In the last two years, the wave of corporate bond investment has exploded strongly with the support of commercial banks through affiliated securities companies.
According to the statistics of the Department of Banking and Finance (Ministry of Finance), in the past, the corporate bond market had a strong growth in both the quantity of issuers and investors buying bonds. At the end of 2018, the outstanding of the entire corporate bond market grew by 53 percent compared to 2017, equivalent to about 8.6 percent of GDP.
Meanwhile, since the Decree 163/2018 of the government on issuing corporate bonds officially took effect (February 2019), there have been about 1.5 trillion dong of bonds issued by the big companies, bringing the total number of corporate bonds issued from the beginning of 2019 to nearly 38.5 trillion dong, with 36 enterprises participating in the market.
Data from stock exchanges show that corporate bond is now an investment channel that many organisations and individuals participate in as a high-interest investment. According to RongViet Securities Corporation (VDSC) statistics, the current corporate bond yield is stable at eight to ten percent per year (for ordinary bonds with one to three year terms). This level is significantly higher than the deposit rate of 6.6 percent -7.3 percent per year for similar terms at commercial banks.
For example, bonds of Nam Hanoi Company are being offered by Techcom Securities Company (TCBS), a subsidiary of Vietnam Technological and Commercial Joint Stock Bank (Techcombank), with the interest rate of 9.1 percent per year, 1.8-2.6 percentage point higher than the rate of deposits with same term. Or seven-month term bonds of Novaland are also being offered for sales at the interest rate of 7.16 percent per year, and 29-month term bonds of Vingroup are also offered at a rate of 9.11 percent per year.
Dividing by sectors, currently real estate companies and large multidisciplinary corporations such as Vingroup, Novaland, Cenland, Masan, REE, CII, etc. are enterprises with the largest volume of bonds issued. Only in Vingroup, Vinhomes and Masan, currently the volume of outstanding bonds is estimated at about 33.2 trillion dong.
Meanwhile, other real estate companies such as Dat Xanh, Novaland, HAG, SDI are also issuing about one to three trillion dong of bonds. The ability to sell to individual investors is positive and the income can always be stable.
With the excitement of the market, HCM City Real Estate Association (HoREA) recently recommended that enterprises in this industry paid more attention to the method of issuing corporate bonds to replace bank capital. In particular, it was necessary to study the solution of issuing programme and investment project bonds to increase the scale of operating capital and to restructure debts of enterprises.
According to banking experts, credit growth will be increasingly controlled when credit balance increases to more than 130 percent of GDP. Besides, medium and long-term credit is also tightened to prevent risks. In that context, commercial banks are almost forced to find ways of focusing more on investment banking operations. In particular, the establishment of affiliated securities companies to deepen corporate bond brokerage, advisory and bond issuance underwriting is a reasonable business channel and choosen by many banks.
Currently, in the commercial banking system, there are about 20 successful banks with affiliated securities companies directly from bond issuance underwriting operations. Typically at Techcombank, the volume of corporate bonds underwritten by TCBS was up to 161 trillion dong in the period of 2014-2018. Only in 2018, TCBS’s revenue reached about 1.3 trillion dong, three times higher than the previous year, while the operating cost of corporate bond issuance underwriting was only 30 million dong.
According to the analysis of financial investment experts, the growing number of securities companies (both independent companies and subsidiaries of commercial banks) participating in the market of bond issuance and advisory services is a positive trend. The transfer of advisory services and bond issuance to the subsidiaries is reasonable because the banks can collect fees and do not have to classify debts and set up risk provisions.
Phung Huu Hanhfinancial expert of FTMS Vietnam Academy said that, from a business perspective, when securities companies had a backing from a wide distribution network of their parent banks, the advisory and underwriting services of corporate bonds would be a sustainable lucrative channel. Meanwhile, for both bond issuers and investors, the risk level is also acceptable.
Currently, although based on unofficial data, the majority of corporate bonds are only issued to a few initial investors. As a result, the interest paid annually by businesses is around 10 percent, not too high compared to the lending rate from commercial banks. Investors can also enjoy income equivalent to lending interest rates of banks.
Agreed on the above point, but Dr Can Van Lucchief economist of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) still shared that, when implementing the bond issuance underwriting operation, commercial banks (through securities companies) must ensure the consumption of almost all of bonds that businesses sell.
In case the evaluation or distribution steps are not done well, the bonds are sold slowly or cannot be sold, the commercial banks will become lenders or investors. At that time, the consultancy activities will be metamorphosed, the bank’s capital will be affected and disturb the credit business plan.
In addition, the level of information transparency in many businesses is not high. Commercial banks participating in bond issuance underwriting may also face “double risks” when partners are loss making and inefficient businesses, as bond investors are allowed to pledge bonds to borrow capital from the issuing bank.
