The corporate bond market needs more professional institutional investors. Photo: ST

Imbalanced investor structure

Regarding the investor structure, Mr. Nguyen Anh Minh, Deputy Head of the Bond Registration Management Department, Vietnam Securities Depository and Clearing Corporation, said that the structure of corporate bond investors in Vietnam is still quite imbalanced.

According to statistics, commercial banks account for the largest proportion, about 55% of the total value of corporate bonds in circulation; followed by securities companies and investment funds with about 18%; individual investors account for 15%; insurance companies and pension funds account for only 9%, while state-owned organizations own almost no significant shares.

The difference is even more evident when comparing with other countries in the region. For example, in Korea, pension funds and insurance companies hold up to 54% of the total value of corporate bonds, while in Thailand this figure is 37%.

Regarding the structure of investor accounts in the private corporate bond market, Mr. To Tran Hoa, Deputy Director of the Securities Market Development Department, State Securities Commission, said that the investor structure is not diverse, the structure of accounts registering information on private corporate bond transactions is highly differentiated. The number of individual investors accounts for 99.73% of the total number of registered accounts; institutional investors account for only 0.27%.

However, the positive point is that the largest purchase proportion still belongs to the investors as credit institutions, accounting for 56.55%.

To address the shortcomings related to the quality of investors in the corporate bond market, in the draft amendment to the Securities Law in the Draft Law amending 7 laws in the financial sector, the drafting agency has amended and supplemented Article 11 of the 2019 Securities Law on professional securities investors in the direction that: for companies with contributed charter capital of over VND 100 billion, they must have been in operation for at least 2 years; for individuals, they must participate in securities investment for at least 2 years, have a minimum transaction frequency of 10 times per quarter in the last 4 quarters; have a minimum income of VND 1 billion/year in the last 2 years; and the draft adds a provision that professional securities investors include foreign institutional and individual investors.

Notably, the draft stipulates that professional securities investors participating in private corporate bond investment must be institutional investors.

According to the assessment of the Ministry of Finance, the private corporate bond market in our country has not been operating in accordance with the nature of this market. In fact, many private corporate bond offerings have been distributed to thousands of individual investors, mainly small individual investors, often investors with low investment value, without real professional experience and the ability to recognize risks when investing in private corporate bonds.

In order to continue to support this market to operate in its true nature and in accordance with international practices, it is necessary to study, amend and supplement a number of related regulations in the Securities Law to enhance the professionalism of investors.

Private corporate bonds are not suitable for small investors

According to Mr. Tran Le Minh, General Director of Vietnam Investors Service and Credit Rating Agency Joint Stock Company (VIS Rating), the Drafting agency has focused on the necessary points to solve unreasonable contents in practice and create conditions for the corporate bond market to develop safely, stably and sustainably.

In particular, the two key points are the regulations on professional securities investors (investors participating in the private corporate bond market) and the division of responsibilities to promote the issuance of corporate bonds to the public.

“The notable point in the draft is the addition of a regulation that professional securities investors participating in the purchase, trading and transfer of private corporate bonds are organizations according to regulations.

This also means that the regulation that privately issued corporate bonds can only be issued and traded between professional institutional investors. This stems from the characteristics of the private corporate bond market, the level of information disclosure related to bonds and issuers is significantly less, state management reduces and the market's self-management role is enhanced.

On the other hand, due to the diversity in the agreement on the terms and conditions of bonds, this type of corporate bond has become a complex product, requiring specialized knowledge to invest and is not suitable for small investors", Mr. Tran Le Minh shared.

Originating from the imbalance in the structure of corporate bond investors, to develop the corporate bond investor base in the new context, Mr. Nguyen Anh Minh said that it is necessary todeploy many comprehensive solutions, including the need to develop specific regulations on voluntary pension funds, including detailed instructions on establishment, operation, contribution mechanism and benefits of participants.

At the same time, there should be clear regulations on asset allocation according to the level of risk for these funds. In addition, it is also necessary to loosen investment regulations for financial institutions.

Specifically, it is possible to consider increasing the maximum investment ratio in corporate bonds for insurance companies and investment funds, while allowing pension funds to invest more flexibly in corporate bonds with good credit ratings.