Vietnam’s corporate bond market expected to develop

Issuing corporate bonds is seen as a good alternative for local companies to raise funding and provide additional capital for their business operations, which has led to the expectation that the domestic corporate bond market will further develop in the near future.

As of the end of September 2018, Vietnam’s total corporate bond issuance was valued at VND79.5 trillion (US$3.5 billion), up 83% from 2015 and up 32% from 2017, accounting for 1.48% of the country’s gross domestic product (GDP).

For the same period, the value of government bond issuance increased 44% from 2015 and 14.7% from 2017, accounting for 21.5% of the GDP.

These figures show that the size of the corporate bond market and has expanded and demand for these bonds has increased considerably over the last few years.

According to Bao Viet Securities Company (BVSC) analyst Tran Hai Yen, there is still potential for the corporate bond market to grow and increase its quality.

“The Government wants to encourage local companies to raise their funding through bond and share issuance instead of through bank loans, which are valued at 130 percent of the country’s GDP,” Yen told Vietnam News.

The small proportion of corporate bonds in the country’s GDP and expected government policies “may create good conditions for the corporate bond market to develop strongly in the future,” she said.

But compared to other ASEAN markets such as Thailand, the Philippines and Malaysia, Vietnam’s corporate bond market has remained modest with a number of issues. The ratio of corporate bonds in the GDPs of those three nations is high (21.3% for Thailand, 46.3% for Malaysia and 7% for the Philippines).

Sixty-three percent of all corporate bonds in the Vietnamese market are short-term bonds with a maturity of one to three years, while the ratio in the other three markets are 43% (Thailand), 28.5% (the Philippines) and 16%(Malaysia).

Bond yield rates and credit ratings also pose a challenge for Vietnamese companies.

It has been difficult for local companies to issue their bonds because of poor market trading liquidity and impractical issuance plans, Yen said.

“Local companies are not transparent enough in their information disclosures, so investors are sometimes hesitant to purchase their bonds, making trading liquidity modest,” she said.

Yen said this means that only highly reputable large-cap firms can raise funding by issuing bonds, while smaller ones have encountered challenges.

According to Phan Thi Thu Hien, head of the banking finance and financial institutions department at the Ministry of Finance, small- and medium-sized companies are often hindered by bond issuance procedures.

“They are unwilling to raise funding from issuing corporate bonds,” Hien said. “Loans from banks have become simpler and less costly, and they are not required to disclose their bond issuance deals to individual investors.”

Moreover, the number and quality of investors have remained limited. Hien said there is a lack of long-term institutional investors that could make market trading more stable and sustainable.

On the other hand, issuing corporate bonds on overseas markets may resolve local companies’ fundraising problems.

But Yen cautioned it would not be easier or less costly for Vietnamese firms to meet those markets’ issuance requirements.

“That’s why only a few large-cap companies have done so,” she said. “If a local company wants to raise capital from issuing bonds or shares on overseas markets, the management board may want to consider issues such as foreign exchange rates.”

“Foreign investors would be attracted by the stability and potential of the Vietnamese macro-economy,” she said. “However, there are few credit-rating firms in Vietnam that can assess local companies’ operations accurately and fairly.”