Worst is over, avoid hasty decisions: experts to Vietnam’s bond market regulators

Vietnam’s corporate bond market has gone through a turbulent period, but the worst is over and hasty decisions should be avoided in order to restore investor confidence, experts said Friday.

They were speaking at a workshop on sustainable and professional development of Vietnam’s corporate bond market organized in Hanoi by The Investor.

Bond repayment

Economist Le Xuan Nghia said banks accounted for a large portion of the country's credit structure at 95%, so the stock market’s role is very low. This means that the growth potential of the capital market is very high.

Referring to cases where businesses have failed to repay their bond debts in time, thereby weakening investor confidence, he said the solution is to allow them to default and let investors learn the risks and accept losses.

Prof. Nguyen Mai, chairman of the Vietnam's Association of Foreign Invested Enterprises (VAFIE), noted that Vietnam's GDP could grow 7% or more this year. Therefore, given the high potential, the country should increase the bond market-to-GDP ratio, he stressed.

Mai also recommended that the market regulator refrain from making drastic decisions that can jolt the market and undermine investor confidence.

Can Van Luc, chief economist at private bank BIDV, stressed that the corporate bond market had already passed its worst period when the government facilitated delays of bond repayments per Decree 08.

This year, about VND213 trillion ($8.5 billion) worth of bonds are set to mature, with real estate bonds accounting for 37%. Of this, 60% have had their maturity extended by up to two years till June 2025. Other positive factors include firms' readiness to buy back their bonds and the recovering real estate market, which can help firms sell more assets to pay debts.

These factors negate default risks and give firms more tools to solve their issues.

Regarding the extension of bond repayment deadlines, Tran Kim Dung, deputy head of the securities public offering management department under the State Securities Commission, clarified that Decree 08 had expired and the department was waiting for permission from the Ministry of Finance to facilitate the move per Decree 65, the predecessor of Decree 08.

Nguyen Tran Tung, CEO of local real estate firm Taseco Land, suggested that Decree 65 be amended to promote fair trade between bond issuers and buyers.

Nguyen Quang Thuan, CEO of domestic credit ratings agency FiinRatings, said solving bottlenecks in the real estate market would make it much easier to resolve debts in the bond market. Decree 08 was only a small step towards perfecting the legal framework.

Credit ratings

Economist Nghia emphasized the participation of local businesses in credit rating conducted by domestic agencies comprising FiinRatings, Saigon Ratings and VIS Rating. He lauded Bamboo Capital Group (BCG) and Nam Long Group (NLG) as vanguards in proactively joining credit rating activities.

Do Ngoc Quynh, general secretary of the Vietnam Bond Market Association, said credit rating is only a tool help boost transparency and sustainable growth. Other efficient tools are information disclosures and auditing.

While saying that the default of weak businesses should be facilitated, he clarified that support for ailing businesses without recovery possibility would worsen the situation.

Removal of unnecessary operations is "natural" and bond repayment extension is the only choice for bond buyers at times, given that the default process is complicated. Such extensions are stressful for buyers, he noted.

Phan Duc Hieu, a member of the National Assembly's Economic Committee, said the market may witness some unwanted developments as business operations will not always proceed according to plans. However, changing the regulations to intervene in the market will lead to restrictions in the business environment.

The legal framework should not restrict bond investors and they should study the market to make the optimal choices, minimizing risks, he added.