A construction site of Novaland in HCM City. The property developer suggested a solution to pay bonds that reach maturity. Photo tuoitre.com.vn

HÀ NỘI — Due to the stagnant bond market, the Ministry of Finance (MoF) has proposed a decree amendment to allow enterprises to convert bond payments into assets, including real estate.

The corporate bond market remained quiet in the first month of this year, with a large number of maturing bonds. Of which, half of the bonds - VNĐ104 trillion (US$4.37 billion) maturing out of around VNĐ205 trillion - were issued by property developers.

According to FiinRatings, only one batch of private placement bonds worth VNĐ110 billion was successfully issued by Phan Vũ Investment Corporation in January. These bonds' term is five years, with a nominal rate of interest of 10.5 per cent a year. And Asia Pile Holdings is the batch's sole bondholder.

Nguyễn Tùng Anh, head of the Credit Analysis and Green Financial Services Department of FiinRating, said that low demands and supplies on the market were attributed to the steep reduction in the size of bond issuance. 

In the midst of the market's stagnation, Novaland recently proposed a solution for its two batches of bonds that are to due by extending the principal payment date for an appropriate period of time or converting the principal with the company's real estate.

According to the property developer the solution is force majeure as the market still has many unpredictable fluctuations which is in line with the document relating to bond issuance. 

It assured that the proposal was legal and in accordance with the decree's directives.

Therefore, it was expected that the decree amendment would help the bond market recover.

"The new decree is required due to the high liquidity pressure enterprises faced at the end of last year when 12 issuers in the real estate and energy industries breached debt obligations such as late payment of interest and/or principal," Tùng Anh said.

Similarly, Dr. Lê Đức Chí of the University of Economics HCM City's School of Finance stated that the conversion of bond debts into properties would be a necessary solution because it would help companies reduce inventories, relieving pressure on cash flows.  

Risks in bond payment by properties

However, bondholders may refuse to agree to convert bond debts into real estate debt, according to Phạm Đức, an attorney of the HCM City Bar Association.

He said that with this kind of payment, bondholders would be at a disadvantage because they would not receive interest, while assets have extremely low liquidity, especially when the property market is merely frozen and the volatility of realty prices is unpredictable in the future. 

"If bondholders insist on cash payments but the enterprises are unable to settle, the enterprises' bank loans will become bad debts. They, then, can't access capital to retain and develop their projects," he said. 

"Bondholders and enterprises still can reach consensus on the payment method for real estate if businesses pay both principal and interest, then offer a reasonable price for the converted property," Đức suggested. 

Analysts said that the payments in real estate meant switching from financial transactions of borrowing and paying in cash to buying and selling assets. Therefore, the transaction must satisfy regulations, including legally completing and meeting the criteria of an agreement to buy and sell.

Bondholders were recommended to learn about and choose reputable enterprises. 

If the enterprise proposed exorbitant prices for the properties, bondholders should resolutely demand payment in cash. If the enterprise was three months behind on bond payments, bondholders could sue and ask the court to initiate bankruptcy proceedings against it.

Experts also suggested that the Government should take effective measures to solve the problems of real estate and bonds at their root, such as transparency or legal problems with projects. Only then could the bondholders accept the bond payment in real estate. — VNS