Privately-placed corporate bond trading system helps develop transparent and stable market

Ministry of Finance continues to warn about five risks of privately-placed corporate bonds

Minister of Finance Ho Duc Phoc.

The privately-placed corporate bond trading system has been officially put into operation. Could you tell us about general information about the current corporate bond market?

Vietnam’s corporate bond market has been established and recorded strong growth, contributing to the development of the country’s economy. By the end of 2022, the outstanding loans of the bond reached about VND 1.2 million or 12.6% of GDP, accounting for 10% of total outstanding loans. These figures show that the corporate bond is a key capital mobilization channel of the economy.

In terms of institutions, Vietnam has built a legal framework to encourage and promote the development of the corporate bond market. However, the corporate bond market size is still small. The total outstanding debt of the Vietnamese corporate bond market only accounts for about 13% of GDP, while the debt of Thailand, Singapore, and Malaysia is at 25%, 38%, and 56% of GDP, respectively.

Therefore, the Government still directs to develop a safe, transparent, and sustainable market. However, during the development, the market has also occurred obstacles as the structure between the publically offered bond and privately-placed corporate bond is not appropriate; most privately-placed corporate bond issuers invest in high-risk sectors.

Notably, there is a phenomenon of taking advantage of open regulations in the establishment and operation of enterprises to violate regulations on information disclosure, inflating charter capital, and mobilizing and using capital for improper purposes.

This shows that the competent authorities have gradually rectified and drastically handled it. Hopefully, after the shortcomings and violations are handled, the market will perform well in the function of mobilizing medium and long-term capital for businesses and the economy.

Some say that the privately-placed corporate bond is not a product for the centralized trading market. What do you think about this?

The establishment and operation of the privately-placed corporate bond trading system aims to improve the quality and develop the privately-placed corporate bond market. To overcome obstacles, the market needs to build a centralized trading system to create a more stable, more transparent, and safer market.

The initial transaction results of the system show that if the system is closely monitored and operated transparently, it will contribute to creating a diversified financial sector, supporting businesses to mobilize medium and long-term capital to develop the country's economy and reducing the burden on the bank credit channel.

In fact, any market also faces risks. The specialized state management agencies will continue to research, propose and work with relevant agencies to provide appropriate solutions. The goal is to both implement and gradually improve for the safe and stable economic development of the country.

Could you tell me about some basic orientations to help the privately-placed corporate bond market perform its function in the financial market?

First of all, we need to realize that the privately-placed corporate bond trading system is a necessary solution in the current context. Of course, the political basis is completed. the legal framework for the system has been developed and gradually improved. However, the most important thing is still an effective solution from the root of the market’s problem.

For example, we need to study solutions to remove difficulties and problems and supervise bond issuers in paying principals to investors in the primary market. We consider this is still the most important solution in the current context.

In addition, strict supervision and handling for the violation in the approval of the professional investor status of securities companies is necessary. There needs to provide solutions to develop the privately-placed corporate bond and publically offered bond markets at an appropriate rate.

It should also be affirmed that the launching of a secondary market as the privately-placed corporate bond is to provide more channels for convenient transactions by professional investors and partly support the investor in accessing information about privately-placed corporate bonds more easily. In case of occurring civil dispute over the bond, the responsibilities, rights, and obligations (especially the obligation to pay principal and interest) still belong to the issuer and the investor under civil law. Of course, relevant agencies and organizations must regularly uphold their supervisory responsibilities.

The improvement of the institution for the development of the corporate bond market is the key task that you emphasized at the Opening Ceremony of the privately-placed corporate bond. Could you tell me more about the content?

The improvement of institutions and policies for the privately-placed corporate bond market is a priority for the stable and smooth operation of this market. We determine that administrative reform and simplification is the key task to create maximum conditions for businesses to mobilize bonds in both methods of private placement and public offer.

Measures to improve the quality of service provision by intermediaries, especially securities companies and commercial banks, from consulting, distribution, controlling investment, and improving professional ethics of employees of securities companies will be taken.

We will continue to strengthen supervision to rectify and strictly handle violations in the corporate bond issuance, investment, and service provision to ensure publicity and transparency for the market.

Vietnam's corporate bond market still has more rooms than others in the region such as Singapore, Malaysia, Thailand... Therefore, the market will be an effective way to effectively mobilize capital for the economy if it is well controlled, investors have higher financial knowledge and the issuer is more responsible.

Thanks, Minister!