Transparency - a prerequisite for the development of the corporate bond market

Illustration photo (Photo: thoibaonganhang.vn)

According to Prof. Dr. Hoang Van Cuong - Member of the National Assembly's Finance and Budget Committee, after the explosive growth period of 2018 - 2021, the difficulties of the corporate bond market occurred in 2022, the outstanding debt ratio decreased from 16% of GDP to about 11% of GDP, but compared to the total mobilized capital, the size of bonds is even smaller. Bond capital is about 8% compared to credit, businesses currently do not have access to the capital market in the true sense but still mobilize short-term capital through banks.

Bonds are a long-term capital mobilization channel for businesses, but currently, the target set for 2025 is that corporate bond debt will reach at least 20% of GDP; by 2030, the target of corporate bond debt reaching 25% is also very difficult.

According to data from the Vietnam Bond Market Association (VBMA), in April 2024, there were a total of 13 private bond issuances worth VND13,940 billion. Along with that, businesses bought back VND12,001 billion of bonds before maturity, down 19% compared to the same period in 2023. Accumulated from the beginning of the year until now, there have been 31 private issuances worth VND29,050 billion and 6 public issuances worth VND8,878 billion. This figure, compared to the "freezing" of the market in 2023, seems to be "warming up". However, compared to the previous period, it is still too low.

Prof. Dr. Hoang Van Cuong also commented that businesses are entering the production recovery phase, wanting to expand production and business, but accessing bank capital is still difficult despite cheaper interest rates. Therefore, capital from corporate bonds is still what businesses are aiming for. However, to issue corporate bonds, businesses must build trust from investors.

Mr. Tran Le Minh, General Director of Vietnam Investment Credit Rating Joint Stock Company VIS Rating, said that the size of Vietnam's bond market is not small. Compared to other countries in the region, ours is about 47 billion USD, higher than the Philippines and Indonesia but smaller than Malaysia and Thailand.

Looking at the target of 25% of GDP by 2030, according to Mr. Minh, it is very difficult. If Vietnam only grows its GDP at an average rate of 5.5 - 6% for the next 8 years, the size of the corporate bond market will be around 160 - 170 billion USD, 3.5 times larger than the current size. At that time, Vietnam's corporate bond market will be equivalent to Malaysia's. And on average, in the next 8 years, Vietnam will have to issue about 370 trillion VND of new bonds each year, equivalent to the result in 2020 - the peak year before the market problems exploded.

Mr. Minh also gave 3 necessary conditions to help the Vietnamese corporate bond market develop to achieve the set goals.

In particular, the prerequisite is information transparency, because without transparency the market cannot and will never develop. Accordingly, there must be information on the risk level of bonds sold on the market, including: the risk level of the issuing organization, the ability to repay debt, and there must be complete information on the risk of the issuing organization provided by an independent party.

In addition, the second condition is to have a corporate bond yield curve as a reference for investors to know what price the bond is trading at. This helps investors avoid the situation of groping, not knowing the right price to place a transaction order.

The third condition is that the market needs to change its investor structure. Individual investors in the Vietnamese market are holding a high percentage of corporate bonds. According to statistics from VIS Rating, at the end of last year, investors owned 33% of the total value of corporate bonds in circulation. In contrast, in other markets, if corporate bonds are to be developed through long-term issuance, they are all held by institutional investors.

Mr. Minh still emphasized that at this point, we have done very well in the premise and the first step in solving the problem for conditions 1 and 2. If we can do that, the corporate bond market will develop in quality and quantity better than in the previous period.

Ms. Thai Thi Quynh Nhu, Senior Researcher at the Vietnam Real Estate Research Institute, also said that the most important thing to regain investors' trust is to be both transparent and to ensure accurate and reliable information. However, transparency without legal guarantees is difficult. Therefore, according to Ms. Quynh Nhu, the supervisory agency must strictly verify the legality of collateral assets first. For people, when deciding to invest their savings, collateral assets are very important. With real estate as collateral, some businesses have experienced or are showing signs of being unable to pay when risks occur.

To enhance the transparency of information of enterprises, according to Mr. Nguyen Manh Ha - Deputy Head of the Research and Policy Coordination Department, National Financial Supervisory Commission, information from credit rating organizations provided independently and objectively is an important factor for customers investing in corporate bonds. In addition, there are many other stakeholders who need information related to credit ratings.

Particularly for individual investors, credit ratings are a common standard, helping investors have a basis to compare tools, thereby making decisions on products to invest in. In addition, in the process of monitoring bond products, regularly updated credit ratings are important information for customers to effectively manage risks.

For issuing companies, credit ratings are also important. Good results give businesses the advantage of raising capital at lower costs, opening up more opportunities to attract cheaper capital sources. Credit ratings are also a tool for businesses to base on to price the financial instruments they issue.

For supervisory management agencies, credit ratings are an indispensable information channel, helping to provide appropriate monitoring and tracking methods for the entire cycle in which debt instruments will exist.

Mr. Duong Duc Hieu - Director, senior analyst of the business group, Rating and Research Division of VIS Rating also commented that information in the credit rating report for a business will be a visual tool for investors to refer to, analyze and make decisions.

Along with that, credit rating reports will separate the risks of each type of bond, that is, classify the quality of each type of bond by reflecting the risks of the issuers such as: payment risks, collateral, etc.

Thus, if we want to regain investors’ trust, the most important thing is to have transparent information and ensure that the information is accurate and reliable. Only then can the corporate bond market develop truly sustainably, promoting its role as a long-term capital mobilization channel for businesses, especially in the current period.

Source: https://dangcongsan.vn/kinh-te/minh-bach-dieu-kien-tien-quyet-cho-thi-truong-trai-phieu-doanh-nghiep-phat-trien-665592.html