Are securities companies acted as middlemen in issuing Corporate bonds? Are commercial banks cross-owning each other’s bonds?
It can be seen that commercial banks have cross-owned each other’s bonds, aiming to increase the sources of capital mobilization and increase the proportion of medium and long-term capital, responding to the requirement of reducing the proportion of short-term capital for medium and long-term loans of the State Bank.
The statistic from the SSI securities company showed that in the first 8 months ò 2019, foreign investors actively participated in purchasing Vietnamese government and corporate bonds.
Particularly, foreign investors net bought more than 13 billion VND of government bonds and primarily purchased 10,266 billion VND of corporate bonds, equaling 8.8% of the total issued corporate bonds. In which, the largest is the 300 million dollar lot (equivalent to about 6,960 billion VND) of 3-year international bonds of VPB successfully issued on 17th July 2019 with a fixed interest rate of 6.25% per annum and listed on SGX-ST (Singapore).
Foreign life insurance companies in Vietnam (Manulife, AIA and Generali) also held the 1,150 billion VND lot of 10-year bonds, with a fixed interest rate of 7.2% per annum and was guaranteed by GuarantCo Ltd of the Ho Chi Minh City Infrastructure Investment joint-stock company. GuarantCo is a multinational guarantee company that belonged to the PIDG – an organization funded by the UK, Australia, Sweden, and the Netherlands.
Securities companies acted as middlemen in issuing Corporate bonds
Out of all the domestic investors, securities companies are the biggest buyers with the total purchase of 29,447 billion VND – accounting for 25.4% of the total issuance, in which they bought 22,900 billion of bonds issued by commercial banks. According to the viewpoint of SSI, this purchase was too big compared to the capital scale of securities companies, which also have to mobilize bonds to increase capital, therefore the possibility of securities companies acting as middlemen, participating in primary purchase to resell is higher than the possibility of them being the final buyers.
According to SSI, TCBS is the biggest issuance consultant organization of real estate bonds, this company has successfully issued nearly 13.7 thousand billion VND of real estate corporate bonds, focusing on related companies like Vingroup and Vinpear, Phu Quoc Tourism Development & Investment Joint Stock Company. Moreover, they also issued the bonds of Ba Na cable cars, NewCo, Tan Lien Phat Sai Gon real estate, Tan Lien Phat Tan Cang.
Recently, MSB also strongly promoted the bond section. This company was the middleman in the successful issuance of 2,982 billion VND of real estate bonds, including those of NVL, FLC, and other companies. Notably, MBB and MBS were also buyers of more than half of these real estate bonds.
Are commercial banks cross-owning each other’s bonds?
Based on the information disclosure of businesses, 9 commercial banks have bought 11,160 billion VND of bonds, accounting for 9.6% of corporate bonds issued in the first 8 months of 2019, of which the most purchased was MBBank (3,770 billion VND), followed by PVCombank (1,900 billion VND), Techcombank (1,510 billion VND), MSB (1,150 billion VND), etc.
Based on the balance sheet figures on June 30, 2019, of 18 listed commercial banks, the total number of corporate bonds held by banks is nearly VND 230,500 billion - an increase of VND 65,000 billion compared to the end of 2018, of which some banks with strong increase were STB, CTG, SHB, and MBB. The bank with the most corporate bonds was still TCB with a balance of VND 60,663 billion as of June 30, 2019.
According to the semi-annual financial statements of 18 listed commercial banks, in the first 6 months of 2019, the number of bonds of credit institutions that they held increased by VND 56,400 billion, a figure quite similar to the number of bonds issued by commercial banks. With an average interest rate of only 6.72% / year, which is equivalent to the interest rate of large commercial banks - the group with the lowest interest rates, the bonds of commercial banks were mostly unattractive to regular investors. Moreover, the main buyers were securities companies, so it was likely that commercial banks had cross-owned each other’s bonds with the purpose of increasing mobilization and raising the proportion of medium and long-term capital, dealing with the requirement of reducing the proportion of short-term capital for medium and long-term loans of the SBV (State Bank of Vietnam).
According to SSI, the scale of issuance of corporate bonds had grown quite high, looking deeply into each issue, there were still some points to pay attention to such as the issuance of commercial banks and the fact that commercial banks were the buyers of many types of corporate bonds, including real estate bonds. Disclosure of corporate bond issuance information still had a general case such as hiding the name of the bond-buying unit.
In general, the corporate bond interest rate is still at a relatively safe level because it is approximately equal to the bank interest rate. But without a reliable credit rating agency, it is difficult for bond buyers, especially individual investors, to determine a reasonable interest rate. When the policies related to the issuance of corporate bonds are more open, the protection mechanisms for investors also need to be more complete. This will be the foundation for developing a strong and sustainable corporate bond market.