Real estate corporate bond issuance has decreased sharply: Where do businesses get money to pay off debt?
Corporate bond issuance dropped sharply in March 2024. It is predicted that this year, real estate businesses will have a hard time raising money when bonds mature.
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Bond issuance decreased by 61% compared to the same period
According to data from the Hanoi Stock Exchange, in March 2024 (as of March 25), only 2 enterprises successfully issued bonds: Viet An Investment, Business and Trade Development Company Limited (issued 1,250 billion VND) and Hai Dang Real Estate Investment and Development Company Limited (2 issuances totaling 2,500 billion VND).
Thus, in the first 25 days of March 2024 (calculated from the date of information announcement), the amount of corporate bonds issued reached only 3,750 billion VND, down 85.5% compared to the same period in March 2023. Accumulated in the first 3 months of this year (up to March 25), the amount of corporate bonds issued reached 10,715 billion VND, down 61.5% compared to the same period last year.
While new bond issuance has decreased sharply, the pressure on real estate businesses to mature bonds from now until the end of the year is huge. Since the beginning of the year, businesses have had to spend nearly VND14,000 billion to buy back bonds before maturity (of which more than 41% are real estate bonds).
According to FiinGroup's estimates, the amount of corporate bonds maturing in 2024 will reach more than VND300,000 billion, of which real estate bonds alone will be more than VND130,000 billion.
Mr. Nguyen Quang Thuan, General Director of FiinRatings, said that the ability to repay bonds is still a big challenge for real estate enterprises. Although credit capital partly supports cash flow for real estate enterprises, issuing enterprises cannot rely entirely on this source of capital to complete their bond repayment obligations. Meanwhile, the real estate market has not really improved.
In 2023, the amount of overdue corporate bonds will reach nearly VND190,000 billion (bad debt accounts for about 23.5% of the total outstanding value at the end of 2023). However, according to analysts, the positive thing is that the amount of overdue bonds will decrease sharply in 2024.
“In 2024, the amount of overdue bonds is expected to decrease sharply, to VND40,000 billion, issued by 35 enterprises. Half of these are “shell” enterprises, which are enterprises established with the sole purpose of issuing corporate bonds, without core business activities, the rest are other enterprises. The amount of high-risk bonds will be concentrated in the fourth quarter of 2024,” said Mr. Nguyen Dinh Duy, Director of Analysis, Rating and Research Division (VIS Ratings).
Where do real estate businesses get money to pay for their debts?
The real estate market has begun to show signs of recovery since the end of 2023, but the recovery rate is still slow, mainly warming up in the apartment segment. Project licensing activities are still slow, making it difficult for supply to improve quickly in the coming time. Since the beginning of the year, many investors have made moves to open for sale. This is a positive sign for the whole year of 2024. However, the supply-demand balance has not been able to improve, leading to continued difficulties in the financial health of investors.
“The ability to repay investors is at its lowest level in many years by the end of 2023 and this ability has not clearly improved in 2024, if viewed from the financial leverage used by these enterprises, especially the amount of maturing corporate bonds. However, I believe that real estate enterprises will not face any liquidity shock in 2024, thanks to other capital access channels - especially bank credit and stock issuance - being quite favorable. Since the beginning of the year, real estate business credit has grown positively, although general credit has grown negatively. In addition, many real estate enterprises have also had favorable conditions in issuing shares to increase capital,” said Mr. Duong Duc Hieu, Senior Analysis Director of Ratings and Research (VIS Ratings).
In addition to cash flow from bank credit and stock issuance, economic experts also expect that corporate bond issuance in 2024 will gradually improve in the second half of the year, helping real estate businesses fulfill their bond repayment obligations.
Starting this year, Decree 65/2022/ND-CP will be fully implemented, better protecting investors, expected to bring confidence to individual investors as well as attract more participation from institutional investors.
Analysts expect the corporate bond market to recover in 2024, led by the banking and real estate sectors. As for real estate bonds, the recovery rate will depend largely on the speed of improvement in the legal framework as well as the progress of project licensing by localities.
Another factor supporting the bond market recovery is interest rates. Economist Dr. Le Xuan Nghia believes that interest rates in 2024 will continue to remain low, creating attractiveness and good support for the corporate bond market to recover.
However, due to the narrowing of the number of participants in the corporate bond market (Decree 65/2022/ND-CP has tightened the conditions for individuals to participate in buying and selling corporate bonds), the most important factor for this market to become vibrant again is to improve the procedures for issuing bonds to the public and expand the base of institutional investors. To do so, regulations related to securities investment funds, bond funds, pension funds, insurance companies, etc. need to be expanded to boost demand for corporate bonds. Individual investors can participate in investing in corporate bonds through professionally managed funds or bonds issued to the public.
In the past 2 years, corporate bonds have become sensitive, many financially capable enterprises even bought back all bonds before maturity, paying off all outstanding bonds. Hopefully, when investor sentiment recovers, these enterprises will return to the market. From the investor's perspective, with low savings interest rates as they are now, the large gap between corporate bond interest rates and savings interest rates will increase the attractiveness of bonds.
Mr. Nguyen Dinh Duy, Director of Analysis, Ratings and Research (VIS Ratings)
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