Economy in Vietnam: Corporate Bond Market

The ratio of outstanding loans to corporate bonds to GDP decreased slightly in the first half of the year and was low compared to other countries in the region, showing that the market’s growth potential is still very large of economy in Vietnam. In that context, the Government and the Ministry of Finance are making efforts to come up with supporting policies and solutions to develop a sustainable corporate bond market and restore investor confidence.

The ratio of outstanding debt of corporate bonds to GDP is low in the area of economy in Vietnam

In the first 6 months of 2023, the corporate bond market had a total of 34 new issuers with a value of VND 55,000 billion, down 73.3% over the same period last year. Which, there are about VND 6,000 billion of bonds issued to the public, down 15.9% over the same period, and VND 49,000 billion of bonds issued privately, down 75% compared to the same period in 2022.

The credit balance of corporate bonds in Vietnam tends to increase in the long term but has slowed down since the second half of 2022. According to Technological and Commercial Securities Company (TCBS), the outstanding debt of corporate bonds by the end of June 2023 is about 1.1 million billion dongs, accounting for 12% of GDP in 2022.

The ratio of outstanding loans of corporate bonds to GDP decreased slightly in the first half of 2023 (in 2022, the size of Vietnam’s corporate bond market is 14.81% of GDP) and at a low level compared to other countries in the region, showing that the market’s growth potential is still very large.

Real estate is still the largest issuer of corporate bonds in the first half of 2023, accounting for 54% of the total issuance value, followed by the banking group with 35% of the total issuance value. Retail and basic resources accounted for 10% and 5% of the total issuance value, respectively, and other industries accounted for 6% of the total issuance value.

Primary issuance interest rates of corporate bonds (excluding bank bonds) ranged from 9.0% to 11.6%. In, the average primary interest rate of real estate bonds is the highest, at 11.6%, followed by the average primary interest rate of retail corporate bonds at 10.6%, and basic resource corporate bonds at 9%… The average term of corporate bonds is mainly in the range of 3-5 years, the highest in the group of basic resources and retail with an average period of 5 years.

The market share of corporate bond issuance consulting is concentrated in organizations such as TCBS, MBS, and PSI. TCBS alone holds a market share of 66%, equivalent to consulting on issuing more than 36,000 billion VND of corporate bonds in the first 6 months of the year. Following are securities companies PSI (8%), MBS (7%), HDBS (5%), VIS (5%), and other organizations (9%).

Attempts to untie the knot

The corporate bond market then continued to be gloomy because investors were still afraid, causing the cash flow not to find the corporate bond investment channel. Meanwhile, the number of enterprises issuing late payment obligations of interest or principal debt of corporate bonds remains (59 enterprises, according to the announcement of HNX).

The total outstanding debt of corporate bonds of these enterprises is about 159.5 trillion VND, accounting for about 14.6% of the total outstanding debt of corporate bonds in the whole market.

Recently, the Government has issued a series of supporting policies such as Decree No. 08/2023/ND-CP; Circular No. 03/2023/TT-NHNN… The impact of these policies was immediately reflected in the recovery of corporate bond value newly issued in March.

However, it must also be viewed objectively, the COVID-19 pandemic, which has lasted for nearly 3 years globally, is a force majeure risk, not only for Vietnam but also worldwide. In the context that all economic activities are disrupted, liquidity gradually disappears, and the financial health of businesses is weakened, which is inevitable, leading to the quieting of capital channels.

Therefore, the economy in Vietnam general and businesses need support in terms of time, conditions for debt restructuring, and opportunities to recover production and business activities. This is not just a business problem, but a national problem. Because, all countries are facing difficulties after the pandemic, if the government has the right solution, it will create competitiveness and competitive advantage for the entire economy.

On July 19, 2023, the privately-issued corporate bond trading system (TPDNRL) at the Hanoi Stock Exchange (HNX) was officially put into operation. Right in the first trading session of the individual corporate bond market, 39 successful trading orders were recorded from investors, with more than 5 million bonds traded with a total value of VND 1,781.34 billion.

According to Dr. Dang Thai Binh – Vietnam Academy of Social Sciences, the construction of the TPDNRL trading system is an important step forward, demonstrating the efforts of the Ministry of Finance in directing the State Securities Commission, the Hanoi Stock Exchange, and the Vietnam Securities Depository to develop a trading system and organize the TPDNRL trading market.

Individual corporate bonds that are put into centralized trading on the individual corporate bond trading system will contribute to increasing transparency, limit risks for investors in individual corporate bond transactions, contribute to promoting liquidity for the corporate bond market, and at the same time create conditions for the individual corporate bond primary market to develop more sustainably.

You can read the previous article here: Corporate Law: Regulations of Business Conditions

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