The State Bank of Việt Nam has issued regulations to restrain lenders from investing in certain kinds of bonds.— Photo baodautu.vn

Compiled by Thiên Lý

In early April the State Securities Commission of Việt Nam decided to cancel nine bond issuances worth VNĐ10.03 trillion (US$439 million) made by the Tân Hoàng Minh Group between July 2021 and March 2022 forfiling false information and concealing information about a private placement.

The news of the cancellation hit various stocks, especially of property companies, from April 5, with many posting significant losses.

Tasco JSC (HUT), Hoàng Quân Consulting-Trading-Service Real Estate Corporation (HQC), Novaland (NVL), Development Investment Construction JSC (DIG), and Ocean Group JSC (OGC) were all down.

A question repeatedly asked is whether bank stocks will be affected by the scam since many lenders are not major buyers of corporate bonds but are advisors and underwriters for bond issuances, and even trustees on occasion.

The answers to this question are rather different.

According to Vietcombank Securities Company, credit institutions including banks subscribed to at least three of the nine issuances done by Tân Hoàng Minh.

However, the total value of the Tân Hoàng Minh Group’s nine issues of VNĐ10 trillion including VNĐ3,000 trillion worth of three issues into which the lenders participated is much lower than the banking sector’s total loans outstanding, it said.

This means the scam would not have a direct impact on the lenders, it said.

But other analysts said that losses to institutional and individual subscribers could only be mitigated if authorities settle the issue in such a way that their interests are safeguarded.

The banks involved and the financial market itself would suffer heavy damages if the company goes bust, they warned.

They also feared there could be many other companies that committed similar violations asTân Hoàng Minh and risk having their bond issuances be cancelled.

Risks

The most common risk in the bond market relates to interest rates, or the risk that bond prices will fall as interest rates rise. A bondholder has committed to receiving a fixed rate of return for a set period, and any rise in the market interest rate will cause the bond price to fall accordingly, reflecting the lower return an investor will make on it.

Another risk is that a bond will be called by its issuer. Callable bonds have provisions that allow the issuer to buy the bond back from bondholders and retire the issue. This is usually done if interest rates fall substantially after issuance.

Bond holders also face the risk of inflation, which reduces the return. This in fact has the greatest effect on fixed bonds, which have a set interest rate from inception.

SSI Securities Company warned there are some risk factors related to corporate bonds, saying that as of the end of last year corporate bonds not backed by assets or only partly backed accounted for 53 per cent of all issuances by non-financial corporations.

In the case of real estate companies, they accounted for 54.2 per cent at VNĐ172.5 trillion.

Considering that some 75 per cent of corporate bonds are bought by banks, the banking sector does face risks when investing in them.

But to mitigate them, the State Bank of Việt Nam has issued regulations to restrain lenders from investing in certain kinds of bonds.

Thus, they cannot subscribe to a corporate bond issue done to restructure debts, buy stakes in other companies or increase working capital.

The central bank has also issued a circular with regulations that aim to restrict transactions related to high-risk areas including investment in and trading of corporate bonds.

In a recent report, the Ministry of Finance also said it is considering ways to reduce the corporate bond market’s reliance on subscription on banks.

It has also drafted measures to develop the corporate bond market, one of which is to strengthen the legal framework.

Experts said however that banks remain deeply interested in corporate bonds despite the strict regulations and experts’ warnings.

In 2021 Techcombank topped the banking industry in terms of bond holdings with VNĐ62.81 trillion, or 11 per cent of its total assets.

MB was second with holdings of VNĐ42.96 billion, or 7.1 per cent of its assets. Notably, the figure rose by 53 per cent from 2020.

VPBank, TPBank, BIDV, Vietcombank, and Vietinbank were holding around VNĐ10 trillion worth of corporate bonds.

The 2021 Việtnam Corporate Bond Outlook by Credit rating agency FiinRating said the corporate bond market has grown large and is equivalent to 15.1 per cent of the country’s GDP and 10.3 per cent of total bank loans outstanding at the end of 2020.

But the market is still in its early stages, with most investors being banks. In more developed economies, the bond market attracts a diverse group of participants, including insurance companies, bond funds and pension funds, but in Việt Nam, their participation is limited.

A study by Fiin Group in the third quarter of 2020 found that though there was a downward trend in banks’ holdings, they still accounted for 71.5 per cent of outstanding corporate bonds.

State-owned lenders such as Vietcombank and Vietinbank were holding bonds issued by banks while private banks like Techcombank, VPBank and Sacombank owned non-bank corporate bonds.

Fiin experts also said that banks were major holders of real estate bonds. As of June 2021, nearly 28.5 per cent of such bonds had been bought by banks.

Analysts attributed banks’ great interest in corporate bonds to their high returns as they usually offer higher interest rates than government bonds and bank deposits with comparable maturities.

Most corporate bonds offer a 14.45 per cent coupon rate as against 4-5.5 per cent for short-term bank deposits and 8-8.9 per cent for long-term deposits.

Corollary

Many banks have denied involvement in Tân Hoàng Minh’s bond issuance scam, saying they did not provide underwriting or payment guarantee services or distributed the bonds. 

A Vietinbank spokesman said the bank provided account and asset management services for the issuances by Soleil Hotel Service and Investment Joint Stock Company, Viet Star Real Estate Investment Company Limited and Winter Palace JSC, which were totally worth VNĐ6.53 trillion (US$285.6 million).

SHB said it too only provided account and collateral management services for the issuances by Soleil and Viet Star, each worth VNĐ800 billion, and fully in accordance with the law. 

Analysts at Fiin Group said the scam would not have much impact on the banking sector though frequent occurrences like it would result in long-term consequences.

The brand value and prestige of lenders would be severely affected if they provide consulting, underwriting and payment guarantee services and invest and participate in the distribution of corporate bonds issued by companies embroiled in scandals. — VNS