The investment channel of corporate bonds has grown strongly in recent years, but experts also point out this market is developing unstably and still has shortcomings. However, the potential of the corporate bond market is huge.

Corporate bonds is an important capital channel. Source: Internet

Exciting corporate bond issuance

According to Prof. Can Van Luc, Chief Economist of the Bank for Investment and Development of Vietnam (BIDV), although there was quiet in the fourth quarter of 2020 after Decree 81/2020/ND-CP regulating the issuance of corporate bonds took effect, the issuance of corporate bonds still took place very actively and became an important capital channel for firms in the context of complex development of Covid-19 pandemic.

Citing data of the Asian Development Bank (ADB), Prof. Luc said by the end of June 2021, total outstanding debt in the bond market in Vietnam was equivalent to about 22.8% of GDP; corporate bonds accounted for about 5.2% of GDP.

The Vietnamese corporate bond market has experienced a breakthrough growth since 2016 even though it was formed in 1997 and started to develop from 2005-2006.

The scale of Vietnam's bond market (including corporate bonds and Government bonds) was still small compared to other countries in the region. This showed Vietnam's corporate bond market still had a lot of room to expand in the future.

Although it was an important capital channel for enterprises, especially real estate firms, the Vietnamese corporate bond market had witnessed an unstable development in recent years according to Prof. Luc.

“If in 2016, the corporate bond market increased by 203%, it turned to 11% in 2017, then rebounded to 227% in 2018. Since then, the growth rate of the market had gradually decreased to 103% in 2019, 36% in 2020 and reached 18.3% by June 2021,” he said.

The structure of corporate bond investors also has many problems, reflected in the proportion of corporate bond investment. Corporate bond investment by credit institutions fell from 35% in 2018 to 17.4% in 2019 and to 25% in the first half of 2021. This proportion of securities companies has always remained unchanged at a high level of 39.4% in 2018, 44.1% in 2019 and 44.4% in the first half of 2021.

This shows securities companies and individual investors are the main investors in the market.

According to Luc, although there are many bright and dark spots intertwined, the potential of the corporate bond market is huge.

Bank interest rates are still low and can be maintained in 2021-2022, the corporate bond investment channel with an average interest rate of 8-9% per year is still attractive to individual investors and organisations if the investors accept the risk.

With three decrees guiding the implementation of the Law on Securities issued and guidance circulars, it is an important legal framework to promote the corporate bond market towards more efficiency and quality.

Proposal to convert corporate bonds into shares

From a business perspective, Tran Van The, Vice Chairman of Deo Ca Group, said credit room for the transport infrastructure industry was increasingly limited, so this was the right time to issue corporate bonds to implement traffic PPP projects.

Furthermore, The said firms would issue corporate bonds to implement the traffic projects that had just won the bid with many key national projects like Cam Lam - Vinh Hao project - a component project of the North - South expressway which had a total investment of VND 9,000 billion, Huu Nghi - Chi Lang project was some VND 7,500 billion, Dong Dang - Tra Linh project was VND 12,000 billion.

However, according to a representative of Deo Ca Group, in the process of bonds issuance, there are some problems in terms of policy and reality. Article 6 of Decree No. 28/2021/ND-CP dated March 26, 2021 on financial management mechanism of PPP investment projects stated that PPP project firms are only allowed to private replacing, which are not convertible. This regulation has restricted firms.

Another disadvantage is the capital demand in the transport infrastructure sector is very large, while the typical payback period of a project is long. With a project with a good financial plan, the payback period is 15 years; the rest usually falls into 20 years, even 23 years. Therefore, firms must consider the bond issuance plan to ensure the circularity, continuity and ensure repayment periods in accordance with the project's life cycle during 15 years to payback.

Accordingly, the representative of this firm suggested that firms could issue corporate bonds to the public, even international bonds issuance because the field of transport infrastructure investment requires extremely large capital and is suitable for international bonds issuance.

If convertible bonds are issued, after a period of 3-5 years, investors have the right to convert corporate bonds into shares, firms turn debt into equity. It is means that the firm is no longer obliged to repay the debt, but uses the contributed capital of the investor to develop the company and that project.

At the same time, The proposed to have an infrastructure investment fund, specialising in preferential loans, or invest in infrastructure bonds and project bonds of enterprises. The National Infrastructure Investment Fund can also pour capital, both creating confidence for investors to buy bonds of transport infrastructure firms and making the market more attractive.