According to data from the centre for Investment Analysis and Consulting, SSI Securities Corporation (SSI Research), in February, there were 15 businesses issuing bonds with a total issue of 5.574 trillion dong, of which enterprises in real estate sector issued 4.025 trillion dong, accounting for 72 percent of the issue in the month. Thus, the volume of corporate bond issuance in February was narrowed, only equal to 41 percent of the issuance in January. Apart from the impact of the COVID-19 epidemic, other detrimental factors affecting the company’s financial plan was the trend of the stock market decline, huge net selling of foreign investors, domestic investors restricting trading on stocks.
Private investors dominated
SSI Research statistics showed that in Q1/2020, individual investors were very active in the bond market. In this quarter, individual investors invested a total of 9.546 trillion dong in corporate bonds, of which foreign individuals bought only 9.6 billion dong. The rest was bought by domestic individuals. The proportion of individuals who purchased over the total market share in Q1 was 20%, double the average of 10 percent in 2019.
The largest single investor was real estate bonds (6.3 trillion dong, equivalent to 28.3 percent of the real estate group’s issue). In particular, all 5.347 trillion dong of bonds issued in 110 batches of TNR Holdings in the first quarter were purchased by domestic individuals. In 2019, individual investors also purchased the full 5,345 trillion dong issued by this business. The mass issue of real estate corporate bonds stemmed from the credit tightening policy for this sector. However, facing difficulties caused by epidemics, real estate businesses were making recommendations not to narrow corporate bond issuance activities, to create more channels to mobilise social investment capital for the real estate sector.
Some other real estate bonds that had been bought by individual investors were Phu Hung Real Estate Investment Joint Stock Company (400 billion dong), Thien Duong Bay Resort Company (166 billion dong), the Hai Phat Investment Joint Stock Company (147 billion dong), and so on. Interest rates of these real estate businesses were mostly fixed from 11 percent to 13 percent per year.
Domestic individuals also purchased the entire 710.3 billion dong of seven-year bonds of TPB issued in Q1; 421.7 billion dong of one-to-three-year bonds of MBS, VDSC, TCBS. The interest rates of these bonds ranged from 8.5 percent to 9.5 percent per year. The issuance of 3 trillion dong to the public on March 9, 2020, of MSN also raised nearly 1.148 trillion dong from domestic and foreign individual investors with a term of 36 months and floating interest rates.
According to the analysis, individual investors increased their interest in the corporate bond market because the corporate bond issuance interest rate tended to increase compared to 2019 (nine percent to 12 percent per year). From then on, secondary interest rates to investors fluctuated at three percent to four percent, which was higher than savings rates. In particular, investors said that with the current economic context, saving interest rates tended to decrease, so they diversified into bonds.
Increasing the attractiveness of bonds
It was apparent that the corporate bond market was growing well in terms of volume issued in Q1/2020, but the interest rates of bonds increased. Businesses were facing unprecedented risks due to the COVID-19 pandemic, so investors also required higher interest rates on bonds. However, SSI Research believed that the demand in Q2 might be reduced due to the disease affecting the financial plan, but would increase sharply in Q3 when the disease was under control (in the base case). Commercial banks would not issue as much as in 2019 and would focus on seven-to-10-year terms to increase tier 2 capital instead of two-to-three-year terms as before. Meanwhile, the demand for issuing of other groups was still high, especially the real estate group.
Issuing interest rates would remain at current levels due to high but long-term risk premiums that were adjusted downward, in line with the downward trend of deposit rates. The interest rate difference between bonds and current deposits at up to four percent per year had attracted individual investors to participate more in the market. However, in addition to interest rates, investors needed to pay special attention to the solvency, liquidity, and stamina through the epidemic period of businesses.
Accordingly, if the disease were not controlled, investors would become cautious about high-risk assets such as stocks and bonds. In addition to the context of being negatively affected by the epidemic, most businesses had difficulties, business results declined, even losses, so investors were afraid of the risk of insolvency. In fact, many people warned, the risk of corporate bonds increased, so investors should be more cautious before new issuances.
According to experts, in order to succeed in issuing bonds at this difficult time, issuers needed to increase the attractiveness of bonds. To do so, businesses must accept to pay higher interest rates, shorter repayment periods, and assets to secure the issue. Also, companies needed to be proactive in information transparency and efforts to improve business efficiency.
Because the mechanisms for protecting individual investor interests and market information transparency had not improved much in the last quarter, investors expected the government to promulgate a revision of Decree 163 soon to create a platform helping the bond market develop more sustainably in the future. So that, after Q2, when the epidemic was controlled, capital mobilisation would be resumed when businesses restored their production and business activities, creating momentum for the bond market to develop.
