Not good to instantly sell shares used for bond mortgages: observers

Corporate bond issuers and the financial market in Vietnam are likely to be harmed if bondholders rush to get paid for their stocks used by issuers as mortgages at banks, according to some market observers.

This concern has been raised while property developers in the country are shouldering the burdens of paying bonds issued by them while the ailing real estate market faces woes that made 2022 a very tough year for enterprises.

Prudence must be taken in cases of selling mortgaged assets at prices much lower than the original, an expert said.

A financial expert believes that it is reasonable to make plans to sell mortgaged shares to settle debt obligations. However, when many investors rush to this sell-off at the same time, it may cause the financial market to collapse, which could damage investor assets.

In Vietnam, it is normal that issued corporate bonds are guaranteed by real estate products and interests on the land to be formed in the future, by shares, valuable papers, other fixed assets, inventory, and receivables… The value of these assets becomes smaller while the economy is facing headwinds and a credit crunch, the ailing property market is facing various woes, and other capital mobilizing channels have become tough to access. For the stock market alone, Vietnam’s benchmark VN-Index reduced by 33% in 2022, equal to a loss of more than $100 billion in market cap.

Another expert noted that when a bond issuer goes bankrupt, debt obligations are not the enterprise’s top priority.

Another issue is selling off shares used as mortgages for bonds, which could harm the financial market more than selling off other assets. The reason is these mortgaged shares come in huge amounts and can have much to do with other investment deals. In addition, this sell-off may cause low selling prices, which stock investors do not want.

Under current circumstances, bond issuers have provided solutions like extending the bond payment term by two years, with the coupon rate getting 1.5-2 percentage points and other benefits like paying with real estate products with prices 20-50% lower.

In the market, different bondholders have accepted alternative measures from issuers. Among them, Angimex Company and Vina2 Construction Company have received approval from bondholders to extend the payment duration.

Developer Novaland, another issuer, recently made a deal with Dallas Vietnam Gamma Ltd. to convert a bond of nearly VND5 trillion (more than $210.8 million) into capital contributions.

In another case, BCG Energy and Hanwha Energy have agreed upon the former’s turning its bond payment to the latter into a debt with the deadline to settle in the middle of this year.