Will the bankruptcy of 'debt bomb' Evergrande affect the Vietnamese market?

Responding to VTC News , economist Can Van Luc commented that Evergrande's bankruptcy did not have much impact on the Vietnamese real estate and stock markets because the topic of "Evergrande's bankruptcy" is not a new issue. In fact, this enterprise has been in difficulty since the end of 2021. Moreover, Mr. Luc assessed that enterprises issuing real estate bonds in Vietnam have strong financial potential, debt ratios under control, ensuring a certain safety coefficient.

However, experts recommend that policy makers, investors in the real estate market, securities, banks, investment funds... also need to closely monitor, analyze and forecast to have appropriate response solutions.

Evergrande filed for bankruptcy in the US after years of struggling with difficulties and debt.

Meanwhile, economist Nguyen Tri Hieu assessed that Evergrand’s bankruptcy was still “a major event”, although it was predicted in advance because the company had announced its “poor” business situation and had been in debt for a long time. Although the government had also stepped in to help ease the situation, bankruptcy was still not avoided.

“ This is an unavoidable situation for a loss-making business that is unable to repay bond debt to investors for a long time ,” Mr. Hieu commented.

According to Mr. Hieu, in the context of the Vietnamese real estate market being in a difficult situation, Evergrande's bankruptcy will more or less have negative impacts on the psychology of many investors.

“ Some people will think that this is a distant issue, but I don’t think so. Obviously, the first impact that we can easily see is the psychology of investors in the real estate and financial markets of Vietnam. Because the real estate and financial markets of China and Vietnam have similarities. Currently, our market is also facing a difficult situation, many businesses issuing bonds are still in debt because the projects cannot continue to be implemented, " said Mr. Hieu.

Mr. Hieu warned that the indirect psychological impacts on investors and customers will affect the market. The most worrying thing is that there will be Vietnamese investors buying Evergrande bonds. If so, they will have to endure the situation of their money being frozen and not knowing when it will be "defrosted". For Vietnamese contractors, if they have links with Evergrande to supply raw materials, they will not be able to recover their debts, and even face the risk of losing that debt. These impacts will be direct and cause consequences for investors and businesses.

From another perspective, Mr. Hieu believes that Evergrande's collapse is a great lesson for real estate businesses in Vietnam in issuing bonds. Similar to China, real estate businesses can also mobilize capital from people by selling future projects and customers pay according to construction progress.

If the enterprise goes bankrupt, it will have a significant impact on the economy, creditors and customers who have invested in the projects. Therefore, Dr. Nguyen Tri Hieu believes that state management agencies also need to learn lessons from this incident. The Ministry of Finance, the State Securities Commission... must strengthen inspection measures, check all bonds issued by real estate enterprises, promptly prevent enterprises without real capacity, without enough financial capacity from issuing bonds. Because according to him, if Vietnam has a few enterprises falling into the same situation as Evergrande, it could create a very dangerous chain reaction for the whole market.

Will the bankruptcy of Evergrande's 'debt bomb' affect the Vietnamese market? - 2

Sharing the same view, Professor Dang Hung Vo said that Evergrande is a large corporation, investing in several projects in Vietnam and many large countries in the world. Therefore, the impact of this enterprise's bankruptcy on the Vietnamese real estate market is real. After COVID-19, both Vietnam and China clearly revealed their weaknesses in investing more than necessary in real estate. To solve the problem, both governments have proposed solution packages to remove difficulties for real estate.

“ But we need to understand that real estate is an investment process, and businesses that decide to invest must take responsibility for the consequences of their investment. China has also implemented a number of policies to rescue real estate, but they were ineffective. Because those consequences are difficult to fix. This has happened in Japan and the US. Evergrande's bankruptcy is also an inevitable consequence, and the stagnation of the real estate market will affect many other businesses in China, not just Evergrande ,” said Mr. Vo.

Also discussing the issue of Evergrande's bankruptcy, economic expert Nguyen Minh Phong said that from a macro perspective, the bankruptcy of a large enterprise like Evergrande will have a global impact.

However, the real estate market is not the same as banking, for example, if a large bank in the world or China goes bankrupt, the impact of that problem on the economy will be large and direct. As for the real estate sector, real estate companies are usually independent of each other, so this type of impact is almost non-existent, often having more psychological factors. " Except for the case where Evergrande is behind a certain business in Vietnam, in case they go bankrupt, the business in Vietnam will be affected. But if on the contrary, there is no Evergrande behind, there will be no impact, " Mr. Phong added.

On August 18, Bloomberg reported that Evergrande Group filed for Chapter 15 - US Bankruptcy Law in Manhattan court in New York.

The move allows U.S. bankruptcy courts to step in when a bankruptcy case involves another country. Chapter 15 bankruptcy gives foreign creditors the right to participate in U.S. bankruptcy cases and prohibits discrimination against those foreign creditors.

Evergrande, once China’s second-largest property developer, has been mired in debt for years and defaulted on its debt in 2021, triggering the biggest property crisis in the Chinese economy.

As of the end of 2022, Evergrande's total debt was 340 billion USD, with a loss of 81 billion USD in 2 years (2021-2022). The company also submitted a restructuring plan in early 2023 and has reached certain agreements and commitments from creditors. Accordingly, Evergrande expects to recover and return to normal operations within 3 years, but will need additional funding of about 40 billion USD.

In fact, the Chinese real estate company has been working for months to complete a plan to restructure its overseas debt. Evergrande has sold a strategic stake in the electric vehicle unit of Evergrande Group to a Dubai-based company for about $500 million (28% of the electric vehicle company’s equity). Evergrande is also negotiating a restructuring with creditors and investors in Hong Kong, the Cayman Islands, and Bulgaria.

Pham Duy - Dao Bich

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