Vietnam corporate bond market needs strong directions from higher ups to fulfil national role: expert

Vietnam’s corporate bond market is becoming increasingly important to the economy, but to ensure its professional and sustainable development, strong directions are needed from higher ups, an expert says.

To Tran Hoa, deputy director of the Securities Market Development Department under the State Securities Commission (SSC), said Friday that the Party, the government, the Prime Minister, and the Ministry of Finance should deliver strong directions to turn the market into the main medium- and long-term capital mobilization channel for enterprises, gradually reducing dependence on bank credit.

He noted that the value of listed corporate bonds in Vietnam has reached about VND1,150 trillion ($45.92 billion), equivalent to nearly 12% of GDP in 2023.

Corporate bonds issued since the beginning of 2024 have an average term of 3.9 years and an average issuance coupon rate of 8.5% per year, he said.

According to the SSC official, in the primary market, the issuance value from the year’s beginning to June 9 topped VND72 trillion ($2.87 billion), more than double that of the same period in 2019.

Of this, private placements accounted for 87% and public offerings made up the remaining 13%.

Banking and real estate groups were the two main issuers with VND34.8 trillion ($1.39 billion), or 48% of the total, and VND28.5 trillion (39%), respectively.

In the secondary market, according to reports submitted to the Hanoi Stock Exchange (HNX) by registration and depository organizations, the total volume of bonds with ownership transfer surpassed 7.6 billion with a transaction value of VND1,500 trillion ($59.9 billion), or over VND6 trillion per day, in 2023.

In addition, HNX statistics show that from July 19, 2023, when the private placement corporate bond trading system became operational, till the trading session on December 31, 2023, the total volume of bonds traded through the system was about 774 million with a transaction value of VND218 trillion ($8.7 billion), or VND1.88 trillion per session. Total transaction value from the beginning of 2024 to June 9 was VND407.5 trillion ($16.27 billion), or VND3.8 trillion per session.

While the above figures show positive growth, Hoa said there were several shortcomings and limitations that the market suffered from, including unstable financial situation of some issuers, undiversified investor structure, limited capacity of intermediary organizations and low liquidity of some corporate bonds.

According to the official, the market is becoming increasingly important to the economy, but for its professional and sustainable development, the Party, the government, the Prime Minister, and the Ministry of Finance should deliver strong directions to turn the market into the main medium- and long-term capital mobilization channel for enterprises, gradually reducing dependence on bank credit.

In this situation, Hoa recommended some measures that could be taken to ensure sustainable development of the corporate bond market in Vietnam.

Firstly, there should be a focus on promoting public offering of corporate bonds associated with listing them; enterprises should be encouraged to issue a variety of bonds suitable to their capital mobilization needs; corporate bond products must be developed for the purpose of implementing investment projects in the form of public-private partnership (PPP) towards capital mobilization for infrastructure development; and a secondary market should be operated for private placement corporate bonds to increase the market’s liquidity and transparency.

Secondly, Vietnam should promote development of the green bond market by encouraging the issuance of green government bonds, green local government bonds and green corporate bonds to create additional channels for mobilizing capital for the state budget and businesses and for attracting investors towards sustainable economic development goals.

Thirdly, the role and responsibility of credit rating organizations in the corporate bond market should be strengthened, making rating of bond issuers mandatory and forming a practice of using credit rating results when issuing and investing in corporate bonds.

Fourthly, organizations providing bond valuation services, especialy green and sustainable bonds, should be studied; regulations on the responsibilities of organizations representing bondholders should be standardized to increase professionalism in the corporate bond market.

Fifthly, Vietnam should continue to improve relevant legal framework including regulations on private placement bond issuance in the direction of encouraging issuers to only issue bonds for professional securities investors.

Meanwhile, the payment of principal and interest by enterprises with a large volume of maturing bonds should be monitored and supervised, Hoa suggested.

He said businesses should be required to fulfill all bond obligations under contracts signed with investors; and stock market violations in general and those to do with the bond market in particular should be strictly dealt with.

Close supervision of consultancy, bidding, guaranteeing and issuance agent services of securities companies; improved information work to stabilize market sentiment; and provision of training for individual investors were other necessary measures, he added.

He also stressed the importance of issuers being transparent in capital mobilization and use, providing full information to investors.

To promote efforts to remove bottlenecks and unlock its potential, The Investor organized a workshop in Hanoi on Friday on the sustainable and professional development of Vietnam’s corporate bond market.

Leaders of various ministries, agencies and associations as well as economists, representatives from commercial banks, securities firms, listed companies, international organizations, and credit rating institutions participated in the event.