Credit solutions needed to address outstanding realty firms’ bonds    

By Le Hoang Chau

Fri, April 7, 2023 | 1:50 pm GMT+7

Credit solutions need to be put in place to effectively deal with real estate businesses’ bond woes and enable developers, homebuyers and investors to access reasonable loan interest rates, said Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association (HoREA).

The Ho Chi Minh City Real Estate Association realizes that at the moment, the biggest difficulty for property businesses is the serious lack of cash flow and liquidity.

HoREA and the business community thank and applaud the government for promulgating Decree No. 08/2023/ND-CP dated March 5, 2023, amending, supplementing and ceasing the effect of a number of articles in the previous decrees on private placement of corporate bonds and trading them in the domestic market. The new decree creates a legal framework to remove difficulties and inadequacies in the issuance of corporate bonds, especially a mechanism for dealing with maturing bonds.

Businesses have also welcomed Resolution No. 33/NQ-CP dated March 11, 2023 on a number of solutions to remove difficulties for and promote the safe, healthy and sustainable development of the real estate market, including main tasks and solutions. It requests property developers to prioritize all resources for debt repayments, especially bond debts, and actively restructure prices and products in line with the actual needs of the market.

Decree 08 and Resolution 33 have had very positive impacts, increasing market and investor confidence, while displaying timely policy response from the Ministry of Finance, the Government and the Prime Minister.

Decree 08 is a legal basis paving the way for negotiations between issuers with bonds that are about to mature and bondholders for a "balance of interests", harmonizing the rights and legitimate interests of both sides, and creating favorable conditions for issuers with collateral to surf current difficulties to perform corporate, investment, real estate and housing product restructuring towards real needs; and to complete projects, creating cash flow to repay debts to bondholders, and fulfill financial obligations to the state.

However, the decree only stipulates negotiation mechanisms between issuers with maturing bonds and bondholders, including a response mechanism in case no agreement is reached and a mechanism to pay the principal and interest of due bonds with assets other than cash.

Therefore, more solutions are needed to ensure synchronization with the measures stated in the decree in order to effectively handle real estate corporate bonds, as the volume of such bonds maturing in 2023-2024 will reach about VND230 trillion ($9.8 billion), including VND119 trillion in 2023 and VND111 trillion in 2024.

In a recent written response to Ho Chi Minh City voters, State Bank of Vietnam (SBV) Governor Nguyen Thi Hong said the central bank has asked commercial banks to buy back corporate bonds if they signed contracts with investors on the redemption of those bonds. The signed contracts clearly state the terms and conditions for bond redemption, and the banks must comply with regulations of the SBV on the limits and adequacy ratios in banking activities when implementing this commitment.

The governor also required credit institutions to only offer services related to corporate bonds in accordance with their licenses, and provide complete and accurate information to investors in line with approved bond issuance plans.

HoREA realizes that commercial banks play a very important role in the settlement of maturing corporate bonds but are not allowed to buy back corporate bonds in accordance with Point a, Clause 8 Article 4 of the SBV’s Circular No. 16/2021/TT-NHNN dated November 10, 2021.

Under the point, credit institutions are not permitted to buy corporate bonds issued for the purpose of debt restructuring. This regulation goes against Clause 2, Article 1 of governmental Decree 65/2022/ND-CP dated September 16, 2022, which allows credit institutions to do so. They are also not allowed to purchase bonds that are issued for investment programs and projects, restructuring the issuers’ debts, or are issued under specialized laws.

In order to provide practical support for issuers and bondholders, the association proposes the SBV consider allowing the implementation of a number of solutions as follows:

First, the SBV gives commercial banks the right to allow bond issuers with collateral and projects that have obtained land allocation or lease decisions by competent state agencies to borrow money to restructure due bond debts, with loans not exceeding 70% of the value of the issued bond package.

Commercial banks are allowed to accept the bond package as mortgage and then sell them directly to investors. For the remaining 30%, the issuer and the bondholders agree to negotiate with each other in accordance with the provisions of Decree 08.

The association acknowledges that once launched, this mechanism will have a positive impact immediately. Together with the mechanisms and policies featured in Decree 08, it will remove difficulties for issuers with maturing bonds and support bondholders.

Second, the association proposes the SBV consider amending Point a, Clause 8, Article 4 of Circular 16, allowing credit institutions to purchase corporate bonds for the purpose of restructuring debts of the issuers.

To ensure the synchronization with and effective implementation of Decree 08, the association asks the SBV to choose one of the two proposed options to amend Point a, Clause 8, Article 4 of Circular 16 towards annulment or cease of its effect from the effective date of the (new) Circular to the end of December 31, 2024 (similar to the format prescribed in Decree 08 2023/ND-CP), as follows:

Option 1: Proposing the annulment of Point a, Clause 8, Article 4 of Circular 16: Credit institutions are not allowed to purchase corporate bonds which are issued for the purpose of restructuring the debts of the issuers.

Option 2: Proposing the cease of the effect of Point a, Clause 8, Article 4 of Circular 16 from the effective date of the (new) Circular to the end of December 31, 2024, similar to the format specified in Decree 08.

Third, the association proposes the SBV urgently implement Resolution 33 on “creating favorable conditions for businesses, homebuyers and investors” to quickly access credit" and "taking appropriate and effective measures to reduce lending interest rates and supporting the real estate market".

HoREA finds that Resolution 33 tasks the SBV with flexibly and synchronously operating monetary policy tools and meeting the demand for credit flow for socio-economic development; perfecting mechanisms and policies to exploit and mobilize maximum financial resources at home and abroad for housing development in particular and the development of the real estate market in general.

The central bank must create conditions for businesses, homebuyers and investors to quickly access credit sources; take appropriate measures to support struggling real estate businesses such as rescheduling principal and interest payment deadlines and restructuring debt groups; focus on feasible lending projects and plans as well as customers with the financial capacity and ability to repay debt in full and on time.

It should give priority to housing projects meeting the real needs of people and with efficiency and good liquidity such as social housing, renovation of old apartments, offices for lease, and properties for production, manufacturing, industry and tourism.

The SBV takes appropriate and effective measures to reduce lending interest rates and support the real estate market and direct credit institutions to create favorable conditions for real estate developers and homebuyers to access credit; continue to give credit to property projects that meet legal requirements and developed by businesses that are able to sell products and ensure repayment plans, especially social housing, worker housing, affordable housing and properties for production, business and social security purposes with high efficiency and debt repayment capacity.

The association applauds the SBV for its effective monetary polices, ensuring credit supply for the economy, including the real estate market.

In February 2023, the SBV bought $2.8 billion to increase its foreign exchange reserves, showing close and effective coordination between monetary and fiscal policies to ensure macroeconomic stability. Recently, the central bank cut some policy interest rates, leading to reductions in deposit and credit interest rates at commercial banks, but in general, lending interest rate levels remain high and real estate businesses and homebuyers still find it difficult to access bank loans.

HoREA realizes that creating conditions for homebuyers and investors to access credit with reasonable interest rates will increase aggregate demand, which is important to generating cash flow and increasing liquidity in the property market, helping businesses overcome current difficulties.

Therefore, the association expects the SBV to urgently implement Resolution 33 to enable businesses, homebuyers and investors to quickly access credit, and take appropriate and effective measures to reduce lending interest rates and support the real estate market.