INTRODUCTION
Over the past decade, the Viet Nam bond market has undergone significant changes and demonstrated steady progress, showcasing notable maturity among developing countries in the Mekong River basin (ADB, 2018) By 2020, Viet Nam's local currency bond market reached 26.1% of its gross domestic product (GDP), indicating impressive development However, when compared to other ASEAN members, Viet Nam's bond market remains considerably smaller, lagging behind Thailand's 88.66%, the Philippines' 47.66%, and Indonesia's 3.17% of GDP.
In Vietnam, the debt market is primarily led by government bonds, with corporate bonds, government-guaranteed bonds, and municipal bonds following The maturities of government bills and bonds range from under one year to 30 years Since 2005 and 2006, corporate bonds and convertible bonds have also been introduced to the market.
Vietnam's bond market, particularly the corporate bond sector, has experienced significant growth, with the primary market size increasing nearly sixfold from USD 2.14 billion in 2015 to USD 12.32 billion in 2020 By the end of 2020, the corporate bond market represented 15.1% of GDP and 10.3% of the total credit balance, highlighting its crucial role in mobilizing capital for Vietnamese enterprises Research on the bond market's importance and development has intensified since 2004, despite the market still being incomplete and in need of reforms The bond market in Asia, including Vietnam, remains a developing area, making it a valuable research topic Previous studies have primarily focused on the bond market's overall development and future directions, providing a solid foundation for further exploration Overall, the development of the corporate bond market is deemed essential in today's economic landscape.
Vietnam's corporate bond market is experiencing significant growth, primarily driven by real estate companies and banks, with real estate bonds posing higher risks compared to those issued by banks Developing the corporate bond market is essential for minimizing investor risks and restructuring the capital sources of commercial banks, allowing for a more sustainable capital mobilization structure that reduces reliance on deposits Despite the importance of this market, research on banking bonds remains limited, overshadowed by a wealth of information on government bonds and the broader bond market While some studies have addressed corporate bonds in Vietnam, they are scarce, prompting the author to explore the topic: "Developing the Corporate Bond Market in Vietnam." This research aims to enhance both the quantity and quality of the corporate bond market while analyzing its current state and potential for future growth, utilizing data from official sources such as ABO and VBMA.
This study aims to assess the current state of the Vietnamese corporate bond market by synthesizing existing theories and analyzing recent operational trends The overall objective is to identify the market's development status in recent years and propose solutions for sustainable growth.
This thesis aims to explore the theoretical aspects of bonds, focusing on corporate bonds and the overall functioning of the corporate bond market in Vietnam, while also assessing its development and growth.
This thesis provides an overview of the operational status of Vietnam's corporate bond market, identifying key factors that influence its development By analyzing and comparing Vietnam's corporate bond market with those of other countries, the thesis evaluates the overall progress and growth of the Vietnamese market.
From the collected information, the thesis will propose scientifically based and practical solutions for the Vietnamese corporate bond market to help it develop stronger and safer in the future
Based on the basic objectives set out, the thesis will answer the following research questions:
Firstly, Why we should develop corporate bond market in Vietnam?
Second, the elements need to be developed
And finally, what should we do to develop this market?
This article analyzes the development status of Vietnam's corporate bond market from 2018 to 2020, highlighting a period of significant growth and the implementation of new decrees It also outlines the strategic framework for the market's continued development from 2021 to 2025 The data presented is primarily sourced from the Ministry of Finance, ABO, and various bond news platforms covering the specified years.
The topic focuses on assessing the development of Vietnam's corporate bond market, thereby finding out the factors that help it develop more sustainably
The thesis focuses on the corporate bond market in Vietnam, employing a comprehensive methodology The author selects research methods based on the objectives and scope of the evaluation, utilizing a combination of calculation, synthesis, statistics, practical commentary, and comparative analysis to clarify the research issues.
The data collection method for this analysis involves utilizing reference data sourced from reputable articles and seminars, validated through practical application The primary focus is on second-level data gathered from financial statements, annual reports, and statistics from esteemed economic publications, aimed at evaluating and analyzing the potential for growth in the corporate bond market.
- Information processing method: Data is selected and classified, using Microsoft Office software (Word, Excel, ) to design diagrams, charts, descriptions for comparison and evaluation analysis
- Synthesis method: Used to synthesize and link information between chapters to give good and limited points, propose solutions to develop the corporate bond market in Vietnam
The essay is structured as follows: the upcoming section will provide a literature review and an overview of the current state of bonds and corporate bonds in Vietnam Section 4 will discuss the current situation and development targets for the corporate bond market in Vietnam Finally, Section 5 will propose solutions for the market's development, with the conclusion presented in Section 6.
LITERATURE REVIEW
The Vietnamese corporate bond market has been largely overlooked in research, likely due to its initial small size and limited impact on international portfolio indexing This study represents one of the first significant attempts to explore the foundations and development of corporate bonds in Vietnam.
