Real estate majors issue bonds dozens of times higher than equity

Major real estate developers have issued bonds with proceeds dozens of times, even up to 47 times, higher than their equity, raising concerns about repayment risks in cases of market turbulence.

A new report by the Ministry of Finance listed Vietnam's top real estate developers with the biggest bond sales in 2021 and the first quarter of 2022.

Statistics show that these 20 companies issued bonds worth VND100,054 billion ($4.31 billion) in 2021, accounting for 49.8% of the total value of the real estate sector's private placement bond issuance.

The top rankings include Van Truong Phat Investment Construction JSC with VND8,000 billion ($345 million), followed by Osaka Garden Corp. and Mediterranean Revival Villas with VND7,700 billion and VND7,200 billion, respectively.

Others include Golden Hill Investment Corp., Tizco JSC, Vinaconex, TNR Holdings’s Trading-Advertising-Construction-Real Estate Viet Han JSC, and three subsidiaries of Sunshine Group, namely Sunshine Homes Development, Sunshine AM, and Sunshine Housing JSCs.

Many corporations have an issuance-to-equity ratio of dozens of times. Leading the pack was Mediterranean Revival Villas, under Masterise Group, with a ratio of 47 times.

The second place belonged to Osaka Garden with 28.5 times, followed by Residence (600%), Hoang Phu Vuong (583.8%), and Van Truong Phat (400%).

Overall, the country's total volume of corporate bond issuance was about VND639,766 billion ($27.59 billion) in 2021, up 39% from 2020. Of this, private placement accounted for nearly 95%, up 39% year-on-year.

The real estate sector recorded the second largest value of private placement bond issuance in 2021, reaching VND200,794 billion ($8.66 billion), accounting for 33.16% of the total, trailing only credit institutions with 36.18%, according to the report.

As much as 50.3% of the country's private placement corporate bonds issued in 2021 had no collateral, mainly from commercial banks and securities companies, accounting for 77.7%. Corporate bonds issued via public offerings without collateral made up 99% of this type of issuance in terms of value.

In the opposite direction, 88.2% of bonds issued by real estate and construction enterprises had collateral or payment guarantees. The collateral were mainly real estate developments or projects, accounting for 57.84%, while 23.95% were corporate shares, 1.37% of both real estate and shares, and 8.67% of other assets.

Although the number of bonds issued with collateral was large, quality of the collateral was not adequate, the ministry stated. In the case of market volatility, the ministry estimated that the collateral’s value may not be sufficient to pay the principal and interest on bonds. This is a significant risk for bonds buyers.

Potential risks in the securities, corporate bond and real estate markets were recently cited by National Assembly Chairman Vuong Dinh Hue and Deputy Prime Minister Le Van Thanh as one of the limitations and difficulties in managing the economy and capital markets recently.

"The government should explicitly analyze the risks in the corporate bond market in recent years, outlining the risks that firms would be unable to repay obligations due and providing suitable methods to handle them," the National Assembly Economic Committee told the legislative body's ongoing session in late May.

Prime Minister Pham Minh Chinh on April 22 said that bringing violations to light would help safeguard legitimate investors and keep the bond and stock markets healthy. Chinh was referring to some arrests by the investigative agency for alleged market manipulation and violations of information disclosure.

Vietnam’s stock market watchdog in early April called off nine separate bond issuances totalling about $439 million in value by three companies under Tan Hoang Minh Group due to its provision of “untrue information”.