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Corporate bond issuance volume plummeted when Decree 81 took effect

That was the statement of SSI Securities Company in the corporate bond market report announced on October 27.

The credit channel took the throne

After Decree 81 took effect, the amount of corporate bonds issued in September decreased by 84% compared to August, reaching VND14.1 trillion.

Meanwhile, the State Bank of Vietnam (SBV) expected credit growth for 2020 to reach 8-10% after increasing 6.09% in the first nine months, which means about VND150-320 trillion of credit increased in the fourth quarter of 2020. Along with extending the roadmap to reduce the short-term capital ratio for medium to long-term loans, the State Bank lowered the ceiling interest rates on deposits and short-term loans for the third time this year.

Apart from commercial banks that issue private bonds under Circular 34/2013/TT-NHNN, other businesses all comply with Decree 81, so they will sharply reduce private bond issuance in the fourth quarter.

Therefore, businesses in need of capital will return to the credit channel of commercial banks that have capacity to assess and handle arising risks, and protect small investors from mass issuance but lack of information disclosure as in the past.

Businesses wishing to raise capital via bonds need to switch to public issuance. However, it is difficult for this activity to increase strongly, because it must comply with Circular No. 75/2004/TT-BTC, in which, the issuance condition is that enterprises must make a profitable business (with a positive after-tax profit of the previous year, no accumulated loss up to the date of issuance).

This is the biggest bottleneck in Decree 90/2011/ND-CP regulating the issuance of private corporate bonds. After this condition is removed in Decree 163 replacing Decree 90, the corporate bond market has exploded from 2019. It can be seen that many businesses, especially real estate units, do not meet this condition.

In addition, regulations on documents for issuance and information disclosure are stricter than those on individual publishing, and procedure steps are more time consuming. Specifically, the Securities Commission will issue the Certificate of Public Issuance of bonds within 30 days of the date of receipt a complete and valid file, the distribution must be completed within 90 days or the license will be revoked.

Corporate bond credit rating will be vibrant

Decision 507/QD-TTg dated April 17, 2015 of the Prime Minister approved the Development Plan for credit rating services to 2020 and vision to 2030. In particular, the target is that by 2030, it will issue credit rating services for up to five enterprises and by 2020 all corporate bond issues will be rated.

The credit rating services specified in Decree 88/2014/ND-CP showed the legal corridor for the establishment and operation of credit rating has been completed for five years. However, the SSI report indicated that, to now, there were only two licensed businesses and credit rating services have been introduced to very few units.

Currently, the Vietnam Bond Market Association (VBMA) is cooperating with international credit rating organisations such as Moody's, Standard and Poor's to set up a credit rating agency. Therefore, credit rating activities are expected to be deployed more strongly in the near future.