Before Vietnam's equity market emerged, debt markets were already in place, making debt financing a prevalent option through formal bank credits, non-bank loans, and informal credits Notably, the debt capital market has been largely dominated by banks, particularly state-owned commercial banks, which significantly surpass other financial institutions in the market.
Issuing bonds and debentures allows corporations to strategically set terms that can help them avoid covenant restrictions and enhance stockholder value (Oldfield, 2004) However, investors retain the right to reject these offerings, with bondholders often resisting the issuer's attempts to maximize their own interests This dynamic leads to the creation of market equilibria, whether single or multiple, as both arbitrageurs and issuers navigate their respective goals Additionally, in times of financial distress, stockholders may seek to convert their shares into corporate bonds, highlighting the fluidity of roles among market participants.
Marvin Goodfriend from Carnegie Mellon University emphasized the critical role of direct debt finance in a country's economic development Initially, firms depend on internal funds or loans from related firms, but as the economy grows, they seek external funding through information-intensive indirect financing, such as bank loans Larger, reputable firms then turn to direct finance via corporate debt and equity markets, while banks continue to provide valuable services and investment banks facilitate direct financing This diverse financing landscape enhances capital structures, fosters competition, and drives innovation Goodfriend also pointed out that bond finance helps alleviate creditor run risks, a common issue in short-term credit markets, highlighting the importance of a robust corporate bond market for the financial system's resilience against shocks.
In their research about Southeast Asian bond market, Mark Hack & Cathie Close
The rapid development of the corporate bond market in South Asia, as highlighted in 2013, has been driven by robust economic growth and regulatory initiatives that enhance market infrastructure and promote participation This growth is crucial for sustainable market development, emphasizing the significant role of the corporate bond market in the region.
Thinh, N D., & Xuan, V N (2021) also mentioned in their reasearch that
“Vietnamese enterprises used to mobilize capital mainly through banking channels
Bonds have emerged as a crucial long-term capital mobilization tool for businesses, allowing them to lessen their reliance on commercial banks In Vietnam, the banking system primarily relies on deposit capital for loans, which may not align with the necessary terms, posing risks to banks Consequently, issuing bonds serves as a strategy for banks to mitigate term risks, optimize short-term capital usage for medium and long-term loans, and enhance their capital mobilization structures.
According to Vuong and Tran (2010), the corporate bond market in Vietnam emerged between 1992 and 1994 but remains relatively underutilized by both businesses and academia The primary motivations for issuing bonds include addressing banks' Asset-Liability Management (ALM) challenges and accommodating growth Most commercial bank deposits are short-term, influenced by depositor concerns over high inflation and currency devaluation During financial crises, short-term interest rates tend to surge, reflecting liquidity issues and creating arbitrage opportunities for depositors Nevertheless, the demand for long-term financing, particularly for real estate and infrastructure projects, is rapidly increasing, making longer-term corporate bonds crucial for banks to manage maturity mismatches in their ALM strategies.
Research from both domestic and international sources provides a solid foundation for generating ideas and content for the essay Overall, studies indicate that the advancement of corporate bonds, particularly in Vietnam, is crucial for enhancing direct financing in the market in the near future.
This thesis aims to identify key elements for the development of the corporate bond market in Vietnam and outline future directions It will provide a comprehensive overview of the bond market in Vietnam, focusing on the corporate bond sector and its unique characteristics The research will address critical questions, including the importance of developing the corporate bond market in Vietnam, the necessary elements for its growth, and actionable strategies to foster its development.
THEORETICAL FRAMEWORK
Basic concept of corporate bond market
Financial markets are crucial for the functioning of the goods economy and significantly contribute to a country's socio-economic development They facilitate the flow of capital from investors to individuals and organizations in need of funds for consumption and business growth The bond market, a key component of financial markets, involves the buying and selling of bonds, which are debt instruments When bonds are issued, the issuer borrows funds with a commitment to repay both the principal and interest Importantly, lenders are not responsible for how borrowers utilize the capital, nor are they liable for repayment beyond the terms outlined in the loan agreement Bonds typically have defined terms, ranging from medium to long-term.
The bond market serves as a platform for the buying, selling, and trading of medium and long-term debt instruments, such as Government bonds, local government bonds, Government-guaranteed bonds, and corporate bonds Capital mobilized in this market is typically less expensive than in the stock market, and these debt instruments, particularly Government bonds, offer a high level of safety due to their guaranteed payments Additionally, newly issued bonds continuously replace maturing ones, creating a dynamic relationship between the trading market and the bond issuance market, with some bonds even issued without a maturity date.
