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|
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