Vietnamese companies are depending too much on bank loans, and when the number of companies increases, it will reduce their chance of receiving financing from financial Vinstitutions (Photo: VNA) Hanoi (VNS/VNA) -Vietnamese companies are depending too much on bank loans, and when the numberof companies increases, it will reduce their chance of receiving financing fromfinancial institutions.
Issuing corporate bonds is seenas a good alternative for local companies to raise funding and provideadditional capital for their business operations, which has led to the expectationthat the domestic corporate bond market will further develop in the nearfuture.
As of the end of September 2018, Vietnam’stotal corporate bond issuance was valued at 79.5 trillion VND (3.5 billion USD),up 83 percent from 2015 and up 32 percent from 2017, accounting for 1.48 percentof the country’s gross domestic product (GDP).
For the same period, the value ofgovernment bond issuance increased 44 percent from 2015 and 14.7 percent from2017, accounting for 21.5 percent of the GDP.
These figures show that the sizeof the corporate bond market and has expanded and demand for these bonds hasincreased considerably over the last few years.
According to Bao Viet SecuritiesCompany (BVSC) analyst Tran Hai Yen, there is still potential for the corporatebond market to grow and increase its quality.
“The Government wants toencourage local companies to raise their funding through bond and shareissuance instead of through bank loans, which are valued at 130 percent of thecountry’s GDP,” Yen told Vietnam News.
The small proportion of corporatebonds in the country’s GDP and expected government policies “may create goodconditions for the corporate bond market to develop strongly in the future,”she said.
But compared to other ASEANmarkets such as Thailand, the Philippines and Malaysia, Vietnam’s corporatebond market has remained modest with a number of issues. The ratio of corporatebonds in the GDPs of those three nations is high (21.3 percent for Thailand,46.3 percent for Malaysia and 7 percent for the Philippines).
Sixty-three percent of allcorporate bonds in the Vietnamese market are short-term bonds with a maturityof one to three years, while the ratio in the other three markets are 43 percent(Thailand), 28.5 percent (the Philippines) and 16 percent (Malaysia).
Bond yield rates and creditratings also pose a challenge for Vietnamese companies.
It has been difficult for localcompanies to issue their bonds because of poor market trading liquidity andimpractical issuance plans, Yen said.
“Local companies are nottransparent enough in their information disclosures, so investors are sometimeshesitant to purchase their bonds, making trading liquidity modest,” she said.
Yen said this means that onlyhighly reputable large-cap firms can raise funding by issuing bonds, whilesmaller ones have encountered challenges.
According to Phan Thi Thu Hien,head of the banking finance and financial institutions department at theMinistry of Finance, small- and medium-sized companies are often hindered by bondissuance procedures.
“They are unwilling to raisefunding from issuing corporate bonds,” Hien said. “Loans from banks have becomesimpler and less costly, and they are not required to disclose their bondissuance deals to individual investors.”
Moreover, the number and qualityof investors have remained limited. Hien said there is a lack of long-terminstitutional investors that could make market trading more stable andsustainable.
On the other hand, issuingcorporate bonds on overseas markets may resolve local companies’ fundraisingproblems.
But Yen cautioned it would not beeasier or less costly for Vietnamese firms to meet those markets’ issuancerequirements.
“That’s why only a few large-capcompanies have done so,” she said. “If a local company wants to raise capitalfrom issuing bonds or shares on overseas markets, the management board may wantto consider issues such as foreign exchange rates.”
“Foreign investors would beattracted by the stability and potential of the Vietnamese macro-economy,” shesaid. “However, there are few credit-rating firms in Vietnam that can assesslocal companies’ operations accurately and fairly.”-VNA
Issuing corporate bonds is seenas a good alternative for local companies to raise funding and provideadditional capital for their business operations, which has led to the expectationthat the domestic corporate bond market will further develop in the nearfuture.
As of the end of September 2018, Vietnam’stotal corporate bond issuance was valued at 79.5 trillion VND (3.5 billion USD),up 83 percent from 2015 and up 32 percent from 2017, accounting for 1.48 percentof the country’s gross domestic product (GDP).
For the same period, the value ofgovernment bond issuance increased 44 percent from 2015 and 14.7 percent from2017, accounting for 21.5 percent of the GDP.
These figures show that the sizeof the corporate bond market and has expanded and demand for these bonds hasincreased considerably over the last few years.
According to Bao Viet SecuritiesCompany (BVSC) analyst Tran Hai Yen, there is still potential for the corporatebond market to grow and increase its quality.
“The Government wants toencourage local companies to raise their funding through bond and shareissuance instead of through bank loans, which are valued at 130 percent of thecountry’s GDP,” Yen told Vietnam News.
The small proportion of corporatebonds in the country’s GDP and expected government policies “may create goodconditions for the corporate bond market to develop strongly in the future,”she said.
But compared to other ASEANmarkets such as Thailand, the Philippines and Malaysia, Vietnam’s corporatebond market has remained modest with a number of issues. The ratio of corporatebonds in the GDPs of those three nations is high (21.3 percent for Thailand,46.3 percent for Malaysia and 7 percent for the Philippines).
Sixty-three percent of allcorporate bonds in the Vietnamese market are short-term bonds with a maturityof one to three years, while the ratio in the other three markets are 43 percent(Thailand), 28.5 percent (the Philippines) and 16 percent (Malaysia).
Bond yield rates and creditratings also pose a challenge for Vietnamese companies.
It has been difficult for localcompanies to issue their bonds because of poor market trading liquidity andimpractical issuance plans, Yen said.
“Local companies are nottransparent enough in their information disclosures, so investors are sometimeshesitant to purchase their bonds, making trading liquidity modest,” she said.
Yen said this means that onlyhighly reputable large-cap firms can raise funding by issuing bonds, whilesmaller ones have encountered challenges.
According to Phan Thi Thu Hien,head of the banking finance and financial institutions department at theMinistry of Finance, small- and medium-sized companies are often hindered by bondissuance procedures.
“They are unwilling to raisefunding from issuing corporate bonds,” Hien said. “Loans from banks have becomesimpler and less costly, and they are not required to disclose their bondissuance deals to individual investors.”
Moreover, the number and qualityof investors have remained limited. Hien said there is a lack of long-terminstitutional investors that could make market trading more stable andsustainable.
On the other hand, issuingcorporate bonds on overseas markets may resolve local companies’ fundraisingproblems.
But Yen cautioned it would not beeasier or less costly for Vietnamese firms to meet those markets’ issuancerequirements.
“That’s why only a few large-capcompanies have done so,” she said. “If a local company wants to raise capitalfrom issuing bonds or shares on overseas markets, the management board may wantto consider issues such as foreign exchange rates.”
“Foreign investors would beattracted by the stability and potential of the Vietnamese macro-economy,” shesaid. “However, there are few credit-rating firms in Vietnam that can assesslocal companies’ operations accurately and fairly.”-VNA
VNA