The bond market is significantly larger than the stock market, with the U.S corporate bond market being twice its size and government bonds being many times larger To minimize issuance costs, bonds are often issued in large amounts using various methods, necessitating that investors, particularly in the primary market, possess substantial capital to engage consistently in bond issuance and trading.
The bond market operates with significant trading volume and value, primarily involving financial intermediaries It is typically structured as an over-the-counter (OTC) market, where transactions are conducted through agreements, allowing for flexible payment methods and timelines.
In which, commercial banks often act as bond market creators
The bond market consists of 2 types of markets: primary and secondary markets
The primary market is where bonds are sold for the first time, known as new issuance bonds In this market, the bond price is set at the issuance price, allowing issuers to raise capital Governments and enterprises utilize this capital to support their medium and long-term plans Various bond issuance methods exist globally, including guarantees, bidding, agent issuance, and retail through investment banks Notably, the unders guaranteeing issuance and bidding methods are crucial, particularly for governments conducting regular large-volume bond issuances, which help establish a standard interest rate curve.
The secondary market is where bonds are traded after their initial issuance on the primary market, allowing organizations and individual investors to buy and sell these securities Unlike the primary market, where the issuing organization collects funds directly from each bond sale, the secondary market facilitates transactions between investors seeking to profit from price fluctuations.
The primary and secondary bond markets have distinct functions but are interdependent The primary market serves as the foundation for bond issuance, while the secondary market enhances liquidity and facilitates trading Without the primary market, bonds cannot be issued, rendering the secondary market nonviable Conversely, without a robust secondary market, bonds lack liquidity, hindering their attractiveness to investors Thus, the effective operation of the bond market relies on the simultaneous development of both primary and secondary markets.
The function in developing economy:
The success of a country's socio-economic development strategy heavily relies on capital sources, making it essential for nations to effectively utilize their financial, resource, labor, and land potentials Among these sources, bond capital stands out as a significant option for medium and long-term investment due to its stability, lower risk, and reduced costs compared to equity markets A well-developed bond market plays a crucial role in mobilizing substantial savings capital for the economy, facilitating medium and long-term investments, and alleviating pressure on the banking system.
The Government plays a dual role as both an issuer and a State manager, focusing on the development of a robust bond market while executing its financial policies By effectively operating the bond market, the Government addresses several key challenges.
Government loans are essential for addressing capital shortfalls, particularly in the face of significant economic development expenditure demands that create revenue and expenditure imbalances Issuing bonds is a highly effective strategy for mobilizing idle capital within society, thereby enhancing socio-economic development funding This approach is widely adopted globally, including in developed nations, as it reduces reliance on potentially unstable foreign loans However, it is crucial to understand the specific loan needs, intended capital uses, and available funding sources to formulate effective capital mobilization strategies Additionally, careful management of borrowing is necessary to prevent excessive debt burdens that could jeopardize financial stability.
The development of capital and stock markets is crucial for accelerating a country's economic growth within a market economy By enhancing the capital market, it promotes efficient exchanges between investors and those seeking capital, thereby unlocking financial resources for economic advancement Government bonds, in particular, hold a significant position in the stock market due to their unique exchangeable nature, playing a vital role in the formation and growth of capital and securities markets.
In the initial stages of establishing a securities market, government bonds play a crucial role as the primary financial instruments Their low risk helps prevent market breakdowns and instability, especially when the legal framework is incomplete and public understanding of securities is limited Additionally, the high liquidity and substantial volume of government bonds allow their interest rates to serve as the benchmark for market interest rates.
The government can enhance its market development orientation and regulatory functions by utilizing interest rate instruments for bonds This approach allows the government to effectively guide the market in alignment with its objectives Given the significant influence of capital markets on the overall economy, the government can leverage these markets to manage macroeconomic conditions effectively.
(iii) Contributing to curbing inflation, contributing to reducing the state of money release to balance the budget
- Diversify investment capital sources and integrate international capital markets By issuance of bonds internationally, the Government will achieve the following purposes:
Expanding relationships and boosting prestige in international capital markets is essential for creating new channels for capital mobilization, particularly for development investment in developing countries Issuing bonds in international markets not only provides access to additional capital sources but also offers valuable insights into international capital market practices, facilitating the gradual development of domestic capital markets.
Issuing bonds allows the Government to maintain financial independence, enabling it to secure loans without adhering to the constraints imposed by international organizations and investors Additionally, international bonds empower the Government to raise substantial long-term capital, which significantly enhances the efficiency of investment capital utilization and fosters proactive financial resource allocation.
Develop the corporate bond market in Vietnam
3.2.1 Opinion in developing the corporate bond market in Vietnam
The development of the corporate bond market aims to ensure safety and sustainability while creating favorable conditions for all economic participants Currently, many issued bonds lack collateral and are unsymmetrical, leading to quality concerns Although bond issuance has surged in recent years, the lack of stringent quality control poses risks to investors, including potential defaults Additionally, individual investors often face information deficits regarding issuers, increasing credit risks Therefore, enhancing both the size and quality of the corporate bond market is essential for helping businesses diversify their capital sources and ensuring transparency in information dissemination.
