The trend of calling capital from individual investors of some businesses has some similar characteristics like the capital mobilisation of commercial banks.
New movements
Corporate bond is not a new channel of capital mobilisation in the market. However, the number of businesses successfully calling capital in Vietnam remains modest.
A report by the Asian Development Bank (ADB) showed that by the third quarter (Q3) of 2018, Vietnam had only 41 corporate bond issuers. This number is too small compared to more than 500,000 operating businesses and more than 1,500 listed businesses on the stock market.
Successful corporate bond issuers often have to be large, financially capable and reputable in the market.
Meanwhile, customers buying bonds are often institutional investors buying in large batches, including investment funds, commercial banks and insurance companies. In particular, customers most purchase corporate bonds are banks.
However, at present, in the context when investing in corporate bonds and lending on medium and long-term of banks have gradually been tightened, businesses are step by step diverting targeted customers to individual customers.
Recent movements show that such diversion of some businesses has begun to look like banks’ capital mobilisation from people.
Specifically, through introduction and distribution from a number of commercial banks and securities companies, there have been some corporate bonds with increasingly short terms which are designed to be more suitable for individual customers. Accordingly, the par value of the bonds are subdivided to 50 100 million dong per contract instead of large contracts as before. The smaller the contract, the mobilisation market is more expanded and the success is perhaps higher.
Notably, in order to increase the probability of successful issuance, some businesses in the recent time have shortened the bond terms to become flexible like commercial banks, with terms ranging from only three, four to 12 months.
The main difference is that the bond yield is about two to 2.5 percent per annum higher than savings interest rate on the same term offered at banks.
This is a new direction with big difference, because in the past, businesses used to issue bonds with medium and long terms from one to five years.
Another difference is that, with this new direction, the issuers reduce the amount of borrowed capital from banks thanks to the source from bonds, and individual customers also cut down deposits at banks to invest in corporate bonds.
When the scale is large enough, this difference will be clearly reflected on the balance sheets of the system of commercial banks, or reflect a development aspect of the capital market.
The need to complete the safety framework
Although there are many attractive factors as mentioned in the above, corporate bonds are still very new to individual customers. Therefore, it is extremely important to understand the possible risks when investing in this channel. Because large institutional investors like insurance companies, banks, or investment funds that often have capability and conditions to assess businesses before making decisions to buy corporate bonds, while individual investors are often limited at this point.
Specifically, since corporate bonds almost have no secured assets, the risk of losing capital of bondholders becomes more potential, because according to the 2014 Bankruptcy Law, in the case of bankruptcy, bondholders are only allowed to pay debts after completing the payment for employees, social insurance debts and secured debts, etc.
According to experts, for corporate bonds to be more accessible to individual customers, the important issue to be solved is transparency. To do this, Vietnam needs a clear market monitoring mechanism. In particular, it is necessary to have independent credit rating organisations for issuers, from which bonds are classified for investors to have a basis to make choices.
