A view of Vinhomes Smart City, a project developed by the residential real estate firm Vinhomes JSC. (Photo vinhomes.vn)Hanoi (VNS/VNA) — Companies are looking to raise debts from bond issuancebefore the amended Law on Securities takes effect next January.
The amended securities law, which was approved by National Assembly deputies inNovember 2019, will take effect on January 1, 2021.
The amended law will restrain local companies from selling their bonds toinvestors, especially individuals, to diminish the risks for the equity market.
According to Bao Viet Securities Co (BVSC), corporate bond issuance in June wasestimated at 31 trillion VND (1.34 billion USD).
In May, the value was 27 trillion VND, which was down slightly from theprevious month as the economy suffered from the social distancing and thespread of the coronavirus.
Real estate firms and banks were the biggest issuers as they sold 8.5 trillion VNDand 11 trillion VND worth of bonds in June, respectively.
But banks’ issuance value was down slightly compared to May while real estatefirms hiked their issuance to 11 trillion VND in June from 4.75 trillion VND inMay.
That indicated real estate developers were still hungry for capital as they haddifficulties getting access to bank loans, said BVSC analyst Nguyen Duc Hoang.
Recent issuers includeresidential developer Vinhomes, which outsold 12 trillion VND worth of bonds inprivate deals.
The corporate bond market would be more dynamic in the last six months of theyear and both issuance volume and value would jump, Hoang said.
“Banks and real estate firms will remain the biggest issuers,” he said. “Bankswill need more borrowing to lower their capital expenses and maintaintheir capital adequacy ratios.”
“As property developers will be restricted from loans from banks and financialinstitutions, their demand for debt will increase, especially when bondissuance will be tightened next year under the amended Law on Securities.”
Under the new law, companies will have to meet higher standards of bondissuance while unprofessional (or uncertified) investors are no longer eligibleto purchase corporate bonds.
According to business insiders, unprofessional investors are often individualones, who are not qualified for financial investment by any companies andmarket regulators.
Individual investors are lured into the corporate bond market because companiesoffer annual yield rates (average 10-11 percent) that are higher than banks’saving rates (average 7-8 percent).
In addition, they don’t have to wait until the maturity dates of the bonds tosell the assets like they do when depositing in banks, as they can negotiatewith the company that is the distributor of the bonds.
Especially, individual investors don’t pay close attention to the financialhealth and operation of the bond issuer.
“Restraining unprofessional investors from buying corporate bonds is common inthe international markets,” Vuong Hoang Son, director of bond market atVNDirect Securities Corporation, said.
“This type of product is more suitable for institutional investors, who areable to analyse and evaluate the issuers while companies also have to meetstrict issuance requirements,” he said.
“Companies should be encouraged to sell bonds in public deals and theprocedures should be simplified to make it more convenient for them to do so,”Son said.
Limiting individual purchases for corporate bonds may not affect the marketbecause major buyers are institutional ones with strong financial capacity andexperience, Hoang said.
Unprofessional investors must study the bond issuers first regarding theirpurposes, guarantees and financial capacities when issuing bonds, he suggested.
“Investors must be careful with high-interest bond issuers because high riskswill come along,” he said. “They should ask for the consultancy ofinstitutional investors before making decisions.”
As the corporate bond market is showing signs of significant growth, theMinistry of Finance has asked the issuers to make sure they are financiallyhealthy to pay back the debts. Companies must also be committed to the dealssigned with investors, especially individual ones.
In addition, the ministry has recommended investors get access to theevaluation reports by financial firms before buying corporate bonds tounderstand the target and financial status of the bond issuer as well as thechance and risk of the bond deal.
Underwriters and distributors are asked not to sell corporate bonds at allcosts. They are asked to be responsible for providing accurate, transparentinformation of the bond issuer and the issuance and make sure the benefits ofinvestors are secure./.
VNA
