The Vietnam’s bond market is continuing to grow. In June alone, there were 46 businesses conducting private placement of nearly 42.5 trillion dong of bonds, up by 57 percent compared to May. The successful issuance rate was nearly 70%, up by 5.5 percent compared to May. In the first six months of the year (H1), the total value of issued bonds reached 168.328 trillion dong, up by 88 percent compared to the same period of 2019.
Statistics showed that individual investors have participated more in the bond market. In H1 2020, they directly bought nearly 22.7 trillion dong of corporate bonds on primary market, equivalent to 15 percent of the total issued volume, higher than the average level of nearly 10 percent in 2019. At the same time, individual investors also joined secondary market via securities companies and banks which are distributing bonds.
In the context when savings interest rates have continuously decreased since the beginning of the year, corporate bonds have become an attractive investment channel in terms of yields. According to the Saigon Securities Incorporation (SSI) Research and Investment Advisory Department (SSI Research), corporate bonds are absorbing a considerable amount of capital from other investment channels, especially savings channel, because they have the same nature of being investments with fixed income. Meanwhile, the corporate bond yields are 0.8 1.7 percent per annum higher than the most competitive savings rates.
In addition, the Covid-19 epidemic is having a negative impact on the whole economy and the stock market, so it is understandable when investors actively seek a stable “shelter” channel with fixed yields which are as attractive as bonds.
Not only changing investment behaviour, the Covid-19 epidemic also causes businesses to increase capital mobilisation through bond channel when banks tighten the requirements for real estate loans in general and other sectors in particular, due to the fear of arising bad debts. At the same time, the new regulation on bond issuance which further tightens the bond offer from September is also the reason for the businesses’ promotion of bond issuance. Banks also continue to issue bonds to increase capital for capital preservation.
Beware of high-interest rate trap
Although interest rate is an important factor when investing in bonds, investors should also pay attention to other issues to minimise risks. The Ministry of Finance has recently recommended investors to be cautious with bond issuance, not just relying on high interest rates.
One of the biggest risks that bond investors may face is that the business is late in or not paying principal and interest. Currently, the financial information disclosure of businesses when issuing bonds has not been implemented properly. Therefore, it is difficult for investors to control and find out information about the business.
There are cases when the company raised trillion dong of bonds but did not publish financial statements and prospectus. This poses potential risks of financial capacity that investors may lose all capital and interest if the business goes bankrupt.
The Ministry of Finance recommended investors, particularly private investors, must find out information about the capital mobilisation status, the bond characteristics, interest, commitments, etc. to consider before making decisions.
On the other hand, investors should also pay attention to bond liquidity. Bonds are long-term investment products with an average settlement term of two to three years or longer. Therefore, investors should take into account the case when they need to recover capital. Some bonds are difficult to trade after being issued, especially in the context when Vietnam does not have a centralised bond exchange.
Many factors to consider when buying bonds
The above mentioned issues can be solved when investors choose large securities companies and reputable bond distributors in the market. In addition, good, safe, tested bonds distributed by reputable units themselves are also attractive to investors.
Phan Tung Lam Senior manager of Financial product business SSI, the unit which is distributing 400 billion dong of S-Bond Gelex 200 and 100 billion dong of S-Bond Taseco 2020, said that investors are very interested in bond products. Each day, hundreds of investors register for advice via online channels, through the company’s switchboard as well as brokerage channel.
Explaining the attractiveness of the products, Lam emphasized that not only having attractive interest rates and yields, bonds in S-Bond portfolio have been carefully considered and evaluated in terms of risks by SSI before offering to investors. “Businesses that want SSI to distribute bonds need to meet the set of criteria related to asset quality, capital adequacy ratio and business operations,” said Lam.
According to SSI’s representative, all criteria such as corporate reputation, ability to pay principal and interest of the issuer, valuable secured assets, liquidity, etc. are very carefully assessed. Only when the issuer can ensure these standards, CCI will put the bonds in S-Bond portfolio to serve investors’ safe investment needs.
Liquidity factor is also settled as investors can buy/sell bonds to SSI or other investors at the listed prices published on the website.
Currently, a few other distributors also commit to buy back or act as intermediaries when investors have the need to divest capital. The holding terms can be divided into months with the interest rate stated on the contract being one to three percent per annum higher than the savings rate on the same term.
