Banks and Financial Institutions (Ministry of Finance) on the situation of corporate bonds market in the first six months of the year.
Nguyen Hoang Duong, Deputy Director of Finance Department of banks and financial institutions, Ministry of Finance
Nguyen Hoang Duong, Deputy Director of Finance Department of banks and financial institutions, Ministry of Finance

Please let me know that after half a year of implementing a new legal framework for the corporate bond market, including Decree No. 153/2020/ND-CP, Decree No. 155/2020/ND-CP and Decree No. 156/2020/ND-CP, how has the market changed?

After six months of implementing the new legal framework, the corporate bond market maintained its growth momentum and had some positive results. Firstly, in the first six months of 2021, the volume of private corporate bond issuance is VND 168,702 billion; rising 3.2% over the same period in 2020.

The volume issued to the public is VND 15,375 billion, 50.3% of the issuance volume of 2020, accounting for 8.3% of the total volume of corporate bonds issued, showing an initial shift from private placement to issuance to the public, this is a good sign in the corporate bond market.

Secondly, credit institutions are major issuers, accounting for 40.2% of the total issuance volume; bond volume of real estate firms decreased by 55.5% over the same period in 2020 (accounting for 13.2% of total issuance volume). The average issuance interest rate in the first six months of 2021 is 7.9% per year, down 1.6% per year compared to the same period in 2020 (9.5% per year).

Third, in terms of investors, securities companies are the main investors in the primary market, accounting for 44.4% of total issuance volume, while credit institutions account for 25% of total issuance volume. The proportion of individual investors who are professional securities investors who buy corporate bonds individually on the primary market accounted for 5.7% of the issuance volume, a sharp decrease compared to the proportion of individual investors in 2020 of 12.68%.

This shows the new regulations in Decree No. 153 have a limited impact on small individual investors unable to assess the risk of investing in privately issued corporate bonds, protecting the interests of investors.

The positive results are clear, so what about the risks?

Besides positive results mentioned above, along with the trend of shifting mobilised capital from bank credit channels to bond issuance channels, there are still potential risks for businesses, investors and market. This issue has also been mentioned by the State management agency many times.

For issuers, firms mobilise capital through the issuance of bonds on the principle of self-borrowing, self-paying and self-responsibility for the efficiency of capital use and debt repayment ability.

However, in case the firm issues a large volume of bonds with high interest rate, but uses capital inefficiently or the production and business situation is difficult, or the field in which the firm operates has difficulties, leading to the firms' failure to return bond principal and interest to investors will cause instability for the bond market and the financial market.

For investors who buy bonds, the law stipulates investors self-assess risks and are responsible for the purchase of individual corporate bonds. The law stipulates that only professional securities investors can buy and trade corporate bonds individually to protect individual investors who do not have experience, analytical and evaluation capabilities of risks when buying privately issued corporate bonds.

Therefore, all acts of "dodging" the provisions of the law to become a professional securities investor with the purpose of buying corporate bonds individually without assessing and analysing risks, not knowing the conditions, terms of bonds, bonds with or without collateral, quality of collateral, whether bonds can be redeemed or not will directly cause risks to investors and investors may not be able to recover the bond purchase amount.

Investors can violate the provisions of law if the State management agency detects acts of "circumvention" of regulations to become a professional securities investor.

The Ministry of Finance and the State Securities Commission will strengthen inspections of service provision on corporate bonds by service providers to strictly punish violations.

Given the above risks, what recommendations do you have for market participants who are issuers and when investors participate in the corporate bond market?

For the corporate bond market to develop in the direction of openness, transparency and risk reduction, creating favourable conditions for entities participating in capital mobilisation in the market, the Ministry of Finance recommends the above risks, proposing it is recommended that market participants absolutely comply with the provisions of the law.

At the same time, there are a few things to keep in mind. Bond issuance must be associated with cash flow and feasibility of production and business plans, financial capacity of firms, ensuring the ability to pay due debts, including the payment of debts interest and bond principal.

When issuing corporate bonds, they must comply with the provisions of law, publicly disclose information to investors about the financial situation, production and business plans, conditions and terms of the bonds, and attached commitments of bonds, use capital for the right purposes stated in the issuance plan and report on financial situation and capital use.

