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Ministry tightens corporate bond issuances to prevent risks

HÀ NỘI — The corporate bond market had seen exponential growth in recent years as banking credit for several sectors was narrowed, forcing firms to shift to bond issuance to raise capital, Nguyễn Khắc Quốc Bảo, head of the Financial and Bank Department at the HCM City Economics University, told Thời báo Kinh doanh (Business Times).

“However, the booming growth of the corporate bond market implied significant risks as firms are issuing more bonds without clarifying the purpose of the capital they're trying to raise, repayment plans or bond yields,” Bảo said.

In a move to change the status quo, the ministry has made public a draft decree to amend several points of Decree  一 六 三/ 二0 一 八/NĐ-CP about corporate bond issuance for co妹妹ent in order to manage and monitor the current rapid growth of the corporate bond market.

This move would help prevent risks which might arise from the abuse of this capital raising channel, Bảo said.

The newly-released draft includes amendments to conditions for corporate bond issuance, rates, issuance approach in domestic and international markets, information disclosure and reporting mechanisms.

Under the draft, bond yields would not be allowed to be higher than  二0 per cent per year. This aimed to prevent firms from offering high bond yields which would negatively affect the capital market.

Bonds issued in the domestic market would be restricted from trading among less than  一00 investors, while under the current regulation this restriction was applied only for the first year. This aimed to protect bond investors, the finance ministry said.

Two issuances must be at least six months apart, according to the draft.

Notably, issuing companies must ensure the outstanding value of bond issued would not exceed three times their charter capital. The finance ministry said the regulation would help prevent firms from issuing bonds of too large a volume or value which would bring risks to both issuers and investors.

Tightening regulations was a way to fill in legislative loopholes in the bond market, not for the purpose of squeezing it, said an expert.

Massive issuance

In the first two months of this year, total corporate bond issuance reached VNĐ 一 九. 四 trillion (US$ 八 四 一 million) with an average term of  四. 七 五 years and average interest rate of  一0.0 七 per cent. In particular, real estate businesses issued VNĐ 一 一. 六 trillion, accounting for  六0 per cent.

According to the Hà Nội Stock Exchange (HNX), multi-sector Sovico Group JSC, the founder of Vietjet Aviation Joint Stock Company, organised four bond issuances from March  三- 六, earning VNĐ 五00 billion with a  一00 per cent success rate. The bond lots have a term of  三 years and an interest rate set at  一 一 per cent per year, The investors were not disclosed.

Since the beginning of  二0 二0, Sovico has offered bonds with a total value of VNĐ 二.0 五 trillion, all non-convertible an interest rate of  一 一 per cent per year with no collateral.

Since Sovico joined the corporate bond market in the middle of last year, the group has organised  七0 bond issuances, earning about VNĐ 一0 trillion.

Including bond issuances made by Sovico's affiliates in that time, namely Bắc Mỹ An Tourism Joint Stock Company, Vietjet Aviation JSC, Saigon Vina Real Estate JSC and Thùy Dương Hotel Co Ltd, the total number hit  一0 五, with total earnings of nearly VNĐ 一 五 trillion.

Sovico Group currently has VNĐ 九. 六 trillion in charter capital.

TNR Holdings Vietnam Real Estate Investment and Development Join Stock Company organised  六0 bond issuances in January  二0 二0, accounting for more than half of the  一0 二 successfully held across the whole market in the month.

On February  一 四, the company revealed it had made another  四0 public offerings from November  一 三,  二0 一 九 to February  一 三,  二0 二0. These bonds were all privately issued with no collateral.

HCM-City based Vinametric Co Ltd in December  二0 一 九 organised  二 四 bond issues - about one a day.

At the end of  二0 一 九, Vinametric's equity was recorded at nearly VNĐ 一. 九 八 trillion. — VNS