Bonds offer effective capital raising avenue

At a seminar which was held by the Vietnam Chamber of Commerce and Industry in Hanoi in mid-May to discuss capital raising measures for businesses

At a seminar which was held by the Vietnam Chamber of Commerce and Industry in Hanoi in mid-May to discuss capital raising measures for businesses, Do Ngoc Quynh, the secretary general of the Vietnam Bond Market Association (VBMA), said that corporate bonds would prove an effective channel for businesses to raise capital in the long term.

Potential market

In the late 1990s and early 2000, in Vietnam only certain kinds of corporate bonds existed and they were issued and transacted at a small scale. But by 2009, 39 kinds of corporate bonds with total transaction value reaching nearly VND30 trillion were being traded. In 2010, 45 kinds of corporate bonds were traded with transaction volume totaling nearly VND45.5 trillion. Previously, corporate bonds here in Vietnam were issued mostly by State-owned companies, and the number of joint stock/limited companies issuing corporate bonds has continued to increase.

The value of corporate bonds which have been issued in Vietnam accounts for only 8-9 percent of the country’s GDP (Gross Domestic Product), much lower than in other regional countries. In Japan for example, the total market value of corporate bonds equals 200 percent of Japan’s GDP; in China it is 54.2 percent, and in Malaysia 81 percent. Meanwhile, to realize the growth targets set for the years to come, Vietnam must invest at least 40 percent of the country’s GDP in promoting economic development. This is a favorable condition for the corporate bond market to develop.

Opportunities

When businesses need capital to maintain and expand operations, they often seek credit loans from banks or sell their shares. However, credit institutions do not have endless resources and the shares market faces difficulties. In such circumstances, mobilizing capital by selling bonds could provide an ideal option.

According to Do Ngoc Quynh, there are many opportunities for businesses to raise capital from the bond market. State regulations related to this market have been promulgated and are being improved. The Government has put in place some policies which encourage the development of the bond market, and investor demand is growing. Many commercial banks and securities companies provide financial brokerage services which facilitate the sale of corporate bonds. VBMA as well as law consultant companies and credit rating agencies are playing an active part in helping businesses effectively raise capital through selling bonds.

Solutions

Do Ngoc Quynh said that businesses must improve their awareness about the bond market and consider it a regular channel for raising capital. In fact, he said, many companies still liken bonds to credit loans but do not consider them as a kind of debt securities on the capital market and so they cannot make use of their advantages. They must renovate their thinking about business management and use capital effectively so as to build investor trust and ensure financial safety. In addition, companies must comply with domestic and international standards on auditing and invest in technological innovation (accounting data must be finalized on a timely basis and in accordance with the actual situation of companies). When issuing corporate bonds, companies must publicize information about their operations and financial situation as well as development plans and strategies in order to draw the attention of investors and build trust.

Furthermore, companies must have a credit rating because when deciding to buy some kinds of corporate bond, investors mostly consider the reputation and the credit rating of the company which issues them. According to international practice, only companies which have a credit rating can issue bonds. However, most Vietnamese companies are still unaware of the need to have a credit rating and this reduces their capability to draw the attention of domestic, and especially foreign investors.

The State must apply appropriate policies to develop the government bond market to pave the way for the corporate bond market to grow. The State must stabilize the economy at the macro level and apply suitable policies to support and regulate the market. In addition, the State must check and improve the regulations related to corporate bonds. Financial brokerage and market assistance organizations must improve the quality of their services including consultancy for issuing bonds on the primary market and trading in bonds on the secondary market. Business credit rating organizations must work in a professional manner. VBMA must enhance its role and improve the effectiveness of their operations. Investment in bonds must be encouraged. It is necessary to increase the liquidity of bonds on the secondary market, which helps accelerate the growth of the primary market. _VEN

Tags: Vietnam banking industry, Vietnam bonds, Vietnam finance, Vietnam financial