Narrow window of opportunity for individual investors.

While the amount of bonds issued to the public remains limited and mainly comes from the banking sector, private investment in corporate bonds by individual investors will be restricted, according to a new draft currently being submitted to the National Assembly for approval.

Corporate bond market: Narrow opportunities for individual investors.

While the amount of bonds issued to the public remains limited and mainly comes from the banking sector, private investment in corporate bonds by individual investors will be restricted, according to a new draft currently being submitted to the National Assembly for approval.

Illustrative image

A playing field for professional organizations.

The most recent draft of the Law amending and supplementing a number of articles of 7 laws in the field of finance and budget continues to define the participants in the purchase, trading, and transfer of private corporate bonds as professional securities investors, specifically organizations. However, a small loophole is opened for individual professional securities investors in the case of private bonds issued by credit institutions. Furthermore, according to transitional provisions, private corporate bonds issued before January 1, 2026, with outstanding debt, and private corporate bond offerings before January 1, 2026, that have submitted prior information disclosure to the stock exchange but have not yet completed distribution, will continue to be governed by the provisions of the 2019 Securities Law.

Compared to the initial versions of the Draft, the regulations regarding professional securities investors and participants in the bond market have been significantly relaxed. Previously, to become a professional securities investor, individuals needed to have invested in securities for a minimum of two years, have a minimum trading frequency of 10 times per quarter in the last four quarters, or hold a portfolio of listed or registered securities with a minimum value of 32 billion VND…

However, the private corporate bond market is still considered the "playing field" of professional institutions, except for the niche market of bonds issued by banks.

It should also be noted that, at one point in 2021, individual investors were the largest holder of corporate bonds in this market, accounting for 41%. By June 2024, this proportion had decreased to 24%. With this market consolidation, individual investors in the private bond market must consider the risks they may face more carefully.

In the public bond market, opportunities for individual investors are also limited. According to data compiled by the Vietnam Bond Market Association (VBMA) from HNX and SSC, from the beginning of the year to September 30, 2024, there were 268 private placements worth VND 250,396 billion and 15 public offerings worth VND 27,054 billion. The value of bonds issued to the public accounts for less than 10%. Furthermore, the issuance by Agribank alone raised VND 10,000 billion, accounting for nearly 40% of the total value of bonds offered to the public.

Prior to that, in 2023, the situation was not much better, with the total value of corporate bond issuance recorded at VND 311,240 billion, with only 29 public offerings, raising VND 37,071 billion (accounting for 11.9% of the total issuance value).

What's the solution?

Based on feedback from numerous businesses, associations, and experts on the draft law amending and supplementing several articles of seven laws in the finance and budget sector, the Vietnam Chamber of Commerce and Industry (VCCI) believes that the regulation prohibiting individual investors from investing in privately issued bonds of enterprises other than credit institutions will have a significant impact on the capital market.

In the current context, corporate bond investment organizations such as commercial banks, securities companies, insurance companies, and investment funds face numerous restrictions on bond investment regulations. Restricting these investors makes it difficult for businesses to issue more bonds because there aren't enough investors in the market to absorb the issued volume. Furthermore, considering individual bonds specifically for debt restructuring purposes, individual investors are almost the only investor group. In the future, businesses may need to raise capital to restructure maturing debts or debts with high borrowing costs.

"Therefore, businesses will be significantly affected in raising capital to restructure debt, which could strongly impact liquidity in the next 3-5 years," the VCCI's feedback emphasized.

Meanwhile, the private bond market has developed more stably following measures such as the operation of HNX's dedicated bond information portal, centralized registration and trading of private bonds at HNX, etc. Therefore, VCCI suggests considering not adding the above regulation in this amendment, but only adding it after resolving obstacles related to regulations on public bond offerings and reducing restrictions on investment activities of institutional investors.

According to Mr. Nguyen Ly Thanh Luong, Head of Analysis Team (VIS Rating and Research Division), the new regulations set by the regulatory authority aim to reduce excessive risk in private bond investment activities by limiting privately offered bonds to institutional investors only.

“The increased participation of institutional investors is crucial for the sustainable development of the market. Compared to individual investors who tend to focus on short-term profit targets, institutional investors generally consider investment risks more carefully, accept long-term investments, and have a better tolerance for short-term fluctuations,” Mr. Luong advocated for deeper involvement of professional institutional groups.

However, the fact that institutional investors such as insurance companies, pension funds, and investment funds only held 8% of the total outstanding corporate bonds as of the end of June 2024 is leaving a gap in the market. For example, the largest institutional investor in Vietnam today, the Vietnam Social Insurance Fund, with assets under management reaching VND 1.2 trillion as of the end of December 2023, has yet to invest in the corporate bond market. A representative from VIS Rating believes that raising awareness of risks and increasing the presence of institutional investors are key to this new phase of development.

Source: https://baodautu.vn/thi-truong-trai-phieu-doanh-nghiep-hep-cua-cho-nha-dau-tu-ca-nhan-d228435.html