80% of corporate bond issuance value is unlisted on the stock exchange

DNHN - Dr Vu Dinh Anh identified eight hazards associated with the development of corporate bonds in the present Vietnamese economy. "The corporate bond market is one of the stock market's most significant cornerstones." "The adjustment of rules and tight monitoring of the amount and quality of corporate bonds not only help the market's strengthening but also the health of financial institutions," Dr Vu Dinh Anh stated.

Corporate bonds are long-term debt securities with a tenure of at least one year. The profits made by the investor from this financial instrument are normally taxed. The one exception is that if a corporate bond is offered at a discount, the yield may be zero.

Government bonds are less risky than corporate bonds. It is determined by the issuer, market circumstances, the kind of government bond used as a reference, and the company's credit rating. Also, corporate bonds are subject to credit risk, interest rate risk, liquidity risk, supply risk, inflation risk, tax risk, and so on.

Around ten years ago, Vietnam had only government bonds, state-owned company bonds, and commercial bank bonds. Very few companies issue bonds, mostly bonds with warrants, such as bonds with the right to convert into shares, or real estate companies that issue bonds with the right to purchase homes and flats.

However, corporate bonds have become popular in recent years. The rationale for this is that it provides a mechanism for corporations to obtain cash without diminishing shareholders' present equity. Bond interest rates are often lower than bank interest rates.

Businesses may save money and avoid red tape by issuing bonds directly to investors, as opposed to bank loans. Bonds also let companies borrow money at a fixed rate for a longer time than they could at a bank.

This market expanded on January 1, 2021, when various new laws on corporate bond issuing went into force. The total issued value of corporate bonds was VND 623,616 billion, a 34.9 per cent increase over 2020, with finance and banking accounting for 42% of the total issued value. The real estate industry accounted for 34.8 per cent of total issued value, up 36.2 per cent from 2020.

Risks accompany the rapid growth of corporate bonds. Dr Vu Dinh Anh says that the first thing is the tools to manage and keep an eye on the corporate bond market when its small size in 2018 is no longer enough for a scale of up to a trillion dong in 2021.

Second, Vietnam's corporate bond market is presently constrained in terms of information disclosure and transparency, with misleading information and information concealment prevalent, even though firms own approximately 80 per cent of the issued value. companies that are not listed on a stock exchange

Third, the average interest rate on corporate bonds is about 13 per cent per year and, in certain regions, it may reach 18 per cent per year, which is almost three times more than the typical interest rate of commercial banks. The competition to raise corporate bond interest rates over the issuer's reputation or credit rating puts many issuances of these financial instruments in danger of loss from the start.

Fourth, a series of bonds with "3 nos" were issued: no collateral, no credit rating, and no payment guarantee. In 2021, individual bonds will account for 94.5 per cent of company bonds issued.

Fifth, when issuing individual corporate bonds to private investors, many issuers skirt the law. According to the Ministry of Finance, this ratio is now at 40%.

Sixth, the total amount of corporate bonds held by economic organizations and commercial banks in 2021 is estimated to be VND 214,000 billion, a 17% increase from the end of 2020. This creates a danger of cross-ownership between banks and bond issuers. The corporate bond market is a sort of systemic risk that may have an impact on national monetary and financial security.

Seventh, the corporate bond market management apparatus's inspection, examination, and capacity enhancement remain restricted. The Ministry of Finance has only established more than 30 inspection teams since 2019.

Eighth, excessively high corporate bond interest rates, as well as variances in issuance, distribution, ownership, and usage, enhance the hazards for the real estate market, which is also rapidly increasing.

From September 2021 until the present, the Prime Minister has given four directives aimed at improving stock market and corporate bond market management, supervision, inspection, and examination. Also, the Ministry of Finance asked the State Securities Commission to keep a close eye on how corporate bonds are issued.

Ha Anh