Seeking Solutions to Revive Corporate Bond Market

The corporate bond market is an important fundraising channel for companies to grow their business development. It provides an alternative source of finance and supplements the banking system to meet the requirements of the corporate sector to raise funds for long-term investments. A vibrant and well-developed corporate bond market is essential to support the country’s economic growth. The sustainable development of the corporate bond market is an important and urgent task to be implemented.

Many difficulties remain

According to statistics, the corporate bond market has grown relatively rapidly in recent years and achieved certain results, accounting for about 12.6% of GDP in 2022. However, after a rapidly growing period, this market witnessed a sharp decline in liquidity. In 2022, privately placed corporate bonds plunged 44.9% year on year to VND337 trillion (US$14.6 billion).

In fact, in the second half of 2022, the privately placed corporate bond market witnessed widespread panic due to many emerging difficulties, such as rising interest rates at banks, weakening investor confidence, market liquidity squeeze, and investor caution about global uncertainties and less positive outlook. Notably, investor confidence was seriously spoiled by some companies’ wrongdoings.

According to VNDirect Securities, in the first quarter of 2023, companies successfully launched 14 corporate bond offerings with a total value of more than VND28,330 billion, up 59% from the previous quarter. Among them, nine private placements were completed after Decree 08 was issued (March 5, 2023), accounting for more than 97% of the total privately placed value in the March quarter. In particular, real estate developers accounted for 85.55% of the value and the rest was raised by banking, construction, consumer goods, agriculture and other firms.

After the first three months of the year with positive signs, in April, the corporate bond market in Vietnam recorded only one individual bond issuance worth VND671 billion by North Star Holdings Joint Stock Company. In May, there were four corporate bond offerings by Nui Phao Mining Company with a total value of VND2,600 billion.

Macroeconomic stability supports confidence

According to Deputy Minister of Finance Nguyen Duc Chi, Vietnam’s corporate bond market is still in its early stages. The market is young and still developing, and is new to even issuers, investors and authorities.

To deal with market difficulties, he said it is necessary to stabilize macroeconomic settings, control interest rates, exchange rates and inflation, and keep flexible and effective fiscal and monetary policies, among other things. If Vietnam can keep its current results and continue with that process, it will be the fulcrum for companies to keep operating better and more effectively, thus returning to the growth trajectory.

Besides, there should be legal regulations directly related to this bond market. Mr. Chi added that regulations must be handled flexibly and effectively, responding promptly to actual developments. Recently, the Government also launched policies and solutions to deal with pressing market requirements. In a very short time, it issued two decrees: 65/2022/ND-CP and 08/2023/ND-CP to provide issuers and investors with conditions, legal tools and time to solve immediate difficulties in cash flow, liquidity, guarantee property and other related issues on the single principle of harmonized interests and shared risks. Issuers must be fully responsible for their obligations such as commitments to investors. The Government oversees businesses and the market to make sure that the law is respected. Investors themselves must also observe the law so that the Government supports and supervises this market transparently and ensures the harmony of interests of all stakeholders.

Prof. Hoang Van Cuong, Member of the National Assembly, Vice Rector of the National University of Economics, said that the bond market is not an ordinary commodity trading market. Bonds are a financial market that requires qualified participants and a regulatory environment to create a suitable ecosystem.

Therefore, the first thing is to have a legal framework for management, support and supervision, he said. At the same time, market participants, including bond issuers, must also see how compliance is required and what risks may be encountered. In particular, there should be more appropriate response measures. Most importantly, bondholders feel confident and no one will lose everything. For example, measures include extending maturity and converting bonds to assets.

Mr. Pham Hong Son, Vice Chairman of the State Securities Commission (SSC), said, the Hanoi Stock Exchange (HNX) and the Vietnam Securities Depository (VSD) are urgently building a privately placed corporate bond trading system, expected to put into operation in June 2023.

After the corporate bond exchange is put into operation, investors can sell bonds publicly there. Trading prices are very transparent and qualified investors will buy bonds through this exchange when they need to. In particular, if investors need to sell ahead of time, they can also do it there without waiting for the payment due date or having to claim and negotiate with issuers.

By Quynh Anh, Vietnam Business Forum