Corporate bond market gradually recovers

Although the corporate bond market in 2024 is still facing challenges, the Government has attempted to support the country’s economy by issuing policies and strict regulations in corporate bond issuance which are expected to help relax investors' concerns.

At the same time, commercial banks have cut their deposit interest rates which will provide good support for the corporate bond issuance channel, helping the market gradually recover and grow more sustainably.

The corporate bond market after 2022 and the first quarter of 2023 seemed to be frozen, it has prospered in the last three quarters of 2023.

According to many experts, the market condition has been improved thanks to the Government's issuance of Decree 08/2023 to remove obstacles for the market with a mechanism to extend and defer corporate bond debt and a mechanism for exchanging corporate bonds to real estate which has helped businesses easily issue bonds.

Last but not least, the Ministry of Finance said that thanks to Decree 08/2023, many businesses have mobilized thousands of billions of Vietnamese dong for production and business. It’s worth mentioning that many real estates businesses such as Capitaland Tower Company, Southern Star Investment and Urban Development Company, and Investment and Development Company Hung Yen urban area have also successfully mobilized corporate bonds in the past year.

According to data from the Vietnam Bond Market Association (VBMA), the total value of corporate bond issuance was recorded at VND312 trillion (US$12,632,583,400) in 2023. In particular, the banking sector mobilized more than VND176,000 billion accounting for 56.5 percent of the total issuance value, followed by the real estate group with about VND 73,200 billion accounting for 23.5 percent.

Although the number of corporate bonds successfully issued in 2023 is still far from the peak of nearly VND 790,000 billion before the Covid-19 epidemic in 2021, these are positive signs that the corporate bond market is gradually recovering.

In addition to increased issuance, businesses have also been buying back corporate bonds before maturity. The total value of corporate bonds bought back by businesses before maturity in 2023 set a new record, reaching VND248,564 billion, an increase of 8.1 percent compared to 2022. The value of corporate bonds bought back is equal to more than 76 percent of the issuance value.

Although the banking sector has been repurchasing the highest corporate bonds with nearly VND 129,000 billion accounting for 51.6 percent of the total value of pre-mature repurchases, statistics from the Hanoi Stock Exchange show that in 2023, 35 real estate companies have completely wiped out corporate bond debts, mainly buying their own bonds back before the maturity dates with a total payment to bondholders of more than VND 20,000 billion.

Moreover, the Government has operated a centralized individual corporate bond trading floor in 2023. According to statistics from the Hanoi Stock Exchange, about 760 corporate bond codes of about 200 issuers have been posted to the individual corporate bond market, contributing to increasing market liquidity about 20-30 times compared to before.

Challenge and opportunity

Companies redeemed their corporate bonds which has had a positive impact on investor psychology; however, the pressure on the corporate bond market is still great. According to the Vietnam Bond Market Association (VBMA), in 2024, it is estimated that nearly VND 278,000 billion of corporate bonds will mature. Of which, 41 percent of the upcoming corporate bonds worth nearly VND 114,000 billion belong to the real estate group, followed by the banking group with a value of nearly VND55,000 billion, accounting for 20 percent.

The Vietnam Investors Service and Credit Rating Agency Joint Stock Company (“VIS Rating”) assessed that the debt repayment ability of most real estate businesses has declined because of high financial leverage and weak sales cash flow.

In addition, from the beginning of 2024, the Government’s Decree 65/2022 regulating the private offering and trading of corporate bonds in the domestic and international markets will be fully implemented after a period of relaxation and postponement of some regulations under Decree 08/2023.

Accordingly, bond issuers are required to have a credit rating to see if they are eligible to issue corporate bonds or not; plus, individual investors in corporate bonds must be professional investors and reducing the distribution time of corporate bonds for each issuance makes investors be afraid that issuance of corporate bonds will become difficult again, especially real estate corporate bonds because this market cannot recover immediately. However, experts say that although there will be challenges, through screening, the corporate bond market in 2024 is opening up opportunities for investors as well as reputable issuers.

According to Dr. Can Van Luc - Member of the National Financial and Monetary Policy Advisory Council, the implementation of the Decree 65/2022 may put some pressure on bond issuers but is necessary because it will be better for the corporate bond market in the long run as it is more open, transparent and professional. In addition, the amended Law on Credit Institutions just passed by the National Assembly is expected to handle the issue of cross-ownership to maintain investors’ trust.

Economist Le Xuan Nghia said that in 2024, interest rates in countries, especially the US and Europe, tend to decrease, and capital flows will be poured into developing countries, including Vietnam. It will support the domestic capital market. Along with that, low domestic interest rates will also create a difference in investment yields, helping the corporate bond investment channel become attractive again in 2024.