This is considered a necessary move to promote and better control the corporate bond market in the long term, especially in the context that privately issued bonds still dominate this market.
Limit on the leverage ratio of the issuing enterprise
The bond market is inherently considered a safer asset class than the stock market. However, since 2022, investor confidence in this market has been severely affected following the bond issuance incidents of Tan Hoang Minh and Van Thinh Phat. Although bondholders in the two incidents have been and are being reimbursed, the issue of capital recovery and compensation time has become a major concern for investors.
In the context of increasing demand for investment capital, the development of the corporate bond market is considered an important capital channel to reduce the pressure on capital supply for the banking system. To strengthen market confidence, many policies to manage and stabilize the corporate bond market have been issued.
Notably, at the recent session, the National Assembly officially passed the Law amending and supplementing a number of articles of the Enterprise Law, with the introduction of new regulations on financial leverage ratio limits for non-public companies issuing private bonds.
Accordingly, these issuers must maintain a debt-to-equity ratio (including bonds expected to be issued) not exceeding 5 times the equity according to the audited financial statements of the year immediately preceding the year of issuance. This regulation will officially take effect from July 1, 2025.
Analysts believe that tighter management of private issuance groups will promote and better control the corporate bond market in the long term, especially in the context that private issuance bonds still dominate this market.
FiinGroup statistics show that the new issuance of corporate bonds has continued to recover recently. As of the end of May 2025, the total value of outstanding corporate bonds exceeded VND 1.3 million billion, up 2.9% compared to the previous month and up 9.3% compared to the same period in 2024.
Notably, individual corporate bonds are still the main driving force behind the growth of the entire market, with an outstanding value of nearly VND1.15 trillion, accounting for about 88% of the total value. Organizations issuing individual corporate bonds in May were mostly in the banking and real estate sectors.
Mr. Nguyen The Minh, a financial investment expert, said that this regulation was introduced to protect small investors and bondholders, who are the main subjects that need protection.
According to Mr. Minh, the main cause of the "crisis" in the bond market in 2022 is due to the incorrect purpose of capital use by issuing enterprises after mobilization. Non-public enterprises often lack transparency in financial reports, leading to great risks for bondholders when mobilized capital can be used for personal purposes.
Therefore, tightening the conditions for issuing individual bonds for non-public enterprises will help ensure transparency in the issuance of individual corporate bonds and control the cash flow disbursed for the right purpose, minimizing risks for investors. Although this may cause difficulties for this group of enterprises in raising capital, this is a necessary move to protect the interests of investors.
Experts from VPBank Securities Joint Stock Company (VPBankS) also said that tightening conditions for issuing private bonds for non-public enterprises will improve financial discipline and minimize the risk of default in the market, protect small investors and increase general confidence.
In the long term, this policy encourages non-public enterprises to strengthen their capital structure, transparently report their financial statements and promote equitization, thereby gradually creating a safer and more sustainable corporate bond market.
Investors still need to pay attention to risks
Although the above regulation is more stringent, analysts say this does not hinder businesses' private bond issuance activities.
According to data from VIS Rating on all non-public companies in Vietnam in the past 3 years, only about 25% of companies have this ratio exceeding 5 times or negative equity.
VIS Rating experts believe that although high leverage is an important credit risk for low-rated issuers, the main reason for the 182 late bond payments by the companies is not high leverage, but weak cash flow and poor liquidity management.
Notably, less than a quarter of these have leverage ratios exceeding 5x or negative equity, while the average ratio for the remaining three-quarters is just 2.8x, roughly in line with the average of other issuers that have not experienced bond defaults.
Despite moderate leverage, 90% of delinquent bondholders do not generate sufficient cash flow from operations to make regular interest payments or lack the liquidity to repay the principal when due.
Nearly 40% of deferred bonds have very short maturities of 1-3 years, often used for long-term projects that do not generate timely cash flow.
In the absence of a steady cash flow, issuers rely heavily on refinancing, in other words, using new debt to pay off old debt. As a result, 85% of defaults occur within the first three years of issuance.
In addition, about 40% of delinquent bonds are secured by assets that are difficult to value or liquidate, such as receivables related to real estate projects, business cooperation contracts, and income rights from future projects. The lack of effective debt restructuring mechanisms and limited application of legal approaches further increase the rate of delinquency.
With the above data, Mr. Nguyen Dinh Duy, Director - Senior Expert of VIS Rating, said that investors need to consider more than just financial leverage when buying corporate bonds. The assessment needs to be more comprehensive, including the deep goals behind the bond issuance, the ability to generate sustainable cash flow of the issuer, as well as the risk of debt repayment reduced through high-value collateral or payment guarantees from a reputable third party.
VIS Rating experts also recommend that investors assess not only the credit risk at the issuer level but also the specific risks in each debt instrument. These factors include payment priority, collateral quality and legal commitments.
Source: https://doanhnghiepvn.vn/kinh-te/them-lop-bao-ve-nha-dau-tu-tren-thi-truong-trai-phieu-doanh-nghiep-rieng-le/20250630074624644
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