Long-term solutions vital to Vietnam capital market: BIDV chief economist

Can Van Luc, chief economist at state-controlled bank BIDV, details to The Investor his proposed measures expected to help the country’s capital market grow further amid the current credit crunch.

What do you think about the current situation of the Vietnamese corporate bond market?

The government in September 2022 issued Decree 65 amending and supplementing a number of articles of Decree 153 in 2020 that regulated the offering and trading of corporate bonds issued via private placements.

With stricter rules, the new decree was expected to help the market develop in healthier and more sustainable manners. However, it would time to translate the new rules into reality, while investor confidence has shrank. With the two factors, the market became quiet.

Therefore, the government issued Decree 08 on March 5 to amend and supplement some articles of the previous decrees. The latest allows bond payments (bond principal and interest) in assets like real estate products and others, while the payment term can be extended by a maximum of two years, and suspends the regulations on professional securities investor status and credit ratings.

Decree 08 is seen as appropriate situational solutions to reduce risks caused by the amount of corporate bonds maturing in 2023 and 2024.

Statistics show a total of VND338 trillion ($14.4 billion) worth of bonds was issued in Vietnam last year, down more than 47% compared to 2021. Of which, public offerings decreased by 67% and private placements by 65%. The result in Q1/2023 was equal to 62% of that in the same period last year, including nearly VND26 trillion ($1.11 billion) this March.

In addition to the decreased size of new issuances in 2022, many businesses proactively bought issued bonds back, with a total redemption value of about VND163 trillion ($6.95 billion), up 32% year-on-year.

In your opinion, what are the risks and challenges the corporate bond market will face in the coming time?

The biggest risk is a large volume of corporate bonds maturing in 2023 and 2024; they were issued in the 2019-2021 period while the market was booming.

According to Vietnam Bond Market Association, or VBMA, bonds worth VND271 trillion ($11.55 billion) will be due this year, including VND119 trillion ($5.07 billion) from property companies. Next year, another VND330 trillion ($14 billion) will mature, including VND110 trillion ($4.69 billion) from real estate companies. These amounts do not include coupon rates.

Real estate developers in Vietnam issued bonds worth nearly VND215 trillion ($9.16 billion) in 2021 and VND52 trillion (over $2.2 billion) last year. Therefore, they are facing a burden of payments over the next two years, around VND115 trillion (4.9 billion) each year, not counting in coupon rates.

This will be a very tough period for them. Think about cases in which their bondholders will not accept extended payment time, or other assets instead of money.

What are the measures needed for the market?

The newly issued Decree 08 is considered a temporary solution. In order to help the market develop in a healthy and sustainable manner, long-term and macroeconomic measures are needed.

First, the government needs to drastically cope with wrongdoings in past issuances to recover investor confidence.

Second, it is necessary to quickly reform procedures and conditions, and shorten the issuance time for public placements. This is an important capital-raising channel, especially for real estate businesses that need capital to reschedule debts as private placements are under strict control and credit supply is limited.

Third, it is necessary to introduce policies on credit ratings and publicize credit rating information for businesses in general, not just for issuing corporate bonds.

The fourth is to improve infrastructure conditions of the corporate bond market. They include a centralized secondary market, a database of bonds, and collateral issues. This will help improve liquidity and attract more investment capital from within and outside.

Fifth, it is necessary to improve market management and supervision: there should be mechanisms to manage bonds after issuance, manage collaterals, supervise cash flows, and manage the use of proceeds, and heavier sanctions against violations.

The sixth is to improve the quality of individual investors in the market by further educating them and introducing policies to encourage the growth of institutional investors.