Recovery in bond issuance not yet confirming turnabout

Invest Global 08:58 15/05/2023

The recent influx of defaulted bonds is primarily due to an increase in restructured bonds caused by recent regulation adjustments, according to a new report.

The recent influx of defaulted bonds is primarily due to an increase in restructured bonds caused by recent regulation adjustments, according to a new report.

According to a FiinGroup report on corporate bonds default in Vietnam, there were 89 defaulted issuers with a total value of over $4.8 billion as of April 25, a 20 per cent increase on the previous month.

Recovery in bond issuance not yet confirming turnabout An investor holds corporate bonds. (Photo

Of the defaulted issuers, real estate constitutes the largest proportion, with 43 such issuers accounting for over 30 per cent of the total defaulted issuers and almost one-third of the total outstanding bond value.

The renewable energy sector has the highest bond default ratio by far, at over 63 per cent. However, the size of the real estate sector makes it more impactful in terms of value.

According to Paul Coughlin, chair of the ratings committee at FiinRatings, the recent defaults can be traced back to bonds issued just before pandemic lockdowns. The issuers have faced a multitude of challenges, such as the slowdown in construction, regulatory issues, and high interest rates.

While the State Bank of Vietnam has organised delays in bond repayments, it remains uncertain whether this will enable property companies to complete projects and repay debts.

“I don’t see much optimism on that score. It might be that we’re just delaying the inevitable in terms of the losses that will inevitably have to be recognised, either within the banking system or within the individual investors,” Coughlin said. “It is a very difficult situation that has come about because of the conjunction of a number of very unfavourable factors. The outlook doesn’t seem positive.”

According to VNDirect Securities, from April 1-24, there were no new private corporate bond issuances. While early redemption activity saw a slowdown with more than $208 million of individual corporate bonds being bought back before maturity in April, the total value of pre-maturity repurchases in the first four months of 2023 reached more than $1.6 billion.

VNDirect said the negotiations to change bond conditions between issuers and bondholders took place actively in April. Currently, more than 20 issuers have reached an agreement to extend bonds terms with bondholders and have made an official report to the Hanoi Stock Exchange (HNX).

Explaining the recovery in bond issuance earlier this year, Nguyen Tung Anh, manager of Economic and Credit Research at FiinRatings, credited this to the rapid reactions from the government in terms of interest rate adjustments and specific regulations on the corporate bond market.

“It could be a sign that we have some room for issuers to start issuing again,” Anh said.

However, he emphasised that there may be hidden details to watch out for. “We’ve observed that many of them are real estate bonds, and they may be for refinancing purposes,” he said. “We still need to watch this. It could be a good sign, but we need some time to be sure that this is a reversal in market activities.”

VNDirect forecasts that the pressure of individual corporate bonds to mature will continue to increase in May, while the list of companies with late payment announced by the HNX continues to increase. It is estimated that in May, the amount of individual corporate bonds maturing will see an increase of 12.6 per cent compared to April.

As of April 24, there were 57 enterprises on the list of delayed payment of interest or principal debt of corporate bonds. It is estimated that the total outstanding corporate bonds of these enterprises accounted for about 13.9 per cent of the outstanding loans of individual corporate bonds in the whole market, in which the group of late-payment real estate enterprises accounted for 11.1 per cent of the system’s outstanding loans.

The recent increase in corporate bond issuances in the real estate sector demonstrated a rebound in issuance activity.

Bond issuance in the real estate sector in the first quarter of 2023 has been positive after several policies to remove difficulties, according to a Ministry of Construction (MoC) real estate report.

As of February 28, there was one private issuance from Son Kim Real Estate Investment JSC. This bond has a term of 2.5 years and the interest rate for the first period is 13.5 per cent a year. The same month, there were two issuances to the public from Masan Group with a term of five years, and an interest rate of 9.5 per cent a year for the first period.

As of March 28, there were two bond issuances to the public by VNDirect Securities and TNS Holdings Trading and Service JSC.

According to the MoC, real estate and securities are currently the two largest bond issuers, accounting for 46.7 and 27.6 per cent of the total value, respectively. Positive signals can be seen from the issuance of Decree No.08/2023/ND-CP on the offering and trading of corporate bonds, and the directions of relevant agencies to remove difficulties in raising capital from corporate bonds and the stock market.

However, certain difficulties persist. The Ministry of Finance is coordinating with ministries and sectors to finalise regulations on private placement and trading of corporate bonds and a decree detailing the Law on Securities, including regulations on private placement of corporate bonds to the public.

Legal basis for corporate bond issuance important for real estate sector Legal basis for corporate bond issuance important for real estate sector

Building a solid and long-term legal basis for corporate bond issuance was an urgent solution to build a capital market for the real estate sector.

Securities firms, issuers fined for bond issuance violations Securities firms, issuers fined for bond issuance violations

After inspecting 21 securities companies and nine issuers since last October, 14 units were found violating bond issuance regulations, said Le Cong Dien, director of the Public Enterprises Supervisory Department under the State Securities Commission (SSC).

BAC A BANK opens new bond issuance BAC A BANK opens new bond issuance

With the aim to diversify its investment portfolio and optimise the benefit of customers, BAC A BANK is offering 25.646 million bonds from January 30 to February 27.

Assessing the switch in bond issuances Assessing the switch in bond issuances

The Vietnamese government earlier this month officially promulgated Decree No.08/2023/ND-CP dated March 5 on amending, supplementing, and suspending articles of Decree No.65/2022/ND-CP from last September on offering and transacting corporate bonds in the domestic market and offering corporate bonds to international markets.

By Linh Dan