News

The concerns of corporation bonds

Trường Lăng

August 10, 2022

News

The concerns of corporation bonds

Trường Lăng

August 10, 2022

According to figures from the Ministry of Finance, in 2020, the volume of corporate bond issuance is more than 471 trillion VND; in 2021 it will be more than 637 trillion VND. Notably, the number of individual corporate bonds is the absolute majority.

Privately issued corporate bonds until 2020 are more than 435 trillion VND. In 2021, this number continues to increase sharply with nearly 606 trillion VND of individual corporate bonds being issued, an increase of 38.8% compared to 2020.

Only in both years 2020 and 2021, the volume of individual corporate bonds issued has reached more than 1 million billion VND, not including the issuance volume of 2022.

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The size of the corporate bond market by 2021 was equivalent to 15% of GDP. Compared to the bank credit balance of VND 10.44 million billion, this figure is insignificant.

The corporate bond market has proven to play an important role as a medium and long-term capital channel for the development of businesses in many different industries. But the level of risk of corporate bond issuance is much higher following the principle of “high-interest rate, great risk”. The case of Tan Hoang Minh bonds with a 12% interest rate is a warning.

At the top of the list of corporate bond issuers are credit institutions, followed by real estate, trade-in services, etc. The main purpose of issuance is to increase working capital, and implement projects, combined with other purposes…

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However, the “incident” of Tan Hoang Minh has caused thousands of investors to be like a cat on hot bricks for the fear of being unable to pay the debts of corporate bonds issued by this corporation. Especially when the corporate bond investment channel is not only large in scale but also has the massive participation of professional individual investors and retail investors through the redistribution of issued bonds, in the form of private placement from related organizations such as consulting and distribution in the market during the past time.

According to the Ministry of Finance, in 2022, the volume of bond maturity is about 144.5 trillion VND, while the volume of maturing real estate bonds accounts for 43.2% (about 62.47 trillion VND), the volume of due bonds maturing of credit institutions is about 29.16 trillion VND, accounting for 20.2% of the total bond maturity.

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In 2023 and 2024, the volume of due bonds will increase sharply compared to 2022, reaching 271.4 and 329.5 trillion VND, respectively. In which, the total volume of due real estate bonds is 207.8 trillion VND, and bonds of credit institutions are 207.5 trillion VND.

Worries about the maturity of corporate bonds

The Ministry of Finance assessed, up till now, except for the case of canceled bonds in the Tan Hoang Minh case, according to the reports of the issuers at the Stock Exchange, businesses are still paying in full bonds principal and interest for investors.

However, the agency also noted: The recent rapid increase in issuance volume also poses risks, especially the large maturity volume concentrated in the period 2022-2024, mainly of bonds of real estate businesses and credit institutions.

With the macroeconomic trend of stable growth and the executive direction of creating favorable conditions for businesses to recover and develop after the pandemic, businesses will be able to pay the due principal and interest in full.

  “However, if businesses face difficulties in operation, it will affect their ability to fully pay the bond principal and interest due,” the Ministry of Finance warned.

The issue of individual corporate bonds, accounting for the vast majority of corporate bonds issued, is worth noting.

The company specializing in credit rating – FiinGroup – expects a change in the quality of the corporate bond market and this may be reflected in the massive growth of the public issuance, especially from businesses with good business records and proactively transparent their credit records in the market; Besides, private placement will still be conducted although it may be less active than over the last few years and aim at broader investors base including professional individual investors, financial institutions such as insurance, bond funds, pension funds,… instead of focusing mostly on commercial banks and securities companies as in the past time.

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Looking at the number of corporate bonds that will mature in 2022-2024, Fiin Group analyzes: The important issue in our opinion is the pressure to pay the due bonds for debt in the next 2-3 years. The scale of outstanding corporate bonds in the real estate industry is about 189 trillion VND at the end of 2021 and this unit’s data shows that 73% of this value will have the maturity point in the next 3 years (2022-2024).

This not only creates greater debt repayment pressure on real estate businesses in the context of gradually recovering from Covid-19, due to legal changes and recent events, which according to FiinGroup, also affect the liquidity risk of distribution agents that commit to repurchase bonds, which are financial institutions such as securities companies and banking.

In addition, this debt repayment pressure can affect the risk of the stock market because stocks are pledged as security for bonds or pledged to buy low-quality or problematic bonds as the regulatory authorities have pointed out

Source : VnNet

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