For investors buying bonds, it is necessary to distinguish the method of issuing corporate bonds to the public and issuing corporate bonds privately; only professional securities investors can buy and trade privately issued corporate bonds.

Investors must be very careful that high interest rates come with high risks, so they must carefully evaluate the risks before deciding to buy bonds. Investors need to ask bond issuers/brokers to provide full information about the issuer's financial situation and the issuer's bonds.

Investors should pay special attention not to buy bonds through offers of service providers (securities companies, commercial banks) without carefully understanding the financial situation of the issuing company and the conditions of the bond terms.

Bond investors should also note the fact that service providers (securities companies, commercial banks) distribute corporate bonds does not mean that these organisations guarantee the safety of investing in corporate bonds.

These organisations are just service providers, enjoying service fees from the issuer, but are not responsible for whether the firm can repay the bond principal and interest when it is due or not. The risk in bonds is still the risk of the issuer.

For service providers, they must sign a service provision contract for corporate bonds, clearly stating the rights and responsibilities of each party; identify the right investors to buy bonds for each issuance, comply with the law on determining the status of professional securities investors; provide sufficient information to investors about the financial situation, production and business situation of the issuing company, the conditions and terms of the bond, the attached commitments of the issuer and the supplier organisation of services for bonds. Do not solicit investors, especially non-professional individual investors, at all costs.

When distributing corporate bonds, it is necessary to provide full information about risks and the interests of bondholders so that investors do not misunderstand that the bonds will be guaranteed by the bond distribution organisation.

By Thu Hiền/ Bui Diep

Related News

Investors play a key role in developing the industrial park system

Investors play a key role in developing the industrial park system

VCN - Dr. Phan Huu Thang, Chairman of the Executive Committee of the Vietnam Industrial Park Finance Association, former Director of the Foreign Investment Department (Ministry of Planning and Investment), said that basically, developing an industrial park successfully or not mainly depends on businesses, entrepreneurs - industrial park investors.
The Minister of Finance chaired the Vietnam - Korea Financial Investment Promotion Conference

The Minister of Finance chaired the Vietnam - Korea Financial Investment Promotion Conference

VCN - On March 7, in Seoul Capital, South Korea, the State Securities Commission (SSC) organized a financial investment promotion conference with the theme "Vietnam - Investment destination". Minister of Finance Ho Duc Phoc attended and chaired the Conference.
Many real estate businesses face difficulties of cash flow

Many real estate businesses face difficulties of cash flow

VCN - Although many policies to overcome difficulties have been put forward by the Government, ministries and branches but many real estate businesses face the situation of being "thirsty for money". Finding solutions to unlock capital sources for the real estate market to promote recovery and development is essential.
Export growth supports the economy and stock market

Export growth supports the economy and stock market

VCN - Vietnam's export growth is on the recovery path, thereby becoming a positive signal for the economy as well as the stock market in 2024.

Latest News

The State Treasury focuses on solutions to ensure revenue, expenditure and budget management

The State Treasury focuses on solutions to ensure revenue, expenditure and budget management

VCN - In the first months of 2024, the State Treasury (SBV) has actively implemented many solutions in state budget revenue and expenditure as well as flexible and safe management of the budget.
Minister of Finance: Efforts to increase revenue without affecting "health" of businesses

Minister of Finance: Efforts to increase revenue without affecting "health" of businesses

VCN - Minister of Finance Ho Duc Phoc stated that the Ministry of Finance has tried to find every solution to revenue without affecting the financial health and production and business of enterprises.
Banks to offer more shares to foreign investors

Banks to offer more shares to foreign investors

Many banks are planning to sell shares to foreign investors with the aim of attracting more diverse capital and enhancing competitiveness.
Publicize and clarify responsibilities in delaying final settlement of public investment capital for completed projects

Publicize and clarify responsibilities in delaying final settlement of public investment capital for completed projects

VCN - The Ministry of Finance publicly announced the final settlement of public investment capital for completed projects in 2023 of ministries, central agencies, corporations, state corporations, and People's Committees of provinces and centrally run cities. In particular, the Ministry of Finance requires applying sanctions to individuals and units that have not yet finalized public investment capital for completed projects.

