According to data published by the Hanoi Stock Exchange (HNX), in December 2020, a total of 35 enterprises registered 98 private issuances of corporate bonds with registered value of VND 75,350 bn. The value of successful issuance reached VND 43,470 bn, accounting for 57.69% of total value of registered issuance. In 2020, the corporate bond market experienced an impressive growth with total issuance value of VND 437,668 bn, an increase of 38.6% compared to 2019. In December 2020, the value corporate bond issuance increased again after cooling down significantly in September, October and November.
In the first eight months of the year, the corporate bond market was very active because of Decree No. 163/2018/ND-CP that regulated the issuance of corporate bonds. However, from January to September 2020, due to tightening of regulations on corporate bond issuance, the corporate bond market cooled down. The last month of the year recorded a rebound before new regulations under Decree 153/2020/ND-CP untied the market.
Some financial experts say that the reason for the barricade under Decree 81/2020 is because the real estate corporate bond market boomed too strongly and that the market had not entered the right trajectory. In the market, there are still many companies that have flawed financial statements but strongly issue bonds by pushing up interest rates to attract investors. However, the policy for the corporate bond market is still not stable, so Decree 153/2020/ND-CP will set to resolve this issue, now effective since 1 January 2021.
According to an analysis by VNDirect Securities JSC, in the past, Decree 81/2020 limited the issuance size of corporate bonds. The outstanding debt balance of private bonds issuance is limited to five times of equity. Each issuance must be completed within 90 days from date of announcement prior to the issuance, and the following issuance must be at least six months after previous one. The issuing company must sign an advisory contract with an advisory organization on corporate bond issuance documents, unless the issuing company is an organization permitted to provide issuance documentation consulting services in accordance with law.
The new Decree 153/2020 only requires: (1) the issuing company to be a joint stock company or a limited company; (2) pay both the principal and interest of the issued bond or pay all due debts within three years; (3) meet financial prudential ratios and safety ratios in operations in accordance with specialized laws; (4) have approved issuance plans; (5) and have financial statements of year preceding year of issue audited by qualified auditing organization. Accordingly, VNDirect forecasts that the corporate bond market will be active again in 2021, owing to a number of problematic regulations being removed in Decree 153/2020.
Reduced deposit rates
The corporate bond market in 2021 is forecast to having many favorable conditions. With a positive economic growth expected this year, the capital mobilization demand of businesses is forecast to remain very large. In the conditions that the pandemic is still complicated and affecting many industries, the banking industry will be very careful in providing credit to businesses, while the State Bank of Vietnam will still maintain its view of promoting the transition to credit structure, keeping a moderate portion with the real estate lending sector. Accordingly, the need to find capital through corporate bonds will remain high.
Meanwhile, the demand for professional investment to replace traditional investment, such as savings by domestic investors, is increasing. The orientation of the State Bank of Vietnam is to reduce deposit interest rates, and create a premise to reduce lending interest rates to support economic growth. The meeting of safety indicators of the banking industry has also been positive, so it also reduces the competitive pressure on capital mobilization.
Accordingly, the trend of strongly increasing deposit rates is unlikely to return. At this time, the deposit interest rate at Vietcombank for a term of one to two months is only 2.9% per year; for a three-month period, it is 3.2% per year; for a six-month term it is 3.8% per year; and for a twelve-month term it is 5.5% per year. At commercial banks, the six-month savings interest rate fluctuates around 5% per year; for twelve months to about 5.5% per year; and for over twelve months to about 6% per year.
Dr. Tran Du Lich, a member of the National Financial and Monetary Policy Advisory Council, said that at this time, it is possible to take advantage of the trend of lowering deposit rates to quickly increase the stock market and corporate bonds. Accordingly, Vietnam's financial market will also achieve the goal of gradually shifting capital mobilization to capital market, reducing credit pressure on commercial banks, and create a balance for the financial market for a long time.
Experts also warn that investors are still at risk when dealing in corporate bonds under Decree 153/2020 which clearly states the responsibility of investors to approach and fully understand the contents and terms before deciding to buy or trade bonds. Meanwhile, the regulations on credit rating when businesses issue new bonds will not have legal obligations until 2023. At the same time, with corporate bonds, it is difficult for investors to know the purpose of using that capital, so before investing capital in this channel, it is necessary to consider this carefully.