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Issuers resort to delaying bond redemption amid financial woes
Companies, especially property developers, are engaging in negotiations with bondholders to extend bond redemption dates amid a sluggish property market and reduced cash flows.
Headquarters of Novaland in HCM City’s District 1. Novaland recently postponed the redemption of a bond tranche by two years. — VNS Photo Bồ Xuân Hiệp
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A report by VNDirect revealed that at least 50 issuers, mainly property developers, are currently in discussions with bondholders regarding the extension of bond maturity dates, totaling over VNĐ95.2 trillion (US$4.2 billion) as of October 3.
Key players in the real estate market, such as Novaland, Hưng Thịnh and Bamboo Capital, are all seeking extensions for multiple bond tranches due to the halt in property sales and projects since the end of last year.
Novaland recently announced an agreement to extend the maturity date of a bond tranche by two years, shifting from June 2023 to June 2025.
The company has also modified interest payment terms, opting for a one-time payment on the revised maturity date instead of quarterly interest payments, with the possibility of early bond repurchase if revenues improve.
Other companies have pursued similar negotiations for two-year extensions, offering relief from debt repayment pressure until 2025.
Local media reported that late interest and principal payments on bonds are already a major issue, with over 69 companies reported as delinquent on payments, amounting to VNĐ176.1 trillion ($7.79 billion), or 18 per cent of the entire market, with the real estate sector constituting the majority, according to the Vietnam Bond Market Association.
Experts warned that the bond repayment pressure will persist, with over VNĐ53.8 trillion ($2.4 billion) worth of bonds maturing by the end of this year.
Many companies have resorted to selling assets and real estate projects to repay debts, but liquidity remains a challenge.
In March the government issued a regulation allowing bond issuers to extend debt maturities by up to two years and use other assets for bond payments, subject to bondholders’ approval.
Consequently, over VNĐ42 trillion ($1.77 billion) worth of corporate bonds were rolled over in the second quarter of the year.
Lê Hoàng Châu, chairman of the HCM City Real Estate Association (HoREA), noted that very few bondholders accepted the option of receiving other assets as bond repayments.
They argued that real estate products such as villas or apartments are overpriced and often entangled in legal issues related to land-use rights.
Risks and challenges
Construction of a building by Tân Hoàng Minh Group halted at the end of last year. The real estate sector accounts for the highest outstanding bond value of VNĐ396.3 trillion. — VNS Photo Bồ Xuân Hiệp
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Extending maturity dates, however, comes with risks and challenges, requiring co-operation and agreement from all involved parties, including bondholders, investors, and creditors, experts noted.
Negotiations can be complex and time-consuming, requiring a thorough assessment of the company’s financial health and future debt repayment capabilities.
Concerns may arise regarding the impact of a maturity date extension on the market perception of the company and its creditworthiness, potentially affecting its ability to secure future funding.
Experts recommended companies utilise the extended period wisely by implementing strategies to restore financial health and regain investor confidence, including cost-cutting measures, diversifying revenue streams, and reassessing business models.
Maintaining communication with bondholders during the extension period is crucial to uphold trust and provide updates.
The corporate bond market has experienced a boom in recent years, driven by increased capital demand from property developers and banks.
However, the market took a sudden turn in October last year following the arrest of Trương Mỹ Lan, chairwoman of Vạn Thịnh Phát Group, on charges of bond market fraud.
The arrest triggered a run on Saigon Commercial Bank (SCB), one of Việt Nam’s largest private lenders, where she was believed to be a major shareholder.
The State Bank of Vietnam took over SCB and guaranteed to cover its deposits, averting a potential system-wide run on banks but failing to prevent an eventual rout of its property-oriented bond market.
According to a report by S&P Global Ratings, the real estate sector holds the largest outstanding bond value of VNĐ396.3 trillion, or 33.8 per cent of total outstanding bonds.
Unless the property sector improves, more defaults may be on the horizon, warned the report.
Prime Minister Phạm Minh Chính has instructed the central bank and the finance ministry, primarily responsible for managing the bond market, to enhance their management to revive it.
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