A bank employee handles cash. The corporate bond market has flourished with an estimated annual issuance value of over 500 trillion VND (21.9 billion USD) in 2021. (Photo: VNA) The revision corresponds to Decree 08 of the Government, which went into effecton March 5 and aims to address bottlenecks in the corporate bond market.
Circular No. 16/2021/TT-NHNN, issued on November 10, 2021, delineatedprinciples for the acquisition and sale of corporate bonds by creditinstitutions. The preliminary revision aims to clarify and expound on variouscomponents of Circular 16 to avoid ambiguities and gaps.
The notable changes include more specific regulations for banks in investing incorporate bonds, such as banks’ responsibility of inspecting and supervisingproceeds from bond issuance, criteria for banks to buy bonds, as well asregulations on the management of bonds to supplement working capital and cashflow management.
The rule allowing credit institutions to sell and buy unlisted corporate bondssold before December 31, 2023, without having to wait 12 months as currentlystipulated draws the attention of the market.
Data from the Vietnam Bond Market Association (VBMA) showed in December 2022,nearly 50 trillion VND (2.1 billion USD) worth of bonds were bought back beforematurity.
However, the number in the first two months of this year decreased to only 10trillion VND. According to the association, this indicator shows the issuersare struggling to have money to repay the debt.
In the context that about 150 trillion VND (roughly 6.4 billion USD) worth ofbonds will mature in the second and third quarters of 2023, market analystsexpect the permission for banks to buy corporate bonds will be a great support.
"Corporate bonds are different from bank loans because they have lowliquidity," Dinh Thi Quynh Van, general director of PwC Vietnam and thelead partner of Tax and Legal Services told VTV1. "Banks have the right torepurchase and resell them, which can boost liquidity and support bondissuers."
To limit risks, the draft will only allow banks to buy bonds when the issuingbusiness meets certain conditions, such as having a feasible issuance plan,being able to repay principal and interest, or having a low debt ratio and notallowing to use proceeds to contribute capital or buy shares in othercompanies.
According to data from Fiin Group, banks are holding over 253 trillion VND ofcorporate bonds, equivalent to about 29% of total outstanding bonds. Thisfigure is lower than the number of 45% in 2021.
Therefore, banks still have room to increase their bond ownership throughrepurchasing, helping to clear the deadlock in capital flow for issuingbusinesses.
According to many market insiders, credit institutions cannot buy corporatebonds of companies whose debt exceeds five times their own capital, which willexclude a lot of bonds issued by realty firms.
The regulation that allows banks to buy bonds to supplementworking capital in the short-term of less than one year also causes a headachefor companies as businesses rarely issue short-maturity bonds (typical bondterms are five to ten years).
According to Nguyen Quang Thuan, Chairman and CEO of Fiin Group, one of themost important issues for bond issuers today is the need to refinance orrestructure debt, but regulations of debt restructuring has not yet beenrevised in this draft.
He said this measure is more technical because the key is still the improvementin cash flow from businesses, but the outlook has not shown any signs ofimprovement.
Therefore, a cross-effect on the credit quality of banks is present, he said,adding when a business is late in paying bonds, it will then be likely to belate in repaying bank loans and likely turning to bad debts.
"This is an issue that should be evaluated specifically and have follow-uppolicies to solve the current corporate bond problem and reduce the risk of baddebt for banks," Thuan said.
Real estate businesses are also proposing that the corporate bond redemptionshould last until the end of 2024 instead of just 2023, as in the reviseddraft, because the maturity pressure is not only within this year.
"The total value of realty bonds due in 2023 and 2024 may reach 230trillion VND," said Le Hoang Chau, Chairman of Ho Chi Minh City RealEstate Association. "Therefore, we propose to extend the implementation ofPoint a, Clause 8, Article 4 to ‘until the end of December 31, 2024’ instead of2023 so that businesses can negotiate with bondholders on the payment."/.
VNA
