Property Firms, Banks Lead Bond Offerings

9:26:39 AM | 27/8/2020

The size of Vietnam's corporate bond market expanded by about 15.6% to VND791 trillion (US$34 billion) in the first six months of 2020, equivalent to 12.9% of the country’s gross domestic product (GDP). Property firms and banks are still the largest bond issuers in the market.

Vietnam, along with China and Malaysia, is the best-performing corporate bond market in Asia. Currently, Vietnam’s corporate bond market to the country’s GDP is well ahead of Indonesia and the Philippines, but still quite far behind Thailand (23%), China and Singapore (33-35%), Malaysia (50.9%) and South Korea (80%), according to the Asian Development Bank (ADB).

Size of corporate bond issuances soar in H1, 2020

According to an analysis report on the corporate bond market in the first six months of 2020 by SSI Securities Corporation, bond issuances valued VND122.3 trillion (US$5.3 billion) at par in the second quarter of 2020, up 69.7% year on year, bringing the total bond value to VND171.5 trillion in the first six months, up 61.3% from the value in the same period of 2019, far higher than the 37% growth in 2019. Of the total, only VND10 trillion (accounting for 5.8% of the total issue) of Masan Group was offered to the public, while 94.2% was privately placed in 826 rounds by 133 issuing companies.

Nonetheless, compared to other fundraising channels in Vietnam, the corporate bond channel is still quite modest in scale. The economy still relies heavily on bank credits, which valued VND8,480 trillion (US$368 billion) as of June 30, 2020, equivalent to 138.5% of the GDP and 10.75 times higher than the corporate bond channel.

Real estate firms and banks remained the largest bond issuers in the market. Property companies took the lead with VND71.6 trillion (US$3.1 billion), accounting for 41.8% of the total issued volume and representing a year-on-year growth of 57.5%. Banks were the second biggest issues with a total issue value of VND47.3 trillion (US$3 billion), accounting for 27.6% of the total and up 31.2% year on year. Energy and mineral companies sold VND10.5 trillion, accounting for 6.1% and rising by 5.3 times from a year ago. The rest offered by infrastructure development (1.6%), financial services companies (1.7%) and other businesses.

Notably, individual investors and commercial banks bought more on the primary market. SSI's data showed that, in the second quarter of 2020, individual investors bought VND13.3 trillion of corporate bonds on the primary market, 38% more than in the first quarter, bringing their total purchases to VND23 trillion (US$1 billion) in the first six months of 2020, accounting for 13.4% of the total issue and equaling 79% of the total purchases of individual investors in the whole year of 2019. They bought VND14.54 trillion of bonds issued by real estate firms (accounting for 63%), VND5,325 billion of bank bonds (23%), VND1,726 billion of Masan Group bonds (7.5%), and the rest in other businesses.

Banks acquired a total of VND38.4 trillion (US$1.65 billion) of corporate bonds from non-credit institutions on the primary market in the first six months of 2020, equivalent to 31% of the total issue (excluding bank bonds) of the whole market. Commercial lenders focused on issues offered by real estate and energy companies.

However, commercial banks might buy more corporate bonds because many deals only generically recorded buyers as domestic organizations. According to financial reports released by commercial banks, by the end of the first quarter of 2020, the total value of bonds issued by economic organizations held by 18 listed commercial banks was VND165.2 trillion (US$7 billion), an increase of VND37.2 trillion from the end of 2019. The biggest buyers were Techcombank and VPBank.

Besides, securities companies took a more active part in the corporate bond market. 84% of corporate bond issues in the first six months of 2020 were advised by securities companies. Techcombank Securities (TCBS) still held the largest market share (23.8%), slightly lower than in 2019 (24.4%). SSI and MBS replaced VPB and VND among the Big 3 securities companies in the corporate bond market.

Heating in Q3 and easing in Q4, 2020

The development of the bond market in general and the corporate bond market in particular is indispensable to balance and improve the quality of Vietnam's financial markets. However, the overheated growth has posed many potential risks to market sustainability. Since the beginning of the year, the Ministry of Finance continuously delivered warnings to the market and consulted market makers. And on July 9, 2020, the Prime Minister officially issued Decree 81/2020/ND-CP on amendments and supplements to Decree 163/2018/ND-CP, effective from September 1, 2020.

Decree 81 places higher requirements on private placement for issuers and intermediaries, but it does not have new regulation for investors. When the Law on Securities 2019 comes into effect on January 1, 2021, private equity placements will only be distributed to professional investors. At that time, the Ministry of Finance will consider removing regulations in Decree 81.

In preparation for the introduction of Decree 81, the Ministry of Finance consulted market makers many times since the beginning of the year. The sharp increase in bond issuances in the second quarter of 2020 was partly an acceleration before issuance conditions would be tightened.

Therefore, according to SSI Securities Corporation, in July-August 2020, companies will strongly increase bond issues before Decree 81 officially takes effect. After September 1, 2020, private placements will drop sharply, most companies will have to adopt public offerings then. In addition, the State Bank of Vietnam is stretching the roadmap to reduce the ratio of using short-term funds for medium to long-term loans, the credit channel through commercial banks will again become a primary funding channel for businesses, especially real estate businesses.

Notably, SSI forecasts that the difference between bond coupons and deposit interest rates will continue to widen along with the expanding corporate bond market boosted by the strong growth in size since early 2019 and the increased participation of banks and securities companies, which will make the secondary corporate bond market more active in the remaining months of 2020.

By Anh Mai, Vietnam Business Forum