Property developers ask for loosening of corporate bond policies

HCM City (VNS/VNA) - The Ho Chi Minh City Real Estate Association (HoREA) has asked for corporate bond regulations to be loosened to help businesses get through the COVID-19 pandemic.

According to HoREA Chairman Le Hoang Chau, bonds had become a key tool for real estate firms to raise funds for projects. The association suggested that real estate firms be permitted to continue raising funds from bond issuance as they faced difficulties from the outbreak.

From January to March, about 53,000 units went on sale but only 14 percent were sold – the lowest rate in four years. Eight hundred real estate trading houses, or 80 percent of the total, were closed during the period.

In total, 94 percent of real estate firms closed, while new businesses declined by 12 percent on-year.

The real estate market had frozen in the first quarter, Chau said. Trading volume fell 70 percent on-year and total revenue slumped 80 percent on-year, leading to a shortage of cash and liquidity.

Policies should be amended to assist the development of the corporate bond market, while promoting transparency and protecting the rights and benefits of investors and companies.

It is not the first time real estate firms have asked for the loosening of corporate bond regulations.

Local property developers are facing uncertainties as the Government and the State Bank of Vietnam (SBV) are trying to raise the standards for real estate bond issuance.

From 2019, banks were asked to cut the ratio of short-term loans used for mid-term and long-term lending to a maximum of 30 percent from 40-45 percent to strengthen the banking sector and lower financial risks.

The central bank on November 15, 2019 issued a circular to restrict local banks from making loans for customers to trade in corporate bonds.

Under the circular, a bank must record a less-than-3 percent bad debt rate if it wanted to fund corporate bond buying. Customers cannot take out loans to trade corporate bonds if they used the bonds themselves as collateral, and total corporate bond-lending must only account for a maximum of 5 percent of the bank’s charter capital.

Real estate firms in 2019 raised a total of 106.5 trillion VND (4.56 billion USD) from bond issuance. The figure was equal to 38 percent of the economy’s total. Eighty-four percent of the firms had the value of bond issuance triple their equity total, and average bond interest rate was 10.3 percent per annum.

In the first three months of 2020, total corporate bonds raised in Vietnam were worth 37.3 trillion VND, with real estate firms accounting for 55 percent of the total and interest rates averaging 10.3 percent per annum./.