VIS Rating 45% of corporate bonds due to maturity in 2023 may become bad debt

DNHN - VIS Racing has just announced that the bad debt ratio of corporate bonds in March 2023 is anticipated to reach 10%, a significant increase from September 2022.

The Vietnam Investment Credit Rating Joint Stock Company - VIS Rating has just announced that it expects the bad debt ratio of corporate bonds to reach 10% in March of 2023. This number has increased significantly since it was only 1.2% in September 2022.

This amount does not include instances in which corporations are unable to meet their announced corporate bond payment obligations before September 2022.

Seventy-one percent of cases in which businesses fail to meet their bond payment obligations involve the real estate industry. This is also one of the industry groups with the highest ratio of corporate bad debts.

The majority of them are unlisted, have high financial leverage, and face difficulties when the market freezes, preventing them from maintaining sufficient cash flow to repay their bonds. By the end of March 2023, the default rate of corporate bonds in this industry group will reach 17 percent.

The majority of corporate bonds in the utility sector are related to new businesses, wind power development, and solar power. This group of companies is struggling to commercialize their projects. Up to 31% of bonds in this sector contain bad debts.

In the agricultural production industry, the ratio of bad debt in corporate bonds was also 54%.

Approximately 95% of corporate bond defaults result from the issuer's inability to pay bond interest at maturity. According to VIS Rating, this indicates a deterioration in the cash flow of institutions.

VIS Rating reports that 73% of the businesses that are slow or insolvent for bond debt have inadequate financial resources, the majority of which are unlisted businesses. In addition, high financial leverage and low profitability have prevented these companies from having sufficient cash on hand to repay their due bonds.

In addition, the difference between the cash flow of the business and the time when the bond payment obligation arises contributes to bond default. The bond market will also be weakened by the tightening of monetary policy by the end of 2022.

Numerous real estate companies have issued bonds with terms between one and three years to finance the long-term projects of large corporations. Additionally, numerous bond issuers have bank loans. The number of bond issuers with bad debt accounts for approximately 1 percent of the Bank's total loan volume. Despite this, the impact on the banking system is still manageable because these loans are secured by real estate.

Despite this, corporate bonds can still be considered the economic hot spot in 2023. Because it is estimated that up to 252 trillion corporate bonds are due this year, of which up to 113 trillion, or about 45 percent of their value, may be insolvent. The majority of these bonds are located in real estate businesses with weak cash flow and financial resources.

It is anticipated that the real estate sector will experience increased difficulties when a large proportion of the above 113 trillion bonds with a high probability of becoming bad debt is held by this group. It is also difficult for this group to obtain additional funds from banks.

According to the Vietnam Bond Market Association (VBMA), eleven rounds of corporate bond issuance with a total value of over 26 billion dongs were recorded in March. Seven real estate enterprises issued bonds totaling over 23,700 billion VND.

According to data compiled from the Hanoi Stock Exchange (HNX) and the State Securities Commission (SSC), there were 10 private placements and 1 tranche issued to the public in March 2023, with a total value of VND 26,425 billion.

The majority of March's issuance value, VND 23,735 billion, was contributed by the real estate industry, which accounted for 89.8 percent. The average issuance rate for real estate bonds is 10.6% per year, and the average maturity is 2.43 years.

P.V (t/h)