High interest rates, corporate bonds remain sluggish

Many businesses are issuing bonds with interest rates of 10-15% per year, double or triple the interest rates on bank deposits. However, the bond market has yet to become active again.

Van Phu Invest has just successfully issued 6.5 million bonds to the public, raising 650 billion VND. Photo: Duc Thanh

Not yet vibrant again

According to data from the Hanoi Stock Exchange, from the beginning of the year to the beginning of this week, the market has only recorded 6 corporate bond issuances, including 2 public issuances (by Van Phu Invest and Vingroup) and 4 private issuances (by Hanoi Highway Investment and Construction Joint Stock Company, Hai An Transport and Stevedoring Joint Stock Company, Transport Investment and Development Joint Stock Company, Ninh Thuan BOT One Member Co., Ltd.), with a total value of VND5,350 billion.

Compared to the same period last year - when the corporate bond market froze, corporate bond issuance in the first two months of this year grew better, but compared to the period of 2021 and 2022, the issuance volume is still very small.

Notably, the interest rates offered by the issuers are quite attractive for the first periods. Specifically, the interest rate for the first two periods of Van Phu Invest is 11%/year, and for Vingroup is 15%/year. The interest rate for the first four periods of BOT Ninh Thuan is 10.5%/year. The interest rate for the following periods is usually 4-4.5% plus the average 12-month savings interest rate of the Big 4 banking group...

Currently, in the secondary market, many corporate bond codes are being offered at interest rates of 10.5-12%, such as bond codes of Thanh Cong Textile - Investment - Trade Joint Stock Company, Dat Phuong Joint Stock Company, Goldsun Printing and Packaging Joint Stock Company...

Mr. Nguyen Tung Anh, Head of Credit Research and Sustainable Financial Services, FiinRatings, said that the low interest rate environment will continue to be an important premise to contribute to creating demand for the corporate bond market. Accordingly, financial institutions and individual investors with large assets will seek investment channels with higher risk-adjusted returns, instead of maintaining savings deposits and investing in government bonds.

Currently, bank bond interest rates fluctuate at 5-7%/year, non-financial corporate bond interest rates are 7-12% depending on the risk level or credit rating of the business.

“Notably, our data recorded many corporate bond lots traded with average yield to maturity of over 20%, such as the bond lots of Licogi 13 (27.6%), Sunshine AM (23.7%) and Bkav Pro (21.25%),” FiinRatings’ report said.

Thus, the secondary market has gradually contributed to reflecting the risk level of bonds in pricing bond trading interest rates on the market.

Although it is bringing double the profit of bank savings, the corporate bond investment channel has not yet become active again, both for issuers and investors. In January 2024, the total value of individual bond transactions in the secondary market reached VND 74,500 billion, down nearly 25% compared to December 2023. Meanwhile, public bonds reached a total transaction value of VND 9,000 billion, remaining at a fairly stable level.

In the period 2019-2021, the corporate bond market was vibrant thanks to the strong participation of private investors (holding over 30% of the volume of individual corporate bonds offered on the market). However, over the past two years, the structure of corporate bond investors has changed dramatically, with individual investors dropping sharply to only 7% (in 2023).

Although investor confidence has somewhat recovered since the end of 2023, due to the strict conditions of Decree 65/2022/ND-CP, most individual investors have been excluded from the corporate bond market since the beginning of this year. Meanwhile, the policy corridor has not been opened in time to encourage big players. This is the reason why the corporate bond market remains sluggish.

Thirst for big investors

The two biggest challenges facing the corporate bond market today are the large maturity volume and the investor base that has not been expanded in a timely manner.

As of early February 2024, of the total VND 1.24 trillion of corporate bonds in circulation, about VND 1.1 trillion are individual bonds. Of these, the most worrying are real estate corporate bonds with a balance of VND 382,000 billion, construction and materials corporate bonds VND 72,000 billion, and tourism and entertainment corporate bonds VND 75,800 billion. In 2024 alone, the amount of individual corporate bonds due (after extension, postponement, and restructuring) of the three above industry groups will reach nearly VND 190,000 billion.

In the long term, we expect the investor base in corporate bonds to expand further, instead of being mainly commercial banks and individual investors as it is now. Insurance companies and their investment funds are managing about 35 billion USD, but their participation in corporate bonds is still limited, especially after the Law on Insurance Business, which comes into effect from the beginning of 2023, does not allow these entities to invest in bonds for the purpose of debt restructuring.

- Mr. Nguyen Tung Anh, Head of Credit Research and Sustainable Financial Services, FiinRatings

“The liquidity pressure of enterprises this year and in 2025 is very high. The risk of insolvency of some enterprises is higher, leading to delayed bond payments, thereby continuing to cause loss of investor confidence in the context of trust being rebuilt slowly but also fragilely from the beginning,” said Mr. Nguyen Tung Anh.

However, the biggest problem of the corporate bond market today is the lack of demand. Therefore, many high-quality issuers also find it difficult to successfully issue bonds.

In this context, it is extremely necessary to propose solutions to improve demand. According to economic experts, along with tightening the conditions for individual investors to participate in the corporate bond market, there needs to be solutions to expand the investor base, especially institutional investors.

Currently, the buyers of corporate bonds in the market are mainly commercial banks and securities companies. Institutional organizations, including insurance companies and bond investment funds, participating in corporate bond investment are still very limited. Currently, there are many regulations restricting insurance companies and investment funds from investing in corporate bonds. If there is a solution for these organizations to invest in corporate bonds, tens of billions of USD will be released and the corporate bond market may have a breakthrough in liquidity.

According to Dr. Le Xuan Nghia, an economic expert, this year, the low interest rate level will support the corporate bond issuance channel well. In the context of the market being strongly purified, many issuing enterprises have affirmed their reputation, and investor confidence has gradually recovered. However, the corporate bond market will recover in a U-shape, not a V-shape.

From the beginning of this year, the full implementation of Decree 65/2022/ND-CP may cause short-term difficulties for issuing enterprises, especially the regulations on professional investors and conditional credit ratings. 2024 is therefore also a year to test the adaptation of market participants. Most likely, the corporate bond market this year will still be difficult in the first half of the year, but will gradually recover in the second half of the year.

If businesses adapt and meet the requirements of Decree 65/2022/ND-CP, the market will grow healthily and effectively, significantly limiting future risks.

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