Reputation of issuers key to bond investment decisions

The Vietnamese bond market has faltered over the past two years under the impact of market turbulences and declines in investor confidence due to legal incidents and some inaccurate media reports on bond issuers.

Authorities' tightened supervision and inspection on bond issuance also caused concerns to both issuers and service providers. Investors have been deprived of their confidence in corporate bonds, which are inherently transparent and safe.

If the situation persists for a long time, it will block financial resources that are essentual to national economic growth. The drop in capital mobilisation through the corporate bond market is heightening pressures on the liquidity of many businesses.

Nguyen Quang Thuan, chairman of FiinRatings, said that improving the transparency of corporate bond issuers is key to restoring confidence and gradually unleashing this important capital channel.

"The corporate bond channel needs to be restored to meet the capital needs of businesses, thereby bolstereing the target of high economic growth in 2023 and over the coming years," Thuan told the recent Vietnam Economic Forum co-chaired by the Central Economic Commission and government.

When assessing the reliability of corporate bonds, it is important to consider the reputation of the issuer, which should be verified by international financial institutions. For example, in November 2022, Masan Group successfully acquired a $600 million syndicated loan, despite market fluctuations. It was underwritten and attracted 37 international financial institutions to oversubscribe oversubscribe.

As a leading retail consumer group in Vietnam, Masan has constantly attracted investment from prestigious international funds and credit institutions like TPG, Abu Dhabi National Investment Fund, and SeaTown Holdings ($350 million).

SK Group has continuously poured capital into Masan's retail segment ($750 million) to realise its online-offline integration strategy with the point-of-life platform.

Another notable investor is the group from Alibaba and Baring Private Equity Asia - one of the largest alternative investment funds in Asia ($400 million).

With solid financial capacity and strong cash flow, the total principal and interest paid by Masan in 2022 was $475 million. Of this, the total value of long-term loans paid early was $200 million. In November 2022, Masan successfully issued $72 million in bonds for professional investors that will mature in August 2023.

Since its establishment, Vietnam's capital market - including the corporate bond market - has grown rapidly in terms of scale and the range of available products, with quick liquidity contributing to the mobilisation of financial resources.

However, the size of Vietnam's corporate bond market is still quite modest. Currently, the outstanding debt of the corporate bond market stands at about 15% of GDP, but the country's financial strategy aims for this to reach 20% by 2025 and at least 25% by 2030.

The capital market at the end of the first quarter of 2022, including the bond and stock market, had a capitalisation rate of 134.5% of GDP. Stocks alone reached 94%, corporate bonds hit 16.4%, and the government bond market was 23%. Thus, the capital market is taking up the same proportion as outstanding bank credit (almost $490 billion and equivalent to 132% of GDP).

At the time of reaching 16.4% of GDP, many experts and investors expected the corporate bond market to gradually replace and reduce the burden on the bank credit market – which is still the country's largest source of funding.