Techcombank Securities (TCBS) is experiencing a sharp decline in business.

Công Luận•21/08/2023

Over the years, the business operations of Techcombank Securities Joint Stock Company (TCBS) have been heavily dependent on the vibrancy of the bond market. The rapid development of the bond market in previous years served as a leverage to help TCBS compete with established securities companies, at a time when its securities brokerage segment had almost no chance.

Mr. Nguyen Xuan Minh, Chairman of the Board of Directors of TCBS, shared many years ago: "At the beginning, TCBS was more than ten years behind other securities companies in the securities brokerage sector. Having already started, jumping into that market without any competitive advantages to catch up would mean remaining a follower forever." This forced TCBS to find a niche market, one that other securities companies hadn't yet considered.

Since 2016, TCBS has consistently led in bond trading market share on the Ho Chi Minh City Stock Exchange (HoSE). Its underwriting and issuance agency business also regularly generates hundreds, even thousands, of billions of dong annually, often accounting for the highest proportion of its operating revenue.

Bond crisis

After a period of rapid growth, difficulties began to emerge following the tightening of regulations on bond issuance, particularly private corporate bonds. Decree 65/2022/ND-CP, amending and supplementing Decree 153/2020/ND-CP on private bond offerings, issued on September 16, 2022, is predicted to have a significant impact on the bond market.

For securities companies, revenue from bond issuance advisory services is at risk of shrinking due to stricter regulatory policies. The prospect of revenue growth from the redistribution of corporate bonds will remain uncertain after Decree 65.

In fact, TCBS's revenue from underwriting and issuance agency services in 2022 decreased by nearly 15% compared to the previous year. 2022 was a challenging year for the bond market, especially for privately placed corporate bonds. A year prior, revenue from this segment of TCBS's business had already shown signs of stagnation.

The stock market relies on guaranteeing the issuance of common securities bonds, TCBS business, and the sharp decline following market fluctuations (Figure 1).

In 2022, the corporate bond market was impacted by information related to a series of large corporations, especially those operating in the real estate sector, with tens of trillions of dong worth of bonds outstanding. In addition, a series of warnings from ministries and agencies led investors to adopt a more cautious and careful approach.

The primary market was almost "frozen" in the third quarter, and the gloomy trend is forecast to continue into 2023. Businesses are unable to issue bonds due to a lack of buyers. Similarly, the secondary market is congested due to a lack of demand. A series of sell orders are being placed while buyers are nowhere in sight.

Institutions are "massively" selling off assets of significant value, making bond sales orders very difficult to execute. Some funds have had to sell assets at substantial discounts, leading to a decrease in NAV/unit value. The largest bond fund in the market, TCBF - Techcom Capital, naturally could not escape the crisis, with total assets decreasing by 16% in October, equivalent to more than VND 3,100 billion. Several other funds recorded cumulative total asset decreases from the beginning of October ranging from 22% to 34%, or experienced net outflows of VND 100-300 billion each week.

Profits plummeted.

The core business segment, which contributes the most to revenue, has been affected, causing TCBS's business results to decline significantly. In 2022, the securities company's pre-tax profit decreased by nearly 20% year-on-year, to VND 3,058 billion. This figure is projected to continue to fall sharply as TCBS only aims for a pre-tax profit of VND 2,000 billion in 2023, nearly 35% lower than the previous year. Operating revenue is also expected to decrease by 11% to VND 4,654 billion.

According to the audited semi-annual financial report for 2023, TCBS recorded operating revenue of VND 2,015 billion in the first six months of the year, a decrease of 34% compared to the same period last year. After deducting expenses, TCBS's pre-tax profit for the first six months was nearly VND 1,000 billion, a decrease of half compared to the same period last year and achieving 50% of the full-year profit target.

According to TCBS's explanation, the reason for the business downturn is that the corporate bond market has not yet fully recovered. In the first six months of the year, revenue from underwriting and securities issuance agency services, mainly bonds, decreased sharply by 53% compared to the same period last year, falling to less than 450 billion VND.

At the end of the second quarter, TCBS's total assets stood at VND 34,775 billion, a 33% increase compared to the beginning of the year, including VND 5,761 billion in cash and cash equivalents, VND 10,182.5 billion in loans, etc. Notably, TCBS also held VND 12,750 billion in unlisted bonds at the end of the second quarter, equivalent to 36.6% of its asset structure. This figure is nearly double that at the beginning of the year and a 91.6% increase compared to the end of the first quarter of 2023.

Amid a significant business downturn, TCBS unexpectedly sought to raise over 10 trillion VND from a bank late last year through a private placement of 105 million shares at an expected issue price of 95,600 VND per share. The purpose of the offering was to maintain its position in core business areas including equities, bonds, investments, and asset management.

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