Meanwhile, many businesses are facing serious financial problems due to Covid-19.

SSI’s latest report shows that businesses issued VND722.7 trillion worth of corporate bonds in 2021, an increase of 56 percent over 2020. Private offering was the major issuance mode, which accounted for 91 percent of total bonds issued.

The corporate bond market has been witnessing hot growth, from 4.93 percent of GDP in 2017 to 16.6 percent in 2021.

Real estate firms were the biggest issuers, with VND318.2 trillion worth of bonds issued, which accounted for 44 percent of total, an increase of 66.3 percent over 2020. The number of real estate firms issuing bonds sent up from 141 in 2020 to 193 in 2021.

The gap between non-bank corporate bond interest rates and bank deposit interest rates is 4-5 percent per annum, which explains why has been attract investors.

Realty bonds have an interest rate of 10.3-10.6 percent on average, while some bond issuers promise sky-high interest rates of 12-13 percent per annum. In order to lure investors when the quality of secured assets is not high, bond issuers have to offer attractive interest rates.

Of the VND468 trillion worth of bonds issued by non-bank institutions, VND83 trillion were unsecured bonds, VND33 trillion were secured by shares and VND131.3 trillion were secured partially by real estate and partially by shares.

As such, the amount of unsecured bonds or bonds secured by shares still accounted for 53 percent of total bonds issued.

The realty bonds with no secured assets or secured by shares were worth VND172.5 trillion, which accounted for 54.2 percent of the bonds issued in 2021. Analysts said the real figure could be higher as there was no information about collateral for VND33 trillion worth of realty bonds issued.

Can Van Luc, a respected economist, said that Vietnam’s bond market has been growing well but unsustainably. Realty bonds always account for a large proportion of total bonds issued, while the risks for realty bonds are high since the bonds were either unsecured or secured by shares.

The Ministry of Finance (MOF) has pointed out that many businesses issue bonds in large quantities despite their small stockholder equity and unprofitable operation.

As of June 30, 2021, the debt-to-equity ratio of unlisted real estate firms was 8.1x. The firms with unprofitability, bad debts, small capital and no secured assets also issued bonds, which poses risks for investors and the economy.

Risks

SSI estimated that VND266 trillion worth of corporate bonds will reachmaturity in 2022. Meanwhile, because of Covid-19, many enterprises are having financial problems and the business environment is unfavorable, which affects their plans to pay principal and interest.

It will be difficult to issue corporate bonds to raise funds for debt payment in 2022. Circular 16/2021 of the State Bank of Vietnam (SBV) which took effect on January 15, 2022 prevents commercial banks from buying corporate bonds to help businesses achieve rollover.

Under legal documents, credit institutions are not allowed to buy corporate bonds issued to restructure debts; to contribute capital or buy into other enterprises; or to increase working capital. Credit institutions are not allowed to sell corporate bonds to their subsidiaries. They are only allowed to buy corporate bonds if their bad debt ratio is below 3 percent.

Meanwhile, the Ministry of Finance (MOF) is drafting a new decree that amends and supplements Decree 93 on bond private offerings, which says businesses must not issue bonds to contribute capital under any form; or buy shares and bonds of other enterprises or lend capital to other businesses. The credit rating of issuers is required.

The regulations, if applied, would restrict the opportunities for businesses to mobilize capital through bond issuance in 2022. Many businesses are struggling to seek cash flow to pay debts to bond holders in order to avoid default. However, credit sources are shrinking.

Pham Nam Kim, a respected economist, warning of the risks in realty bonds, said many enterprises mobilize trillions of dong worth of capital by issuing bondsbut only spend hundreds of billions to develop real estate projects, while the remaining money is used for debt payments and other purposes. Many realty firms have abnormally high debt ratios.

Analysts have repeatedly warned that thehot growth of the bond market may cause serious consequences, saying that Vietnam needs to learn a lesson from China where many realty firms cannot pay debts.

Risks may arise in 2022when a large amount of corporate bonds reach maturity . If some businesses fall into insolvency, fears willspread which could lead to a credit crisis. 

Tran Thuy

Vietnam bond market rises to US$91.5 billion in 2021: ADB

At the end of 2021, outstanding Government bonds and corporate bonds comprised 71.3% and 28.7% of the local bond market, respectively.

Real estate firms rush to issue bonds, banks entice people to put money into bonds

According to the Vietnam Bond Market Association, in the first two months of the year, the total corporate bond value issued to the public rose by 31 percent.