The bond market's growth is directly linked to the capital raised through bond issuance and transactions; a small capital amount indicates an underdeveloped market The transaction ratio, which is the total transaction value divided by the total outstanding bond balance for the year, typically ranges from 200% to 500% in developed bond markets.
The bond market's growth is reflected in the volume of bonds issued and traded, as well as the diversity of available options A varied selection of bonds enhances investor choice and attracts a broader range of participants, ultimately contributing to a more robust market.
The frequency of bond issuance and transactions should be balanced; a high issuance rate is not always beneficial If the supply of bonds exceeds demand, it can lead to unsuccessful issuances, negatively impacting investor confidence.
Fourthly, transaction fees: For the bond market to become vibrant, low trading fees are a factor that attracts investors
The development level of trading systems significantly influences the bond market, as evidenced by key indicators such as the direct participation of market members, the volume of bonds available, the suitability of trading methods, the forms of trading employed, and the timing of trades.
The effectiveness of a developed bond market relies on the presence of a diverse array of reputable participants, including regulators, trading system providers, payment and deposit systems, market makers, financial intermediaries, investors, and credit concentration organizations.
Firstly, the ability to control the market: a well-developed market means that it is effectively managed and monitored Trading in the market becomes transparent, honest, avoids fraud, price manipulation
The liquidity of bonds is a crucial factor in evaluating the development of a bond market A well-developed bond market enhances the liquidity of its bonds, making it essential to consider this aspect when assessing market growth.
Access to information is crucial for market development; a comprehensive and accessible information system fosters a robust bond market A well-developed bond market relies on a solid information infrastructure, including a bond credit system and a standardized yield curve.
The level of international integration is crucial for the development of a second-class bond market, which can achieve global connectivity while maintaining autonomy A more integrated market demonstrates its advancement through key indicators, including the capacity for cross-listing between trading systems, the ability to list domestic bonds internationally, the provision of domestic market information to a global audience, and the reception of information from abroad.
Factors affecting the development of the corporate bond market
Political and macroeconomic stability are crucial for the development of financial markets, particularly the bond market, in any country These factors significantly influence socio-economic growth, enhancing the quality of life and income for society as a whole A stable political and economic environment fosters increased investment demand, as governments attract capital through bond issuance, reassuring investors in medium and long-term investments In the initial phases of stock market development, government bonds play a vital role, and regular purchases in the primary market enhance liquidity and establish a benchmark interest rate curve for other bonds Conversely, a lack of stability hampers future forecasting and complicates decision-making for capital market participants, making it challenging for governments and businesses to raise medium and long-term capital through bond issuance, ultimately stunting bond market growth Additionally, external factors, particularly global economic fluctuations, can adversely impact developing countries, especially those reliant on exports.
The legal system significantly influences the stock market and business operations, with policy changes potentially yielding both positive and negative effects, particularly during sensitive periods A robust legal environment is crucial for the stock market, necessitating an evaluation of how well the legal framework protects investors' legitimate interests, as well as the incentives and limitations it imposes Additionally, the stability and adaptability of the legal system play a vital role in shaping the bond market For the corporate bond market to thrive, it is essential to establish a comprehensive legal framework that supports development policies and facilitates international integration.
For the legal environment to effectively influence market operations, it is essential to achieve coordinated efforts among state management agencies, ensuring a comprehensive and unified legal framework These agencies must advise and propose amendments to existing legal documents or introduce new regulations to address ongoing challenges in the bond market Continuous improvement of the legal system is crucial to align with the evolving conditions of the corporate bond market.
The organization model of the bond market plays a crucial role in attracting investors and fostering a dynamic and efficient market When properly established, this model facilitates market development and enables regulatory bodies and self-governing organizations to effectively manage and supervise the market Conversely, an inadequately structured bond market organization can hinder market growth, leading to a lack of vibrancy and activity.
The development of financial markets is crucial for the functioning of the goods economy, significantly impacting a country's socio-economic growth Financial markets, particularly the stock market, facilitate capital accumulation necessary for building economic infrastructure They enhance capital efficiency for both investors and borrowers, promoting effective investment Additionally, these markets support government policies aimed at economic reform and openness, fostering the growth of the international bond market and attracting foreign investment, which in turn allows the bond market to thrive.
The fluctuating exchange rate significantly impacts both the foreign exchange and bond markets A sharp increase in the exchange rate can prompt foreign investors to withdraw their capital from the bond market, leading to a rapid decline in bond prices This decline subsequently affects interest rates, and if interest rates rise, it creates a financial burden for developers.
