The boom in the corporate bond market in the first nine months of 2019 does not only show the level of capital thirst for businesses, but also the expectations and risks.
According to the statistics of the Ministry of Finance, by the end of September 2019, the corporate bond market size reached 9.91 percent of GDP. It is expected that the size of the corporate bond market in 2019 will increase by 29 percent compared to the end of 2018, 9.6 times higher than in 2012.
To seize business opportunities, increase competitiveness or carry out short, medium and long-term goals of an enterprise or a project, the first question for all businesses is: Where is the money?
One newly listed energy enterprise is Gia Lai Electricity Joint Stock Company (GEG)the nucleus of Thanh Thanh Cong Group (TTC Group) in the field of energy, before being listed to increase opportunities for raising primary capital, GEG issued separate bonds with spectacular success. GEG collected 135 billion dong from this bond issuance. It is possible that GEG bonds have reached the “paving the way” for the landing of 204 million GEG shares on Hochiminh Stock Exchange (HOSE) in September.
According to experts, the expectation of GEG is quite clear with an interest rate “could not be more attractive” for bondholders who are interested in energy industry and much higher than bond yields of many other manufacturing businesses (perhaps just below the bond rates of real estate businesses).
In the same way as GEG, Sunshine Group JSC also issued 100 million bonds, face value of 100,000 dong per bond, equivalent to a total value of 10 trillion dong. This type of bond has a term of three years, is not convertible, does not include warrants, there is no collateral and no payment guarantee. Notably, Sunshine had previously bought a portion of bonds from the group of bondholders Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) and An Binh Commercial Joint Stock Bank (ABBank), showing that the bond is a flexible debt tool for the total capital of this business.
For a long-term capital-raising product, investors have long focused on the value of the business, ability to pay interest rates, project prospects and business potential. However, an expert assessed the financial factors and basic projections of bond issuers recently overlooked by some bondholders, when bond interest rates were much more attractive and there were even times of doubling the banking savings interest rate.
By choosing a high bond interest rate to buy, investors obviously take high risks when the bond issuer encounters business problems, does not guarantee payment of interests for bondholders on time or even bankruptcy.
From a corporate perspective, the risk of high interest rate bonds is not zero. Hoang Anh Gia Lai Group, in turn, has to sell what is valuable to pay off debt, which is an example of the risk from high leverage interest rate. Despite the capital support of Thaco owner Tran Ba Duong to rescue debts for Hoang Anh Gia Lai, it is clear that Duong could not replace Hoang Anh Gia Lai and Duc in settling the bond obligations in the past.
According to Finance Specialist Nguyen Le Ngoc Hoan, considering the terms of debt obligations with bondholders before planning a bond issuance needs to be cautious. Businesses should not push bond rates up to attract capital during the boom in of bond market. “Great expectations of businesses will not be limited, but the bond interest rate agreement is a loan contract that is legally binding corporate responsibility. Therefore, it is time for both investors and businesses to be alert to debts and make investment decisions because of the expectation of future profits, from now on,” Hoan emphasized.
