State must have solutions for sustainable development of corporation bond market: finance minister

November 10, 2022 - 10:23
Finance Minister Hồ Đức Phớc speaks to local media about the future development of the corporate bond market.


Minister of Finance Hồ Đức Phớc.

The corporate bond market still has much potential, so the Government and regulators will continue developing this capital mobilisation channel by researching solutions to promote the issuance of bonds to the public for the sustainable development of this market.

Finance Minister Hồ Đức Phớc speaks to local media about the future development of the corporate bond market.

How do you evaluate Việt Nam's corporate bond market at present?

Việt Nam's corporate bond market has been established for a long time, but it has developed in the past five years, especially in the last 2-3 years. 

The development of the domestic corporate bond market has become an effective medium and long-term capital mobilisation channel for enterprises. It has contributed to balancing the capital market structure and reducing the excessive dependence on medium and long-term capital from banks.

However, the scale of Việt Nam's corporate bond market is still quite modest. It has not reached its target compared to its potential and other regional markets. 

Now, the outstanding debt of the domestic corporate bond market is only about 15 per cent of GDP, including individual corporate bonds worth 1.2 quadrillion VNĐ, equivalent to 12.8 per cent of GDP.

According to the Financial Development Strategy for 2030, the Government has set a target that the outstanding loans in the corporate bond market reach at least 20 per cent of GDP by 2025 and at least 25 per cent by 2030 - still quite far from the target the government set.

For countries with developed capital markets, outstanding loans in the corporate bond market are maintained at a high level. However, in Việt Nam, it is still much lower than that in some countries such as Malaysia (56 per cent of GDP), Singapore (38 per cent of GDP), and Thailand (25 per cent of GDP).

In terms of quality, the corporate bond market has developed quite positively in recent years. This is because Việt Nam has built a legal framework to encourage the development of the corporate bond market. It also supports businesses to raise capital for production and business and helps many investors have more effective investment channels.

However, the development in scale needs to be commensurate with the quality of the corporate bond market. This market has been exposing several risks that need to be recognised for appropriate solutions on the right, safe and sustainable development of the market.

The rapid development of the corporate bond market has exposed many risks. What is your view on this opinion?

The sustainable development of the corporate bond market with transparency is essential, contributing to the development of diversified finances. In addition, it supports enterprises mobilising medium and long-term capital to reduce their dependence on bank credit channels. This is the goal set by the Government.

Việt Nam's corporate bond market is still in the early stages of development despite its rapid growth in recent years. 

During the process of development, this market will start from "quantity" and gradually move to increase in "quality".

At present, the mistakes of some individuals and organisations in the market of corporate bonds offered under private placement are important lessons but only represent part of the market. Therefore, this market needs to have solutions to have healthier development.

For any market, besides the management from the State by the legal framework, supervision, inspection and strict handling of violations, the most important thing is awareness and responsibility and compliance of market participants.

To encourage the development of the market for private placement bonds, the provisions of the Law on Enterprises and the Law on Securities on offering corporate bonds under the private placement are according to international practices, creating favourable conditions for enterprises in capital mobilisation with the principles of self-borrowing loans, self-paying debts and taking self-responsibility. 

Therefore, the development quality of the private placement corporate bond market will depend greatly on the behaviour of market participants.

The first and most important responsibility is still the issuer. Buying the private placement corporate bonds is mainly the investors' confidence in the issuer. Therefore, in principle, the issuer must be responsible for all issuances. 

Statistics show that banks hold up to 42 per cent of the volume of private placement corporate bonds. Next is the real estate business with 29 per cent. The two groups hold 71 per cent of the volume of private placement corporate bonds. 

The quality of the corporate bond market will improve if the issuers comply with the law, disclose full information, and pay the due corporate bonds in full and on time while, at the same time, investors understand the law and study the market carefully when buying corporate bonds.

Many investors have paid attention to only high-interest rates and ignored risk assessment and appraisal before buying. Therefore, investors need to raise awareness, responsibility, and knowledge on this issue to participate in the market safely and efficiently.

In addition, the responsibility of the intermediaries providing private placement corporate bond services is also important. There are some limitations in providing those services from securities companies and the quality of auditing financial statements from auditing companies.

In recent years, State management agencies have strengthened management, supervision, inspection and handling of violations in this market.

In the future, the Ministry of Finance will set up efficient measures and solutions to increase the quality of services relating to corporate bond issues provided by intermediaries.

What should the State do to have sustainable development for the corporate bond market?

The domestic corporate bond market has grown strongly in recent years, mainly private placement corporate bonds. 

Most enterprises choose the issuance of private placement bonds due to simpler requirements. At the same time, they focus on something other than issuing public placement corporate bonds because of the high demand for procedures, conditions and standards.

In the past, many issuers have violated regulations on issuing private placement corporate bonds, including deceiving customers and not paying fully for long-term bonds.

In the coming time, the State will reform and simplify administrative procedures, review the law, and create favourable conditions to encourage enterprises to issue corporate bonds to the public. 

Besides that, confidence plays a vital role in the financial market, especially in the corporate bond market. 

If the market has stable, efficient and safe development, investors are willing to participate, and then the market will have sustainable development.

I think the corporate bond market still has great potential, but it needs favourable conditions for safe, transparent and sustainable development. 

The recent private placement corporate bond market violations have yet to represent the whole corporate bond market. But, they have also reduced investors' confidence in the corporate bond channel. Therefore, regaining confidence in the market is the responsibility of many management agencies and market participants.

What are efficient solutions to increase the quality of the corporate bond market's development and regain investors' confidence in this market?

The Ministry of Finance (MoF) has advised the Government to issue Decree 65/2022/NĐ-CP, amending Decree 153/2020/NĐ-CP, to regulate the offering and trading of private placement corporate bonds in the domestic market and offer corporate bonds to the international market. 

This revised decree has many new points with stricter regulations and enhanced responsibilities of the relevant parties.

The new policy will be an opportunity to create favourable conditions for enterprises and professional investors to offer and trade corporate bonds.

Decree 65 has also set a specific timeline to open and operate the secondary corporate bond market, creating conditions for listed companies and investors to be able to trade corporate bonds.

In addition, specific regulations to develop credit rating services and detailed regulations on cases with a credit rating are required to issue bonds. Those help investors in accessing business information before buying corporate bonds.

Meanwhile, the ministry has directed the State Securities Commission and relevant agencies to urgently review regulations such as the Law on Enterprises, the Law on Securities and documents related to corporate bonds. Then, it coordinates with the Ministry of Planning and Investment and the Ministry of Justice to submit amendments to the Government and the National Assembly.

MoF will also strengthen the supervision and inspection of issuers and intermediaries providing services relating to corporate bond issuances, such as securities companies and auditing firms. It will be strictly handled following existing regulations. At the same time, violations will be publicised in the mass media.

In addition, propaganda on the corporate bond market needs to be promoted so that the issuers, especially investors and people, understand further the corporate bonds, especially private placement corporate bonds, to have responsibility for their actions. VNS