Inflation significantly impacts currency value, influencing consumer behavior and savings among individuals and businesses Excessive inflation can hinder production and business activities, obstructing economic growth and development While high economic growth is often associated with inflation, it is crucial for national economists and planners to find a balance between fostering development and controlling inflation This requires careful consideration of the timing, dosage, and methods of implementing measures Elevated inflation diminishes currency value, prompting increased savings rates and causing investors to hesitate between investing in the bond market or opting for savings deposits.
Interest rates significantly influence bond prices, as the price of a bond reflects the present value of its cash flows When market interest rates rise, the discounted cash flows increase, leading to lower bond prices Consequently, high interest rates can present a favorable opportunity to invest in bonds In a growing economy with minimal inflation, long-term bonds compete directly with stocks Thus, it is essential to understand that interest rates and bond prices are inversely related.
Modern technical facilities are essential for the successful operation of the bond market, with IT infrastructure being the most critical component This infrastructure significantly impacts the organizational models and operations of bond market participants.
The bond payment and depositing system is essential for efficient market operations, involving stock exchanges, depository centers, and bond trading associations To ensure swift, accurate, and flexible transactions, a robust connection among Stock Exchange members is necessary As market size and trading volume grow, establishing an efficient registration, depository, and clearing system becomes crucial for monitoring bond transactions effectively This development is vital for building the infrastructure of the bond trading market and is key to implementing modern trading and transaction support solutions.
Financial intermediaries play a crucial role in both the stock and bond markets by acting as issuers and supporting market activities They engage in various functions such as underwriting, acting as issue agents, providing brokerage services, and offering consulting Their involvement has significantly contributed to the growth of the corporate bond market, serving as a driving force for its expansion.
A credit rated organization assesses the reliability of a provider's ability to repay debt instruments, focusing on relevant risk factors This evaluation is crucial for understanding credit risk, which reflects the organization's capacity to timely pay principal and interest throughout its existence Consequently, the credit rating significantly influences investors' bond trading decisions Additionally, it serves as a foundation for constructing standard yield curves, as bonds with similar risk levels can be grouped together to establish a benchmark yield curve.
To ensure the effective operation of the corporate bond market, it is essential to implement appropriate policies that foster investor trust and minimize market instability Maintaining this trust requires that issued bonds meet high-quality standards and that commitments to investors are strictly upheld Additionally, the support from issuers, as well as financial intermediary organizations, plays a crucial role in influencing investor decisions in the corporate bond market.
Effective coordination among regulators is essential for safeguarding investor interests and fostering a robust bond market Regulators must prioritize the close management and monitoring of the market to prevent illegal activities that could undermine its operations This approach ensures transparent transactions and fairness for all participants in the market.
The growth of enterprises, characterized by their production and business activities, prestige, scale, and branding, serves as key indicators for investors considering capital investment Thus, a clear understanding of the benefits of bond issuance is essential for enterprise development, as it plays a significant role in establishing a robust corporate bond market.
Situation of development corporate bond market in Vietnam in the period
Overview corporate bond market in Vietnam in the period 2018-2020
From 2011 to 2018, the total volume of corporate bonds issued reached VND 643,524 billion, averaging VND 80,440 billion annually, primarily through private placements Public offerings contributed VND 23,936 billion, with an annual average of VND 3,000 billion, while private placements accounted for VND 619,588 billion, averaging VND 77,448 billion per year In 2020, the total value of successfully issued corporate bonds surged to VND 368,000 billion, marking a 24% increase from 2019 Credit institutions and real estate companies led the bond issuance, with values of approximately VND 84,000 billion and VND 71,000 billion, representing 34% and 29% of the total issued value in 2020, respectively However, aside from real estate enterprises, other sectors experienced a decline in bond mobilization compared to the previous year.
2020, there were 3 successful issuances of corporate bonds abroad with a total value of USD 185 million with an average term of 5.81 years
Issuance plans (2011-2018): There were 1,676 registrations for corporate bond issuances in the domestic market during this period, with a total registered issuing value of VND 1,146,924 billion
In the corporate bond market, investment products typically span tenors from one to 15 years, with two-, three-, and five-year tenors being the most prevalent and aligned with the investment project cycles of businesses.
Most issuing enterprises have implemented floating interest rates, which are based on the one-year deposit rates provided by State-owned commercial banks, with an additional margin of 2-4 percent annually.
Source: VOMF, Student summary and estimate
Most enterprises utilize the non-underwriting method for issuing bonds, where a securities firm or commercial bank serves as an advisory service provider and acts as an agent for bond distribution and custody.
Secondary market trading of corporate bonds from private placements is often restricted, as investors typically prefer to buy and hold these bonds until maturity The settlement process for bond purchases is managed by the underwriter.
