Bustling supply and demand warms up corporate bond market

	Corporate bond market thriving yet risky
	Bond market proves efficient capital mobilization channel
	Banking sector leads corporate bond issuance

Real estate is the field with the largest number of enterprises participating in the offering of corporate bonds since the beginning of the year. Photo: H.A

Increase inscale

Decree 163/2018/ND-CP, stipulating the issuance of corporate bonds, replaces Decree 90/2011/ND-CP (effective February 1, 2019), creating a more open legal corridor for the enterprise bond market. Decree 163 has relaxed the conditions for issuing corporate bonds by removing the condition that the issuer must be profitable in the year preceding the year of issuance and allowing the issuance of multiple shares according to the schedule of investment projects. Decree 163 also changes the regulations on corporate bonds issued separately. Specifically, Decree 90 stipulates that individual bonds are issued to less than 100 investors but Decree 163 adds that conditions are not professional investors. As such, this object will be classified as being issued to the public and comply with the Securities Law.The content of the offering and information disclosure was also completed in the direction of transparency and clarity.

Along with Decree 163, policies from the State Bank, such as reducing the ratio of short-term capital to medium and long-term loans, the limit of loans to a single customer does not exceed 15% of the equity capital, adjusting the risk ratio for real estatelending, has created a shift of businesses from bank credit mobilization channel to bond issuance channel. In addition, the more transparent bond issuance information and the active participation of distribution intermediaries including banks and securities companies have made corporate bonds more attractive to investors. The increase inboth the supply and demand sides has made Vietnam's corporate bond market more exciting than ever.

According to data from the Ministry of Finance, in 2018, VND224,000 billion worth of corporate bonds were issued, an increase of 94.5% compared to 2017.The total size of the enterprise bond market was VND474,500 billion – equivalent to 8.6% of GDP, much higher than the 6.19% of GDP in 2017. The excitement of the corporate bond market in 2018 continued to be maintained in the first 8 months of 2019. According to Securities Company SSI, based on information issued separately on the Hanoi Stock Exchange and disclosed by businesses, in the first 8 months of 2019, the total offering reached VND129,016 billion and the issue amount was VND117,142 billion. Successful issuance rate of the whole market was 90.8%, the market size increased sharply to about 10.2% of GDP.

Protection mechanism for investors

In the first 8 months of 2019, commercial banks were still the largest issuer of corporate bonds with a total value of VND 56,060 billion (accounting for nearly 48%); followed by real estate businesses with VND36,946 billion (accounting for 31.5%). Banks are also the group with the highest successful issuance rate, up to 99.6%. With the exception of Seabank, there were two lots issued on May 8 and June 19, 2019, with VND1,000 billion and VND900 billion of unsold shares (the amount of issuance is VND950 billion and VND700 billion, respectively).All 10 remainingcommercial banks have sold 100% of the offered bonds. Besides banks, infrastructure development enterprises were also quite a successful offering group. In particular, Ho Chi Minh City Infrastructure Investment Joint Stock Company (CII) accounted for 39% of the issuance of this group with VND3,611 billion.

On the demand side, foreign investors bought over VND10,200 billion of corporate bonds, equivalent to 8.8% of the total corporate bonds issued. Meanwhile, among domestic investors, securities companies bought the most with a total ofVND29,447 billion, accounting for 25.4% of total issuance. Secondly, commercial banks also boughtVND10,200 billion of bonds, equivalent to 8.8% of total issuance.

Performing particularly well from the beginning of the year until now werereal estate bonds with 44 enterprises offering bonds through 139 offerings, with VND47,800 billion sold. However, despite having the highest interest rate (at an average of 10.01%), the successful issuance rate of the real estate group was quite low when only VND36,146 billion of real estate bonds were issued, equivalent to 77%. PhuQuoc Tourism Investment and Development Joint Stock Company was the enterprise with the highest total issuance (VND4,610 billion) and all are guaranteed by shares of Vinhomes and payment guarantees by Vinpearl and Vinhomes.

Some other businesses with large issuances were Tan Lien Phat Saigon (VND2,228 billion), Vinpearl (VND2,000 billion), Logistics and Tan Lien Phat Tan Cang (VND1,979 billion) andNovaland (VND1,900 billion).

Meanwhile, An Quy Hung (VND5,300 billion divided into two installments) was issued by TCBS and Sunrise Real Estate, a member of Bitexco (VND820 billion) issued by VPBS, is a consultant of two companies. The vote was unsuccessful because no bonds were purchased. The remaining 59 issues were unsold and 76 were completely bought out.

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The development of corporate bonds is consistent with the orientation of the state to develop the capital market in parallel with the credit market. However, according to experts of SSI Securities Company, although the scale of corporate bond issuance has had a quite high growth rate, looking deeply into each issue, there are still some points to pay attention to.Banks are the buyers of many types of corporate bonds, including real estate corporate bonds. Disclosure of corporate bond issuance information still has a general case like hiding the name of the bond buying unit.

SSI also assessed that the corporate bond interest rate is still in a relatively safe level because it is approximately equal to the interest rate of bank loans. But without a reliable credit rating agency, it is difficult for bond buyers, especially individual investors, to determine a reasonable interest rate. When policies related to corporate bond issuance are more open, investor protection mechanisms also need to be more complete. This will be the foundation for developing a strong and sustainable corporate bond market.