Investor knowledge crucial for safe corporate bond investment

The message came out at a talk show aimed to provide proper knowledge about corporate bond investment hosted by Dau Tu Chung Khoan newspaper at Vietnam Investment Review (VIR) headquarters on October 28.

According to Bui Van Huy, director of DSC Securities Corporation’s Ho Chi Minh City branch office, the corporate bond market is a capital-raising channel of special importance to the economy, along with the stock market and credit channels.

The corporate bond market has witnessed exceptional growth lately, but its scale still remains minuscule in Vietnam, particularly regarding its size as a ratio to GDP, which is noticeably lower compared to that in other countries in the region.

For instance, in Malaysia, the corporate bond market represents about 50-60 per cent of the country’s GDP. The figure is nearly 40 per cent in Singapore and 30 per cent in Thailand, compared to just 15 per cent in Vietnam.

To fuel transactions in the domestic corporate bond market, many securities firms are adopting the method of offering shorter bond terms with revised yield ratios which are set lower compared to those offered by bond issuers.

Huy said that it is often hard to sell a single bond or a whole batch of bonds. Securities firms have, therefore, tailored distinct bond products where bonds are divided into smaller batches and have different time terms to attract investors.

Statistics by the Hanoi Stock Exchange show that in the first nine months of 2022, there were 411 corporate bond issuances in the domestic market with a value reaching $10.6 billion, down 67.8 per cent on-year.

Lawyer Truong Thanh Duc, director of ANVI Law Firm, opined that in the business-as-usual context this model proves a smart move suited to market needs.

The investors, however, must acquire certain knowledge about corporate bonds. For instance, there are bonds where the holders are the owners, meanwhile, most corporate bonds in the market are definitive bonds, meaning those who have their names on the bond certificates will be the bond owners.

As a result, when securities firms distribute the bonds, they need to clearly explain their products to the investors.

Huy from DSC Securities stressed the importance of any investors joining the corporate bond bandwagon having knowledge for making a sound assessment and bond selection to ensure safety.

“It came out that investors’ consciousness about bond investment is crucial to corporate bond market development,” said Huy.

Duc from ANVI Law argues that businesses with well-established prestige and a pipeline of projects with efficient operations would strive to fulfil their commitment to the investors if they temporarily caught losses, as this is a matter of their reputation.

“If firms fail in their obligations, it is extremely hard for them to further mobilise capital in a later period, even by selling their products. Holding prestige with the customers is of the highest importance,” said Duc.

The corporate bond market was fairly tranquil in the first three quarters of 2022 in the context of the State Bank of Vietnam’s Circular No.16/2021/TT-NHNN coming into force from January 15, which carries stringent requirements on corporate bond transactions for credit institutions.

This trend is anticipated to linger for the rest of 2022 and 2023 amid growing pressure from a huge bond volume soon reaching maturity and higher borrowing costs.

Statistics by the Hanoi Stock Exchange show that in the first nine months of 2022, there were 411 corporate bond issuances in the domestic market with a value reaching $10.6 billion, down 67.8 per cent on-year.

The government has promulgated Decree No.65/2022/ND-CP to amend and supplement certain articles of Decree No.153/2020/ND-CP on corporate bonds. Decree 65 took effect on September 16.

Greater efforts are being exerted into instituting a transparent corporate bond market and radically tackling violations in corporate bond trading, which are common in the market.