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Credit rating shortfalls hold back bond market
The development of the corporate bond market in Viet Nam has fallen short of its potential due to the lack of an effective credit rating system, according to financial analysts.
Only 39 corporate bonds are listed on the HCM City Stock Exchange and there is nearly no trading of these bonds. From the perspective of market insiders, the bourse has failed to become an effective channel for businesses to raise capital.
According to Do Viet Dung, a financial expert from the Ministry of Finance's Banks and Financial Institutions Department, investors are not keen on corporate bonds due to the lack of information on credit risks and poorly thought-out interest rates.
"Interest rates partly reflect the financial health of businesses," Dung said during an interview with Thoi bao ngan hang (Banking Times). "If the credibility of a company is low, the offered interest rate should be higher. However, there's no standard for determining rational interest rates for corporate bonds because of the lack of real credit ratings."
Dung said banks were the major buyers of these bonds as they already had long-term credit relationships with enterprises, but this trend was a cause for concern. All corporate bonds offered in 2012 and 2013 were bought by commercial banks.
"The objective of the corporate bond market is to help businesses raise capital by issuing debt instruments and diversifying bond buyers. But if the buyers are only banks, the dependence on the banking system is even larger," Dung said.
In 2012, 43 companies registered to issue corporate bonds with a total value of nearly VND33.74 trillion (US$1.6 billion) but only VND24.33 trillion ($1.16 billion) worth of bonds were issued successfully.
The number for the first half of this year was almost VND19.04 trillion ($906.7 million) and VND8.28 trillion ($394.3 million), respectively, according to data from the Ministry of Finance.
Issuers are mostly banks and State-owned enterprises. Some private companies also issued bonds but the success of these bonds is not yet clear.
To boost the development of this market, the Ministry of Finance was finalising a draft decree on the establishment and operation of credit rating companies, said Phan Thi Thu Hien, deputy director of the Banks and Financial Institutions Department.
Hien said the wide use of credit ratings will have a great impact on the capital market, including on the prices of debt instruments and activities of both investors and issuers.
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