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Recovery in bond issuance not yet confirming turnabout
The recent influx of defaulted bonds is primarily due to an increase in restructured bonds caused by recent regulation adjustments, according to a new report.
According to a FiinGroup report on corporate bonds default in Vietnam, there were 89 defaulted issuers with a total value of over $4.8 billion as of April 25, a 20 per cent increase on the previous month.
Of the defaulted issuers, real estate constitutes the largest proportion, with 43 such issuers accounting for over 30 per cent of the total defaulted issuers and almost one-third of the total outstanding bond value.
The renewable energy sector has the highest bond default ratio by far, at over 63 per cent. However, the size of the real estate sector makes it more impactful in terms of value.
According to Paul Coughlin, chair of the ratings committee at FiinRatings, the recent defaults can be traced back to bonds issued just before pandemic lockdowns. The issuers have faced a multitude of challenges, such as the slowdown in construction, regulatory issues, and high interest rates.
While the State Bank of Vietnam has organised delays in bond repayments, it remains uncertain whether this will enable property companies to complete projects and repay debts.
“I don’t see much optimism on that score. It might be that we’re just delaying the inevitable in terms of the losses that will inevitably have to be recognised, either within the banking system or within the individual investors,” Coughlin said. “It is a very difficult situation that has come about because of the conjunction of a number of very unfavourable factors. The outlook doesn’t seem positive.”
According to VNDirect Securities, from April 1-24, there were no new private corporate bond issuances. While early redemption activity saw a slowdown with more than $208 million of individual corporate bonds being bought back before maturity in April, the total value of pre-maturity repurchases in the first four months of 2023 reached more than $1.6 billion.
VNDirect said the negotiations to change bond conditions between issuers and bondholders took place actively in April. Currently, more than 20 issuers have reached an agreement to extend bonds terms with bondholders and have made an official report to the Hanoi Stock Exchange (HNX).
Explaining the recovery in bond issuance earlier this year, Nguyen Tung Anh, manager of Economic and Credit Research at FiinRatings, credited this to the rapid reactions from the government in terms of interest rate adjustments and specific regulations on the corporate bond market.
“It could be a sign that we have some room for issuers to start issuing again,” Anh said.
However, he emphasised that there may be hidden details to watch out for. “We’ve observed that many of them are real estate bonds, and they may be for refinancing purposes,” he said. “We still need to watch this. It could be a good sign, but we need some time to be sure that this is a reversal in market activities.”
VNDirect forecasts that the pressure of individual corporate bonds to mature will continue to increase in May, while the list of companies with late payment announced by the HNX continues to increase. It is estimated that in May, the amount of individual corporate bonds maturing will see an increase of 12.6 per cent compared to April.
As of April 24, there were 57 enterprises on the list of delayed payment of interest or principal debt of corporate bonds. It is estimated that the total outstanding corporate bonds of these enterprises accounted for about 13.9 per cent of the outstanding loans of individual corporate bonds in the whole market, in which the group of late-payment real estate enterprises accounted for 11.1 per cent of the system’s outstanding loans.
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