Repayment pressure on corporate bonds to peak next year

New real estate development projects in Thu Thiem urban area in Thu Duc city, HCM City.

Total corporate bonds set to mature in 2024 will reach 329.5 trillion VND (13.5 billion USD), the highest in three years, according to a report by the Ho Chi Minh City Real Estate Association (HoREA).

The figure is a surge from 144.5 trillion VND last year and 271.4 trillion VND this year, the report said.

According to the Vietnam Bond Market Association (VBMA), the fourth quarter of this year will see 65.5 trillion VND of bonds maturing, the highest volume of matured bonds for all of 2023.

The last two months of the year will see over 41 trillion VND of bonds maturing. Almost 80% of these maturing bonds are from the real estate sector.

Experts have warned the pressure of bond repayment will continue next year as many issuers, mostly property developers, are grappling with capital shortages and business difficulties.

Since August, the bond repurchasing value before maturity has consistently been lower than the matured value.

In October, companies repurchased 13.6 trillion VND, a 17.4% decrease compared to the same period last year, according to VBMA.

Financial challenges have led various enterprises to seek negotiations with bondholders to extend bond redemption dates amid a sluggish property market and reduced cash flows.

According to data from the Hanoi Stock Exchange (HNX) by VNDirect, over 60 issuers have successfully negotiated to extend bond repayment dates, totaling 107 trillion VND as of October 27.

The Ministry of Finance has urged issuers to fulfill their repayment obligations and ensure timely payments.

The Government in March issued a decree which has allowed issuers to extend debt maturities by up to two years and use other assets for bond payments, subject to bondholder approval.

As a result, over 42 trillion VND (1.77 billion USD) worth of corporate bonds were rolled over in the second quarter of the year.

Recently, major property firm Novaland has proposed using assets from The Grand Manhattan project in downtown HCM City to settle outstanding debt from three bond packages.

The firm also plans to use properties from luxury developments in Binh Thuan province to settle outstanding debt as it has overdue payments for several bond packages due in February and May with a remaining value exceeding 1.58 trillion VND.

Local media have reported that nearly 70 companies have reported delinquencies amounting to 176.1 trillion VND, with the real estate sector making up the majority.

While extending bond maturity dates presents risks and challenges, such negotiations require agreement from all parties involved, including bondholders, investors, and creditors.

Le Hoang Chau, Chairman of HoREA, pointed out that few bondholders accepted the option of receiving other assets for bond repayments, citing overpricing and legal issues.

The corporate bond market has boomed in recent years due to increased capital demand from property developers and banks.

However, market sentiment shifted unexpectedly in October of last year following the arrest of Van Thinh Phat Group’s chairwoman related to bond market fraud.

The real estate sector holds the largest outstanding bond value at 396.3 trillion VND, or 33.8% of total bonds, as reported by S&P Global Ratings.

Without improvement in the property sector, further defaults may loom, warned the report.

Prime Minister Phạm Minh Chinh has ordered the State Bank of Vietnam and the Ministry of Finance, the two agencies primarily responsible for managing bond defaults, to improve their management in a bid to revive the troubled market./.