Vietnam Seeks Bond Market Growth After Real Estate Credit Crisis

(Bloomberg Opinion) — Vietnam is seeking to expand the nation’s corporate bond market as it grapples with a credit crunch for a real estate sector plagued by a handful of highly leveraged companies, according to Finance Minister Ho Duc Phoc.

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The government does not see a broader impact beyond selected companies that have engaged in bad or illegal practices, he told Bloomberg News in Hanoi on Tuesday. It is working to facilitate access to capital for property developers given the market downturn and to facilitate access to finance in the coming years.

“Those financially troubled companies are the ones that expanded too far and beyond their capacity, like building dozens of projects at the same time and exceeding their financial capabilities,” he said. “Now that the central bank is tightening credit limits to combat inflation, these companies are facing liquidity problems and damaging the confidence of their investors.”

By 2030, Vietnam aims to increase corporate bond volumes to 25% of gross domestic product from about 11% today, it added. The outstanding corporate bond market is worth about 1.2 trillion dong ($48.3 billion).

Among other points mentioned, Phoc said that the government wants to:

  • Speed ​​up the process for developers to obtain legal rights to develop land

  • Work with the central bank to reduce borrowing costs for businesses and help restructure debt payments.

  • Boosting investor confidence following recent anti-corruption measures

  • Make sure bond issuers provide buyers with accurate information and repay the bond on time when it matures to increase investor confidence.

The remarks come amid a wide-ranging government regulatory investigation into corruption in the corporate bond market that has largely landed on Vietnam’s real estate developers. Property firms now face a funding crisis, along with higher rates and central bank warnings against risky property loans, sending investors fleeing.

The sweeping anti-corruption crackdown may also have big implications for one of Southeast Asia’s fastest-growing economies, home to some of the biggest suppliers to conglomerates including Apple Inc. and Samsung Electronics Co.

Falling Markets

Sales and volumes of Vietnamese corporate bonds have fallen this year, with sales through private placements falling 51% to 240.76 trillion dong through October, according to the Vietnam Bond Market Association. That represents 96% of total corporate bond sales, he added, citing stock and stock data. The benchmark VN index has fallen 36%, driven by real estate and banking companies, to become the world’s worst-performing leading indicator.

Concerns are now growing that the housing market is at risk of a severe recession that could be a drag on the broader economy. In response, the government appointed a team of ministerial-level officials to address the credit crunch in the real estate sector.

A change of course may be coming. Prime Minister Pham Minh Chinh has said he wants to make it easier for property companies to access funds, issue bonds and obtain permits to sell projects, which in the process will restore confidence, Phoc said.

Among other changes, officials are also looking to make the process of changing building permits easier and faster, while giving developers more flexibility to change schedules to reflect market opportunities. That would include moving from a planned office development to building an apartment complex and more affordable housing, she said.

But to convince the market that the guideline changes will help achieve this vision of a more simplified system, the government must first ease investor concerns, which he says have been affected by recent speculation.

“The stock market has recently been affected by the loss of investor confidence and rumors, so we will release more information on official channels and we must take measures to boost the operations of companies,” Phoc said, without giving details. The Ministry of Finance will meet on Wednesday with banks and companies to discuss solutions to stop the fall.

–With the assistance of Clarissa Batino and Catherine Bosley.

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