Corporate Bond Market Faces New Hurdles in Its Path to Recovery

Assessment of Vietnam’s Bond Market Developments

A recent report from the committee assesses the outcomes of the National Assembly’s socio-economic growth strategy for 2024.

In terms of the bond market, while some advancements have been noted, it continues to struggle as a reliable source for medium- and long-term funding.

After experiencing significant growth from 2018 to 2021, with an annual increase of 45%, the Vietnamese bond market began to decline in 2022. This downturn stems from shifts in the business landscape, legal regulations, and instances of non-compliance within bond issuance processes.

The diminished effectiveness of corporate bonds has created challenges for capital availability.

Key issues identified include the market’s limited size relative to the high demand for long-term financing by corporations. As of late August 2024, the total corporate bond outstanding was merely VND1 quadrillion, representing only 10% of the GDP. This is significantly lower when compared to Malaysia’s 54%, Singapore’s 25%, and Thailand’s 27%.

Moreover, the distribution of bond issuance is skewed, with privately issued bonds dominating at 88%, leaving a minimal share of public offerings at just 12%. This imbalance restricts companies’ ability to raise capital from the public market.

Investment structures within the market also reveal issues. The primary bondholders are commercial banks and individual investors, while entities such as investment funds and insurance firms play a minor role in bond purchases.

Given these challenges, the National Assembly’s Economics Committee has emphasized the need for reforms to ensure the bond market evolves into a more robust, transparent, and effective system.

A draft amendment to the Law on Securities has been introduced for debate.

This amended law aims to curb securities market manipulation by imposing limits on individual investor transactions. Additionally, for publicly issued bonds, issuers will be required to provide collateral or secure bank guarantees when seeking bond issuance licenses. However, this rule excludes cases where credit institutions issue bonds as secondary debts that qualify as tier-2 capital.

The Economics Committee has asked the drafting agency to analyze the potential repercussions of imposing restrictions on individual investors.

Experts suggest that individual investors are crucial to the privately issued bond sector; their absence could contract the bond market, adversely affecting liquidity and capital acquisition.