Information on transactions of corporate bonds issued in the market is limited as the corporate bond-dedicated website has yet to gather information on corporate bonds trading
Investor base: Investors that purchase corporate bonds are mainly commercial banks
(40- 45 percent of total bonds outstanding), securities firms (35-40 percent of total bonds outstanding), insurance companies and retail investors
In 2020, the corporate bond market surpassed the government's target of 7% of GDP, establishing itself as a vital medium and long-term capital supply channel for businesses This development alleviates the lending pressure on commercial banks and enhances capital mobilization for enterprises across various sectors, supporting their production and business activities.
Figure 3: Volumes of corporate bonds issued and bonds outstanding (2011-2020)
Issuing volumeOutstandingOutstanding to GDP
Vietnam's local corporate bond market remains relatively small when compared to other countries both regionally and globally In contrast, nations like Singapore and Thailand have developed local currency corporate bond markets that account for approximately 40% of their economies.
Source: ABO, Student summary and estimate
Vietnam's corporate bond market, while sizable relative to GDP, remains in the early stages of development The primary market is not yet specialized, and issued bonds lack independent ratings Currently, bond issuance is primarily conducted on an individual basis, with banks being the predominant buyers Additionally, there is a notable absence of pension funds, and bond funds are limited in scale, resulting in restricted participation from other financial institutions.
Effective February 1, 2019, Decree No 163/2018/ND-CP, issued on December 4, 2018, facilitates corporate bond issuance through private placement by easing conditions for enterprises Key changes include the removal of the requirement for companies to demonstrate profitability in the previous year, thereby enhancing opportunities for capital mobilization through bond sales.
Malaysia Singapore Thailand Vietnam Phillipines Indonesia
Figure 4: Size of local currency corporate bond market compared to other countries in the region in 2020
The issuance of bonds in tranches, aligned with the progress of investment projects, significantly impacts GDP Standardizing issuing documents and implementing an information disclosure mechanism are essential steps Additionally, creating a dedicated corporate bond website on the HNX will enhance the profile and transparency of the corporate bond issuance process.
On November 26, 2019, the National Assembly enacted Securities Law No 54/2019/QH14, which took effect on January 1, 2021, introducing new regulations for the issuance and trading of corporate bonds through both public offerings and private placements.
Public offerings: i) having credit rating results for bond issuers in accordance with
Government regulations are focusing on several key areas: first, they are establishing guidelines for credit ratings and the timing of applications; second, they are linking the issuance of corporate bonds to public listing and trading on the stock market; third, efforts are being made to simplify documentation and processes to facilitate capital raising for enterprises; and finally, it is mandated that companies conducting public offerings must have a chartered capital of at least VND 30 billion at the time of offering registration, an increase from the previous requirement of VND 10 billion as per the Securities Law 2006.
Private placement refers to the sale of securities to a select group of investors rather than the general public In the case of public companies and securities business organizations, only professional investors are permitted to purchase and trade bonds issued by these entities Conversely, for private placement of corporate bonds from non-public companies, the regulations outlined in the Enterprise Law and other applicable laws must be followed.
Issued volume: The total volume of corporate bonds issued in 2020 amounted to VND
In total, the issued volume reached VND 437,689 billion, with private placements contributing VND 403,486 billion, representing 92.9 percent of the total Public offerings accounted for VND 34,221 billion, or 7.1 percent of the issued volume Additionally, HDBank successfully issued USD 160 million in the international market.
Corporate bonds were issued with maturities ranging from one to 15 years, with private placement bonds averaging over four years, marking a one-year increase since 2018.
Legal framework for corporate bond in Vietnam
For non-converted bonds or bonds without certificates
- The issued enterprise is a joint stock company or limited liability company established and operating under the laws of Vietnam
To comply with legal requirements, businesses must maintain a minimum operational period of one year from the date of issuance of their enterprise registration certificate, business registration certificate, or an equivalent license.
For reorganized or transformed businesses, the operational period is determined based on specific scenarios: it is the operational duration of the divided enterprise in cases of division, the operational duration of the separated enterprise in cases of separation, the longest operational time among merged enterprises in the event of a merger, the operational duration of the merging enterprise during a merger, and the operational duration of the enterprise before and after transformation in cases of corporate transformation.
- Having financial statements of the previous year adjacent to the year of release audited by qualified auditing organizations as prescribed in Clause 7 Article 4 of Decree No 163/2018
Consulting contracts must be signed with the advisory organization for bond issuance dossiers as outlined in Clause 3, Article 15 of Decree No 163/2018, unless the issuing enterprise is authorized to provide consultancy services for bond issuance dossiers in accordance with legal provisions.
