Interest rates on corporate bond mobilization are too high, up to 13%, causing businesses to face risks and difficulties, according to Dr. Vu Minh Khuong.
Bonds - an important capital mobilization channel, besides credit, have fallen into difficulty since last year after a number of large issuers were caught up in legal crises.
At the seminar "Macroeconomic stability, bond market development" on May 28, Dr. Vu Minh Khuong, Lecturer at the Lee Kuan Yew School of Public Policy (Singapore) said that recent market risks were partly due to high interest rates.
According to him, the issuance interest rate is too high in the context of the stable dong compared to the USD, causing difficulties for businesses.
"The interest rate of 13% is very high compared to the world. If we use too much leverage, meaning mostly relying on bonds, to invest in construction, it will be even more difficult because it is easy to lose money," he said.
Dr. Vu Minh Khuong, Lecturer at Lee Kuan Yew School of Public Policy, Singapore. Photo: Nhat Bac
Meanwhile, Prof. Dr. Hoang Van Cuong, Vice President of the National Economics University, commented that the risks of the bond market come from businesses and investors themselves. Mr. Cuong analyzed that businesses issue bonds easily, leading to a situation where the factors to ensure the value of bonds have no basis.
These bonds are mostly issued privately, and are only available to professional or institutional investors. However, in reality, most individual investors buy bonds thinking they are like depositing them in a bank. When an incident occurs, this market falls into difficulty and new issuances drop sharply.
To revive this important capital market, Dr. Vu Minh Khuong said, Vietnam needs to build a healthy bond ecosystem.
Dr. Khuong cited the experience of many countries, currently bonds are issued in 3 types. One is issuing bonds with insurance, helping investors feel secure in putting their money in, because insurance checks the quality of the bonds very carefully.
Second is to issue guaranteed bonds. Finally, unsecured bonds need at least to be assessed by professional units.
According to him, some countries do not pay attention to investing in upgrading the bond ecosystem, so it is difficult to develop, such as Indonesia or the Philippines, which can only issue very small amounts of bonds. Meanwhile, in Korea, they can issue trillions of dollars.
"Building a foundation for a healthy financial system for Vietnam's future is a very urgent issue," he said.
According to data from the Vietnam Bond Market Association (VBMA), new corporate bond issuance in April 2023 almost froze, while businesses raced to buy back bonds before maturity and negotiated with bondholders to extend the repayment period.
As of early May, the total amount of corporate bonds issued was nearly VND31,700 billion, of which individual bonds accounted for 83%. Enterprises bought back nearly VND49,500 billion of bonds before maturity, up 48% over the same period in 2022.
The value of bonds due in May is more than VND21,400 billion, of which 45% is real estate (VND9,600 billion), consumer goods account for 17%; banking and raw materials account for 12% and 14% respectively.
According to Professor Hoang Van Cuong, many businesses with good capacity are currently finding it difficult to raise capital through bond issuance. Weak businesses do not have the funds to pay interest on bonds when they mature. These factors, according to him, create great pressure for many businesses and the bond market cannot immediately flourish.
However, Dr. Vu Minh Khuong said that many countries have developed thanks to capital mobilization through bond issuance. For example, in South Korea, 18 localities have issued bonds to build railways and subways. That means capital needs to be poured into investing in areas and infrastructure that create value.
"When investing in things that create value, we do not hesitate to spend money or effort to borrow. When a dollar is invested in the right things, in the right direction, it will create a lot of profit, helping to grow very quickly," Mr. Khuong commented.
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