More News

Improve Tax law compliance by enhancing information collection and analysis

Improve Tax law compliance by enhancing information collection and analysis

VCN – Determining information collection as key role, over the past time, the Tax industry has implemented many information collection solutions.
VND83,000 billion of State budget 2023 saved in 2023

VND83,000 billion of State budget 2023 saved in 2023

VCN - In 2023, the management of state budget expenditure was implemented proactively and strictly according to estimates, ensuring correct policies and regimes, thoroughly saving regular expenditures, and cutting down on unnecessary and slow spending tasks.
Banks promote online lending services

Banks promote online lending services

Banks are strongly stepping up online lending services via digital channels.
Complete tax compliance management for business households and individuals

Complete tax compliance management for business households and individuals

VCN - Facing with the situation where there are still businesses hiding in the shadow of business households or business households with revenue of hundreds of billions of dong using many invoices to increase input costs, the General Department of Taxation said it would strengthen management to reduce fraud and tax evasion for individuals and business households.
Companies unveil M&A plans across multiple sectors at shareholders

Companies unveil M&A plans across multiple sectors at shareholders' meetings

The current General Meeting of Shareholders (AGM) season has revealed notable M&A plans by companies, encompassing various industries including agriculture, food, automobile design and real estate.
How did many banks

How did many banks' profits surge in Q1 2024?

VCN - The business results for Q1 2024 of commercial banks showed positive growth, with some banks experiencing up to 165% growth. Despite low credit growth, the banks' growth stemmed from other types of business and services.
New regulations in Circular 24/2024/TT-BTC aim to build streamlined and effective accounting apparatus

New regulations in Circular 24/2024/TT-BTC aim to build streamlined and effective accounting apparatus

VCN - Circular No. 24/2024/TT-BTC that provides guidelines for public sector accounting will take effect from January 1, 2025 and will be applied from fiscal year 2025, will have regulations to meet requirements of streamlined and effective accounting apparatus.
A series of solutions to improve administrative reform results in the Finance sector

A series of solutions to improve administrative reform results in the Finance sector

VCN - According to recently announced results, the Ministry of Finance is in the group of 3 leading ministries and ministerial-level agencies in the Administrative Reform Index 2023. However, some component criteria of the Ministry of Finance are still ranked at the lower level. To overcome this, the Finance sector proposed many synchronous and key solutions.
After six consecutive increase years, tax revenue from real estate transfer plunges

After six consecutive increase years, tax revenue from real estate transfer plunges

VCN – In 2023, real estate market was in extremely difficult time, purchasing power and liquidation had a sharp decline and there was a lack of cash flow, the amount of personal income tax (PIT) from real estate transfer activities plunged.
Read More

Your care

Latest Most read
The State Treasury focuses on solutions to ensure revenue, expenditure and budget management

The State Treasury focuses on solutions to ensure revenue, expenditure and budget management

In the first months of 2024, the State Treasury (SBV) has actively implemented many solutions in state budget revenue and expenditure as well as flexible and safe management of the budget.
Minister of Finance: Efforts to increase revenue without affecting "health" of businesses

Minister of Finance: Efforts to increase revenue without affecting "health" of businesses

VCN - Minister of Finance Ho Duc Phoc stated that the Ministry of Finance has tried to find every solution to revenue without affecting the financial health and production and business of enterprises.
Banks to offer more shares to foreign investors

Banks to offer more shares to foreign investors

Many banks are planning to sell shares to foreign investors with the aim of attracting more diverse capital and enhancing competitiveness.
Publicize and clarify responsibilities in delaying final settlement of public investment capital for completed projects

Publicize and clarify responsibilities in delaying final settlement of public investment capital for completed projects

VCN - The Ministry of Finance publicly announced the final settlement of public investment capital for completed projects in 2023 of ministries, central agencies, corporations, state corporations, and People's Committees of provinces and centrally run cit
Improve Tax law compliance by enhancing information collection and analysis

Improve Tax law compliance by enhancing information collection and analysis

VCN - Over the past time, the General Department of Taxation has implemented many methods for information collection such as collecting information from tax management data of Tax authority; gathering information under coordination regulations between Tax
Mobile Version