Real estate businesses are under pressure to repay bonds before maturity

It is more difficult for real estate businesses to issue bonds to create capital for project implementation. Photo: Hoai Anh.

More difficult to issue bonds

According to the Ministry of Construction, due to serious mistakes by a number of organizations and individuals who have been handled related to the issuance of corporate bonds in the real estate sector, the market and investor psychology has been severely affected. Therefore, it is more difficult for real estate businesses to issue bonds to create capital for project implementation as well as to balance cash flow in business operations.

According to the Ministry of Finance's report, as of October 28, 2022, the volume of corporate bond issuance reached VND 328.9 trillion, down 25.2% year on year and tended to decrease over the quarters. In which, real estate businesses accounted for 28.87% of the total issuance volume; ranked second in the group of early bond repurchases and accounted for 35.8% (VND 451,159 billion) of the total volume of individual corporate bonds in custody as of September 30, 2022.

In the last two months of 2022, the maturity bonds of real estate businesses accounted for 38.3% of the total value of bonds due, of which, 99.6% of bonds matured from real estate businesses' secured assets.

In December, businesses issued VND 1,350 billion of individual corporate bonds, of which, a real estate company issued VND 500 billion. According to preliminary statistics of the Hanoi Stock Exchange, as of December 25, 2022, the outstanding balance of individual corporate bonds was about VND 2 quadrillion, of which, of real estate enterprises was VND 419 trillion (accounted for 33.6%).

At the end of 2022 and onwards, some businesses have been still under pressure to repay bonds early to investors for many reasons, including changes in corporate bond issuance control policies.

Maturities of individual corporate bonds fall in 2023 and 2024

Regarding corporate bonds, at the Government press conference on February 2, 2023, Deputy Minister of Finance Nguyen Duc Chi said that the Ministry of Finance has completed the impact assessment process.

Accordingly, the Ministry has consulted ministries, branches, organizations, experts and international organizations on the draft Decree amending and supplementing Decree No. 65 of September 16, 2022 amending and supplementing a number of articles in Decree No. 153 dated December 31, 2020 stipulating the private offering and trading of corporate bonds in the domestic market and the offering of corporate bonds to the international market.

Currently, it is in the process of completing a draft of the Decree amending and supplementing some contents of Decree 65 to submit to the Government and is expected to be submitted by the Ministry of Finance to the Government early next week.

Leaders of the Ministry of Finance expect that the issuance of this Decree will help the market adapt to the actual situation, thereby strengthening the market's confidence, creating favorable conditions for issuers; and at the same time protecting the legitimate rights and interests of investors participating in the corporate bond market.

Earlier, at the Government meeting on the same day, the Prime Minister asked relevant ministries, branches and localities to identify difficulties of real estate businesses as a bottleneck that needs to be resolved soon to remove difficulties for many other sectors, such as corporate bonds.

The Prime Minister noted that in February 2023, a meeting will be held on removing difficulties for the real estate market, and at the same time, urgently finalize and issue a decree amending and supplementing Decree 65 on offering individual corporate bond trading.

In the report Looking back to 2022 and the prospect of capital markets 2023 just published by the credit rating company FiinRatings, the rating agency's experts estimate that the maturity of individual corporate bonds will fall in 2023 and 2024, equivalent to VND 157.97 and 341.27 trillion.

According to FiinRatings, the market could see more insolvent issuers, especially businesses that have continuously increased their leverage for at least 3 years and have weak cash flows. However, this unit expects the maturity pressure will be relieved if the draft amendment to Decree 65 allowing for debt extension is approved.