- Ensure compliance with the limit on the number of investors when issuance and transactions of bonds as prescribed in Clause 2 Article 4 and Clause 8 Article 6 of Decree No 163/2018
- Have a bond issuance plan approved and approved by a competent authority as prescribed in Article 14 of Decree No 163/2018
- Pay in full both principal and interest of bonds issued for 03 consecutive years before the bond issuance (if any)
- Meet the financial safety ratios and safety ratios in operation as prescribed by specialized laws
The total outstanding balance of corporate bonds issued individually, including anticipated issuance volumes, must not surpass five times the equity as reported in the most recent quarterly financial statements approved by the relevant authorities at the time of issuance.
Each bond release must be finalized within 90 days of the announcement date, with subsequent issuances required to occur at least 6 months apart Additionally, all bonds issued in a single release must share identical conditions and terms.
- Credit institutions that issued bonds must meet the provisions of Points i and k, Clause 1, Article 10 of Decree No 163/2018 (amended and supplemented in Clause
For issuance of converted bonds or bonds with certificates
- The issued enterprise is a joint stock company
- Meet the conditions for release specified at Points b, c, d, e, e, g, h, i, k, l, Clause 1, Article 10 of Decree No 163/2018 (amended and supplemented in Clause 3, Article
- Comply with regulations on ownership ratio of foreign investors as prescribed by law in case of conversion of bonds into stocks or implementation of right to buy of certificates
- The issuance of converted bonds must be at least six months apart
Converted bonds are issued as certificates that are non-transferable for a minimum of one year from the issuance date, with exceptions for transfers to or between professional securities investors, court decisions, or inheritance as stipulated by law.
Decree No 81/2020/ND-CP officially takes effect on September 1, 2020
Principles for issuance and use of bond capital
When issuance and use of bond capital, enterprises must comply with the following principles:
Firstly, enterprises shall make bonds on the principle of self-borrowing, self-payment, self-responsibility for the efficiency of capital use and ensuring the ability to repay debts
The issuance of bonds serves several key purposes, including funding investment programs and projects, increasing operational capital, and restructuring the enterprise's capital sources in compliance with specialized laws According to Article 13 of Decree No 153/2020/ND-CP, enterprises must clearly outline the purpose of the bond issuance in their issuance plan and communicate this information to potential investors It is essential that the capital raised through bond issuance is utilized in alignment with the stated purposes in the issuance plan and the information disclosed to investors.
Green bonds are corporate bonds specifically issued to fund projects that promote environmental protection and provide ecological benefits, in line with environmental protection laws In addition to adhering to established principles, it is essential that the capital raised from these bonds is meticulously accounted for, with separate monitoring and disbursement processes in place to ensure that funds are allocated according to the approved release plan for environmental projects.
Principles and conditions for offering bonds to international markets
Companies issuing bonds in international markets, whether through individual or public offerings, must adhere to Decree No 153/2020/ND-CP and fulfill the necessary conditions for offering in the issuance market Additionally, the sale of corporate bonds in international markets must comply with the regulations set forth in the issuance market.
Regarding conditions for offering bonds to international markets:
To issue non-converted bonds without certificates, enterprises must meet specific criteria: they must be a joint-stock or limited liability company operating under Vietnamese law, have an approved plan for bond issuance in international markets as per Article 28 of Decree No 153/2020/ND-CP, and comply with financial safety ratios and operational safety ratios mandated by relevant laws.
Enterprises must adhere to regulations regarding the management and repayment of foreign loans that are not government-guaranteed, as well as comply with foreign exchange management laws Additionally, they must meet the conditions for offering as outlined in the relevant market regulations.
To issue converted bonds or bonds with certificates, enterprises must ensure that they are joint-stock companies and comply with the issuance conditions outlined in Clause 1, Article 25 of the relevant decree.
According to No 153/2020/ND-CP, the conversion of bonds into stocks and the exercise of rights associated with certificates must adhere to legal regulations regarding foreign investor ownership ratios Additionally, offerings of converted bonds and bonds with certificates must be spaced at least six months apart from the completion date of the most recent offering.
Current situation of developing corporate bond market in Vietnam 2018-
Size of corporate bond market:
By the end of 2020, the corporate bond market in Vietnam reached a significant size, accounting for 15.1% of GDP and 10.3% of the total credit balance This highlights the crucial role of bond issuance as a capital mobilization channel, complementing credit and stock markets, in facilitating the growth and development of Vietnamese enterprises.
Over the past five years, credit growth has averaged only 13.7%, yet the use of corporate bonds has significantly strengthened the banking system, particularly during the challenges posed by Covid-19 This approach has effectively addressed the longstanding issue of relying on short-term loans for medium and long-term financing within the Vietnamese banking sector Notably, the proportion of medium and long-term loans in the total credit balance has declined from 50.3% in 2015 to 48.1% by the end of 2020.
In 2020, the corporate bond market surpassed the government's target of 7% of GDP, indicating its growth as a vital source of medium and long-term capital for businesses, while simultaneously decreasing reliance on traditional lending methods.
