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New regulation may make corporate bond market gloomier
The corporate bond market, which has been lackluster for a long time, may get even gloomier, when a new regulation by the State Bank of Vietnam is applied, under which the investments in bonds will also be counted on when calculating banks’ credit growth.
The corporate bond market once witnessed a bustling year in 2010, when 60 trillion dong worth bonds were issued, including 25 trillion dong worth of bonds issued by enterprises, and the other 45 billion dong by credit institutions.
However, the market has been quiet since the beginning of 2011 with very few successful bond issuance campaigns, except some transactions arranged under the mode of issuance underwriting or credit agreements.
A senior executive of the Bank for Investment and Development of Vietnam (BIDV) has said that in many cases, the issuance campaigns have not been completed even though the sales have been lasting several months. Meanwhile, some campaigns have failed due to the overly high required interest rates.
The executive said that a lot of bond issuers have to delay the issuance moments, because they foresee the low demand and the high required interest rates which prove to be unaffordable by the enterprises.
Even commercial banks also find it impossible to issue corporate bonds at this moment. The problem is that they cannot offer the interest rates higher than 14 percent per annum, because the State Bank of Vietnam has announced that 14 percent is the ceiling interest rate for mobilized capital. Such a low interest rate will surely not be able to attract the attention from investors, who tend to demand high interest rates in the context of high inflation.
At present, the main buyers of corporate bonds in the market are domestic commercial banks. Meanwhile, the buyers do not have much money to buy bonds now, because they themselves once faced the weak liquidity and had to mobilize capital at sky high interest rates of up to 20 percent per annum.
In fact, enterprises still have high demand for mobilizing capital through bond issuance, especially when they cannot access bank loans due to the tightened monetary policies. However, they cannot attract buyers, and analysts believe that the opportunities of seeking capital can only be taken by big enterprises with healthy financial situation and reliable solvency, which accept to pay high interest rates.
Analysts have pointed out that some investors still have the demand for purchasing bonds as a part of their investment plans for the next one or two years. However, this does not mean that bond issuers would successfully sell bonds. The central bank is considering putting the banks’ investments in corporate bonds under control by counting on the corporate bonds when calculating the credit growth.
The State Bank of Vietnam has decided that the total credit growth rate in 2011 of commercial banks, both foreign and domestic, must not be higher than 20 percent in comparison with the previous year. And the “credit” here not only includes the loans, but also the investments in corporate bonds as well.
As such, commercial banks will have to think carefully about whether to provide loans or purchase corporate bonds, and they will surely only buy bonds when enterprises accept the interest rates high enough.
In related news, the US dollar international bond market in Asia has seen positive performance so far this year with the successful issued volume of 42.3 billion dollars in the first six months of the year, which is equal to 64 percent of the issued volume in the whole year 2010, thanks to the low interest rates and the high demand from investors.
However, issuers have been warned that the ones with low credit ranking would find it more difficult to seek capital through bond issuance. The institutions with high credit rankings (From Baa3/BBB up) still had bigger advantages with the issued volume accounting for 57 percent of the total volume in the first half of 2011.
vietnamnet, TBKTSG
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