Real estate companies issue corporate bonds to mobilize capital to implement real estate projects when they have not been able to access bank capital. (Photo: SGGP)Consulting and purchasing corporate bonds online
The Ministry of Finance (MoF) said that the private placement corporate bond market had grown in the first seven months of this year. The volume of corporate bond issuance on the market increased by 17 percent over the same period last year. In the second quarter of 2021, the proportion of private placement corporate bonds accounted for nearly 90 percent of the total amount of VND164 trillion of corporate bonds issued.
The market also records that in August 2021, several large real estate enterprises announced to have successfully mobilized thousands of billions of Vietnamese dong through corporate bonds. Of which, some enterprises issued bonds with high interest rates of up to more than 13 percent per annum, 2-3 times higher than bank deposit interest rates.
According to current regulations, enterprises mobilize capital through private placement of corporate bonds on the principle of self-borrowing, self-paying, and self-responsibility, and State management agencies do not issue issuance permits. Because of the high-risk nature of corporate bonds, the Government's Decree No.153/2020 on private placement of corporate bonds stipulates that only professional investors can buy and trade privately placed corporate bonds.
Some securities companies and banks - one of the main investors in the primary private placement corporate bond market - have offered corporate bonds to individual customers. For being ineligible, some investors have sought to circumvent the law.
Hoai, a resident in Thu Duc City, said that she withdrew her savings account to invest in securities. Because she bought stocks when the market was making corrections, her investment capital evaporated by more than 20 percent within just four weeks. The broker of a securities company recommended her to buy corporate bonds from K. Real Estate Company, with the highest interest rate of nearly 11 percent per annum and a term from 3 to 15 months.
The consultant also promised that the securities company could help to prove that she was a professional investor through her investment contract with it, even if she did not hold stocks with a minimum value of VND2 billion (one of the conditions to become a professional investor).
According to Hoai, although the term of corporate bonds is three years, the consultant commits that she can transfer them after 6-12 months if she wants to withdraw money. "Because of high-interest rates, I invested about VND300 million in corporate bonds," said Hoai.
Limited collateral assets
Corporate bond issuance is a large and important capital mobilization channel in the market besides the sources of credit from banks. However, many enterprises, most of which are real estate enterprises, have issued corporate bonds with high-interest rates, but the quality of collateral assets of bonds is limited because they are mainly investment projects, assets formed in the future, or shares of real estate enterprises. Meanwhile, ensuring the obligation to pay principal and interest of corporate bonds by stocks does not make much sense because when enterprises encounter insolvency, the value of shares used as collateral will also plummet seriously.
According to Dr. Nguyen Tri Hieu, a banking and finance expert, in the context of a prolonged Covid-19 pandemic, the real estate market is standing still, and the implementation and opening for sale of projects are interrupted. Moreover, public investment in infrastructure projects is also slower than expected. Hence, investors should be more cautious because when businesses face difficulties and cannot repay the bond principal and interest, investors will be empty-handed.
Facing the above situation, the MoF has just requested the State Securities Commission (SSC), the Vietnam Stock Exchange, and the Banking and Finance Department to strengthen inspection and supervision of the corporate bond market.
Regarding the above direction, SSC’s representative also acknowledged that recently, there was a situation of circumvention of regulations on professional securities investors in the private placement corporate bond market. Some organizations were providing intermediary services to offer and distribute privately placed corporate bonds to individual investors. The SSC has had a plan to inspect some securities companies and will strictly handle if securities companies violate regulations.
A representative of the Finance and Banking Department under the MoF said that in case of circumventing regulations on professional securities investors by buying bonds through investment contracts with securities companies, investors are not the owner of corporate bonds, and the rights to corporate bonds under the commitments of issuers will not be guaranteed. Experts also recommend that investors should be cautious when deciding to buy corporate bonds, especially high-interest-rate corporate bonds often come with great risks.