People should not buy corporate bonds due to high interest rates: Ministry of Finance

Inadequacy in corporate bonds: Many enterprises issue volume of bonds exceeding 100 times of equity

A recent report by the Hanoi Stock Exchange showed that the volume of individual corporate bonds issued in May was VND27,061 billion. The total volume of individual corporate bonds issued in the first five months of 2020 was VND91,616 billion, an increase of 15% over the same period in 2019.

Notably, real estate businesses are increasing capital mobilization through bond issuance; individual investors continue to increase the trend of buying corporate bonds; Securities companies and commercial banks will promote the distribution of corporate bonds to individual investors.

Facing this situation, the Ministry of Finance has made recommendations for bond issuers.

Specifically, bond issuers must calculate specific cash flows to develop feasible bond issuance plans, ensuring debt repayment; comply with the law on bond issuance; use capital from bond issuance associated with the purpose of issuance; not for the purpose of selling to individual investors but dividing into many insurance periods with many bond codes; take measures to fully and timely fulfill commitments to investors, including commitments on bond redemption before maturity.

For corporate bond investors, they should fully access information, analysis and assess carefully the risks that may incur for bonds.

Before deciding to invest, they should request bond issuers and distributors to provide sufficient and accurate financial information of issuers, including the capital mobilization from bonds; purpose of issuing bonds, security properties of bonds, characteristics of bonds,rights and obligations of bond owners, commitments to bonds, obligations of bond issuers and distributors.

The Ministry of Finance emphasized that only when understanding the information on bonds and carefully considering the risks that may incur, investors, especially individual investors,should buy bonds and should not buy them due to high interest rates because the bond investment capital (including both principal and interest) may not be recovered if bond issuers face difficulties.

Regarding the bond distributors, the Ministry of Finance recommends that they should not offer bond distribution at any price to investors, and provide sufficient and accurate financial information of bond issuers to investors, the purpose of issuing bonds, security properties of bonds, characteristics of bonds,rights and obligations of bond owners, commitments to bonds, obligations of bond issuers and distributors.

In addition, there should bemanagement measures to fully comply with commitments on bond redemption with investors when distributing bonds.

The Ministry of Finance said that it willwork with relevant agencies to conduct inspection, supervision and strictly handle violations of provisions in issuing, investing and providing services on corporate bonds.

Earlier, on May 15, the Ministry of Finance also issued a press release about the corporate bond market in the first four months of 2020 and made recommendations for corporate bond issuers and investors.