According to the Hanoi Stock Exchange (HNX), the value of corporate bonds issued in the first half of this year reached VND89.48 trillion ($3.86 billion). Of this, the banking sector accounted for the largest proportion, followed by real estate, a July 15 report by securities firm MBS, a subsidiary of Vietnam’s Military Bank, said.

Although it did not give specific July figures, MBS noted that the banking sector accounted for approximately 42 percent of corporate bonds issued in the year to July 15, while real estate, construction and infrastructure issuers made up around 30 percent.

Firms in all sectors have been taking advantage of Decree 163, a new regulation on private issue of corporate bonds that the government released in late December last year, to "bypass" more stringent requirements for public issues under the Law on Securities, said Bui Nguyen Khoa, head of the Macro Department of BIDV Securities Company (BSI).

While companies making public issues are subject to requirements such as being profitable in its latest financial year, having no accumulated losses and no debts overdue for over one year, Decree 163 has removed or eased many of these conditions for private issues.

Buyers of privately issued bonds are only required to hold onto the bond for one year before being able to sell it to other investors, which makes private issues effectively public issues after one year, said Khoa.

Tight bank credit means higher yields for real estate bonds

According to another report by MBS, real estate firms have also been issuing bonds at higher interest rates, averaging around 11-13 percent per annum, sometimes as high as 14.5 percent, compared to average bank bond yields of only 7-8 percent a year.

In addition to the increased ease of making private issues, tightening credit policies on real estate lending are forcing real estate firms to seek alternative sources of finance, according to the Ho Chi Minh City Real Estate Association (HoREA).

The State Bank of Vietnam (SBV) has been seeking to heighten supervision over lending for real estate, especially for consumer loans, in recent year, warning of bad debt risks, while wanting to divert more capital towards manufacturing and processing sectors, especially for small and medium sized enterprises.

According to a recent draft circular prepared by the SBV, loans for buying houses worth more than VND3 billion (over $129,470) will have a risk coefficient of 150 percent, three times higher than the current ratio.

However, although high-yield corporate bonds are becoming an attractive investment instrument, higher rates come at a risk to investors, experts warned.

"Businesses are accepting cost of capital as high as 14.5 percent, exclusive of consultation fees and other expenses related to the issuance. They must therefore generate higher returns to compensate this figure, or risk falling into a vicious cycle of debt if they have to enter into more debt to finance interest payments to existing bondholders," an expert who did not wish to be named told VnExpress.

Such high interest rates are also a sign of imbalances in the issuer’s financing structure, said Dr. Nguyen Minh Phong, an economist. "The issuer will face serious consequences if it has to default on it bonds," he added.

"Bonds of this sector are always assessed with higher risks than those of credit institutions or manufacturing companies," a Vietcombank Securities Company (VCBS) report said.

It added that investors should be wary when buying newly issued bonds, as Decree 163 requires less transparency. For instance, it is no longer mandatory for issuers to disclose their credit ratings.

In any case, the clear benefactors of the market changes have been consultants, such as banks, securities companies and insurance companies, who enjoy commissions on each bond issue.

For instance, Techcombank Securities (TCBS), a local investment bank that currently holds over 80 percent of the bond brokerage market share on the Ho Chi Minh Stock Exchange (HoSE), reported profits surging approximately 300 percent in the first half of this year.

According to the SBV, credit growth for the real estate sector had been slowing in the past two years, reaching 8.56 percent in 2018 from 12.86 percent in 2016.