Figure 6: Outstanding balance of total Vietnamese corporate bonds
Outstanding corporate bonds % of credit outstanding pressure of commercial banks and supporting enterprises in all fields of capital mobilization for production and business
Vietnam's local corporate bond market remains relatively small when compared to other countries both regionally and globally In contrast, nations like Singapore and Thailand have developed local currency corporate bond markets that account for approximately 40% of their economies.
Source: ABO, Student summary and estimate
Vietnam's corporate bond market, while sizable relative to GDP, remains in an early stage of development The primary market is not yet specialized, and issued bonds lack independent ratings Currently, bond issuance is primarily conducted on an individual basis, with banks being the predominant buyers Additionally, there is a notable absence of pension funds, and bond funds are limited in scale, resulting in restricted participation from other financial institutions.
The corporate bond market's rotation rate, indicated by the transaction value on the secondary market relative to total outstanding debt, remains low at 0.08 times, significantly trailing behind other regional countries, which typically exceed 0.20 times.
In Vietnamese corporate bond market, private placement remained dominant with 93.5% of total issued value, mainly issued by real estate enterprises
Malaysia Singapore Thailand Vietnam Phillipines Indonesia
Figure 7: Size of local currency corporate bond market compared to other countries in the region in 2020
The value of corporate bond issued in 2020 reached a record of VND 429.5 trillion, up 28.3% compared to 2019 With the bank credit channel growing only at 12.1% in
2020, the mobilized capital of enterprises through corporate bond channels has contributed greatly to the opening of capital sources for enterprises in the context of the Covid-19 epidemic
In 2020, businesses sought to extend their capital terms through bond issuance, which accounted for 4.7% of the overall credit balance, in order to mitigate the impact of the epidemic on their cash flow.
In 2020, real estate developers significantly boosted capital mobilization by issuing corporate bonds, reaching a total value of VND 162 trillion, which marks a 100.1% increase from 2019 Notably, leading issuers such as Sovico Group, TNR, Vinhomes, and Novaland contributed to 11% of the total bond issuance value for the year.
The Energy sector, alongside banking and financial institutions, is gaining significant attention due to government policies promoting investment in renewable energy In 2022, the sector's release value soared to VND 33.8 trillion, marking a remarkable increase of 193.1% compared to 2019.
Figure 8: Value of corporate bond issued in last 5 years
Private placement Public offerings % growth YoY
Source: Fiin Ratings, FiinPro Platform
Corporate bonds issued by listed companies have significantly outpaced the funds raised through the stock market, highlighting the growing importance of corporate bonds as a key source of financing for businesses.
In 2020, the value of bonds issued by new companies of listed enterprises still grew well and reached VND 173 trillion (+26.8% YoY) This is due to two main reasons:
The stock market remains highly volatile due to the ongoing impact of the Covid-19 pandemic, which is not yet fully under control As a result, the capital raised through the stock market, including initial public offerings (IPOs) and share issuances, has seen a significant decline of 78.6% year-over-year compared to 2019.
The policy aims to decrease the ratio of short-term capital to medium and long-term loans in commercial banks, alongside state bank regulations that control credit limits for the real estate sector Notably, Circular 22/2019 has raised the risk weight for loans in the real estate business from 150% to 200%.
According to Circular 08/2020 issued by the State Bank, the maximum ratio of short-term to long-term loans will be reduced from 45% to 40% by September 30, 2021, with a further decrease to 30% expected by October 1, 2023.
FIGURE 9: STRUCTION BY CORPORATE BOND
Real estate Banking Production Energy Tourism & Entertainment services Other
2019 channels are becoming a source of medium and long-term capital mobilization gradually replacing traditional credit channels
Source: Fiin Ratings, FiinPro Platform
In 2020, banks emerged as the primary buyers and holders in the corporate bond market Among the 14 commercial banks monitored by SSI, which collectively represent approximately 76% of the system-wide credit market share (excluding Agribank), the total investment in bonds issued by economic organizations reached around VND 185,000 billion by December 31, 2020, marking a significant increase of 47% compared to the end of 2019.
The average investment share in corporate bonds among these banks rose from 2.5% to 3.2% Notably, TCB, VPB, and MBB hold the largest amounts of corporate bonds.
At the end of 2020, the amount of non-bank corporate bonds in circulation is estimated at VND 537,000 billion, of which banks own about 35%, lower than 37% at the end of 2019
Figure 10: Funding sources of listed companies
Bond issuance Equity issuance IPO
Source: Fiin Ratings, FiinPro Platform
Besides, the participation of individual investors in the corporate bond market also increased significantly in 2020 amid low deposit interest rates By the end of July
2020, individual investors accounted for 13% of the value in the primary market, increasing the proportion by nearly double compared to 2019