Efforts to develop healthier corporate bond market

Hanoi (VNA) – Vietnam is making concerted efforts to improve the quality of information disclosure and transparency of corporate bond issues and listings to develop a healthy bond market and reduce risks for investors.

The corporate bond market in the country has rocketed in recent years. The Hanoi Stock Exchange (HNX) estimated that close to 89.5 trillion VND (3.85 billion USD) worth of corporate bonds were issued in the first half of 2019, up 34 percent from the same period last year.

According to Nguyen Hoang Duong, Deputy Director of the Ministry of Finance’s Department of Banking and Financial Institutions, a growing number of firms raise capital by issuing bonds, a good sign for the development of the market, given slowing credit growth as commercial banks must reduce short-term funding moiblisation for medium- and long-term loans to comply with the State Bank of Vietnam regulations.

By June 24, corporate bonds outstanding value accounted for 10.22 percent of 2018’s Gross Domestic Product (GDP), more than 3 percent higher than the goal for 2020 set by the Government. However, it is relatively small compared to the scale of the bank credit channel and the level of other countries in the region (20 – 50 percent of GDP). Most firms still look for funding via bank loans.

Today, bond issue rules have been relaxed, said Le Hoang Chau, President of the Ho Chi Minh City Real Estate Association (HoREA). To issue bonds, a company is no longer required to be profitable in the year before the proposed issuance, though this does pose greater risks to secondary investors, he noted.

Some companies even raised their bond yield rates twice as high as bank deposit interest rates to attract investors but it is a risky approach.

To solve the problems, the Government issued a decree on the issuance of corporate bonds which sets higher requirements for pre-trade disclosure to protect the rights and interests of investors.

Draft amendments to the Securities Law have also been submitted to the National Assembly, which contain rules on professional investors. It suggests that the private placement of bonds should only be made to high net-worth individuals or companies with experience in finance.

Additionally, the amended draft law requires issuers to receive credit ratings before issuing bonds to the public to better support investors, especially individuals who are less experienced. The Ministry of Finance has licensed one credit rating provider and is taking moves to invite other foreign providers to Vietnam.

The State Security Commission of Vietnam is also working to standardise requirements and procedures of corporate bond issue and cut the time required for first public offering.-VNA