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Despite risky business, corporations still issue bonds

Date: 5/29/2016 7:23:34 PM

While the recent violation of Hoàng Anh Gia Lai Group, which issued its bonds on a lower collateral basis, told a story of how risky corporate bond issuances could hurt the market, it did not stop other corporations from issuing their bonds in the country.

This year, HAG has to pay VNĐ6.7 trillion (US$300 million) to its bondholders, which were some local banks. However, due to the firm’s losses in 2015, it was unable to pay it on time, and the banks must consider an extended period for the payment.

Phạm Phú Khôi, Deputy General Director of Việt Nam Prosperity Bank (VPBank), was among the HAG bondholders. He said it was not easy to rate the safety level of corporate bonds, as there was still no independent rating organisation for it.

He said the Government set the legal framework for the credit rating agency in 2014, but there had been no sign of such a credit rating agency in the market.

Thus, investors had to analyse the firms themselves using their own methods, sometimes leading to risks or delays in transactions.

Most recently, Hà Nội Stock Exchange (HNX) submitted to the State Securities Commission a scheme to promote the corporate bond market in Việt Nam, in which it would develop the bond quality, diversify investors and enhance the transparency of information.

However, most firms found bond issuance a good capital mobilisation channel.

Most recently, Biên Hòa Sugar JSC’s (BHS) board of directors recently approved the issuance of VNĐ500 billion in convertible bonds with a par value of VNĐ1 billion for a maximum of 100 investors, including foreign ones.

The bonds were reported to have a maximum term of five years. Though BHS has not disclosed the specific rates, it would pay interest to the bondholder, which was said to be one of the local commercial banks, over six months.

Thành Công Tây Ninh Sugar JSC (TTCS) also issued VNĐ1 trillion bonds to Tiên Phong Bank, with VNĐ600 billion, and Việt Nam Investment Bank, with VNĐ400 billion, respectively. The bonds with each par value of VNĐ1 billion, which would mature in 2021, were traded with secured assets in a non-convertible manner.

Nguyễn Thanh Ngữ, CEO of TTCS, told local media that with the successful mobilisation, TTCS would continue to study the plans for raising funds on a larger scale in the upcoming issuance with good plans and projects to attract investors.

Ngữ said bond issuance was an effective method for firms to find investors with good financial capacity and operational transparency to reduce the burden of traditional credit procedures in Việt Nam.

It also helped firms make the best use of capital to grasp investment opportunities, particularly for those with potential and feasible strategic objectives.

As for TTCS, he said, it needed significant capital to timely develop a concentrated material zone, but it took much more time to have capital from the current credit due to the complicated regulations for loans.

Ngữ said the corporate bond market would become increasingly attractive for issuers and investors, and it would become a flexible and transparent channel for capital mobilisation.

Ngữ added that the understanding and mutual trust between issuers and investors would support the issuance and bring two-way co-operation to another level.

Trần Du Lịch, a member of the National Advisory Council, said that with the issuance of corporate bonds, firms could use their funds with long-term maturities from five to ten years or longer with only a one-time payment. Thus, they could ease the burden of regular loan payments.

Furthermore, bond interest rates were formed on the agreement level between the two sides, so it should be much better than other credit channels, Lịch said.

Bond interest payments were calculated based on the cost of business operations, so firms with bond issuance would face more advantages than firms issuing shares.

According to statistics from the Ministry of Finance, in 2015 the total value of the local bond market increased by 7 per cent compared to 2014. Of the total value, corporate bonds reached VNĐ140 trillion, an increase of 9.38 per cent over 2014.

In terms of percentage of GDP, the value of corporate bonds increased from 3.25 per cent to 3.39 per cent of GDP.

Corporate bonds were issued in at least a three-year term with the floating interest rate (normally of 2 to 4 per cent per year).

Previously, firms such as realty developers FLC Group and Vingroup, as well as construction firm Fecon, successfully raised capital by selling their bonds to their existing shareholders.

Some more firms planned to issue their bonds this year, including Rồng Việt Securities Company, which aimed to sell VNĐ300 billion in bonds, and Thống Nhất Investment and Manufacturing JSC, which was scheduled to release VNĐ800 billion worth of convertible bonds

(Source:Vietnamnews)

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