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Realty bond market prospers amid potential risks
The realty sector recorded a strong rise in the value of corporate bonds issued in the first six months of 2021, but risks still abound amid the impact of COVID-19 on production and businesses.
In the second quarter of 2021, the total value of corporate bonds issued reached VND164 trillion (US$7.15 billion), 3.7 times higher than the previous quarter and up 29 per cent over the same period in 2020, according to the corporate bond market report published recently by the Center for Analysis and Investment Advisory of SSI Securities Joint Stock Company (SSI Research).
Of the estimate, the value of bonds issued by real estate enterprises was VND64.4 trillion, accounting for 44.4 per cent of the total issued value, an increase of 131 per cent compared to the previous quarter and an increase of 285 per cent over the same period in 2020.
The issuers with the largest amounts of bonds were Golden Hill, BIM Group, Hung Thinh Quy Nhon and Wonderland. Besides domestic issuance, a number of businesses also issued international bonds, such as BIM Group issuing $200 million with an interest rate of 7.4 per cent per year.
In the first two quarters of 2021, real estate businesses issued the largest amount of bonds with the issuance value of up to VND92.3 trillion, with an average interest rate of 10.36 per cent per year, 23 percentage points lower than the 2020 average.
“The main fuel of the bond market in the real estate sector is that bond interest rates are much higher than deposit rates at banks, as well as current restrictions on access to bank capital," said the report by SSI Research.
A reporter from tinnhanhchungkhoan.vn, posing as an individual investor, tried to buy bonds in a group on Facebook, with an expected investment of several hundred million Vietnamese dong, he received dozens of messages thereafter.
Decree No 153/2020/ND-CP on private bond offering and trading, effective from January 1, 2021, stipulates that buyers of privately issued bonds must be professional investors. But in fact, brokerages can still commit a breach of this regulation if customers insist.
Huong Nguyen, a financial consultant working at a securities company, told tinnhanhchungkhoan.vn her company was ready to support customers in the procedures and conditions to possess a certificate as a professional investor if that buyer wishes to directly sign the bond purchase contract.
Huong said that the bonds provided by the company have many terms for customers to choose from, particularly 3-6-9-12-15 months, with interest rates amounting to 10 per cent per year, significantly higher than the interest rates offered by banks for deposits.
“Lower bank interest rates and current volatile stock market are attributed to investors more frequently shifting to other investment channels such as corporate bonds,” said Nguyen Anh Trung, Deputy General Director of Hai Phong Securities Company.
“The outbreak of the COVID-19 pandemic, however, is damaging the production and business activities of enterprises, affecting their ability to pay interest for bonds.
“Recently there are businesses in the field of beauty, car repair and maintenance, karaoke and restaurants, which are non-essential services and businesses easily affected by the disease, regularly inviting individual investors to buy corporate bonds with unbelievably high interest rates of 18 per cent per year for an investment of only VND1 billion,” he said.
In the latest warning, the Ministry of Finance said that investors buying bonds need to clearly distinguish between the two methods of issuing corporate bonds to the public, and issuing corporate bonds privately.
Increased risk
SSI Research forecast in its report that risks with corporate bonds are increasing, especially in the real estate and energy sectors.
According to SSI Research, of the bonds issued in the first half of 2021, 18.6 per cent are secured by real estate, 11 per cent are secured by assets, 33 per cent are partially secured by assets, real estate and shares, 9.3 per cent fully secured by shares and 28 per cent unsecured.
More specifically, the report stated that there is VND29 trillion of real estate bonds fully secured by stocks or without collateral. If including real estate bonds partially secured by shares, this figure reaches nearly VND60 trillion, accounting for 64 per cent of the total amount of real estate bonds issued in the first six months of 2021.
The obligation to pay the bond interests by shares is meaningless because when a crisis occurs, the enterprise becomes insolvent, the value of shares used as collateral also drops dramatically, SSI said.
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