The corporate bond market of Vietnam is expected to be robust this year as the Government has issued regulations to untie the market but still aimed to ensure the transparency and healthy market development. (Photo: tinnhanhchungkhoan.vn) Hanoi (VNS/VNA) - The corporate bond market in Vietnam is expected tobe robust this year as the Government has issued regulations to untie themarket but still aimed to ensure transparency and healthy market development.
According to Nguyen Hoang Duong, Deputy Director of the Department of Bankingand Financial Institutions under the Ministry of Finance, the corporate bondmarket had become an increasingly important channel for enterprises to raisecapital in recent years, which helped reduce pressure on banking credit.
However, not every enterprise was in a safe enough situation for bond issuance,Duong said, adding that there were many of small scale, especially thoseoperating in real estate development, but issue corporate bonds much higherthan their equity, posing risks to the market if these enterprises fell intodifficulty and failed to pay debts.
“If investors do not evaluate risks and invest in corporate bonds just becausethey're lured by high interest rates, it will be very risky,” Duong said.
A recent market report of the VNDirect Securities Company showed that the totalcorporate bonds issued in 2020 were worth nearly 437.7 trillion VND (18.87billion USD), an increase of 38.8 percent against the previous year.
Due to the rapid growth of the corporate bond market, measures to minimiserisks to the market were applied. The Government’s Decree No 81/2020/ND-CPwhich took effect from September 1 tightened private placement, including capson the outstanding corporate bonds (not exceeding five times the equity).
According to Duong, the corporate bond market lost momentum in recent monthsdue to tightened regulations.
In that context, Decree No 153/2020/ND-CP dated December 31 which took effectfrom the beginning of this year and replaced Decree No 81 untied the market tosupport transparent enterprises in raising capital through bond issuance.
Under Decree No 153, an enterprise could issue bonds if it was a joint stock orlimited liability company, paid due debts on time and adequately for threeconsecutive years, met financial safety ratios, ensured operation safety, hadapproved bond issuance plan and audited financial report.
Experts expected this would create conditions for the corporate bond market tobe robust against in 2021.
Expert Truong Thanh Duc said that tightening regulations on corporate bondissuance was not necessary because this might force small enterprises to turnto unofficial channels to raise capital, even black credit.
It would be better to have a property management mechanism to ensuretransparency and fairness in accessing investment opportunities for investors.
For the long term, improving the credit rating service for enterprises wascritical as credit rating became mandatory for enterprises in bond issuance, hesaid.
According to Asian Development Bank (ADB), reforms that drove demand for creditratings would support the development of the corporate bond market.
The ADB pointed out that after years of sluggish growth, Vietnam’s corporatebond market had blossomed. Issuances grew at a compound annual growth rate of40 percent between 2012 and 2019, and outstanding issuances amounted to around11.5 percent of Vietnam’s GDP – the fourth-highest in ASEAN, and further gainswere likely.
“A credible local rating agency is a key missing ingredient in Vietnam’sotherwise flourishing corporate bond market. Partnerships with global ratingagencies would unlock the market’s potential, but these agencies want certaintythat the demand for ratings is real,” ADB wrote./.
VNA
