The new regulations on corporate bonds issuance are helpful tools for companies in capital mobilization, but now it's time to tighten the noose.
The new regulations on corporate bonds issuance from the beginning of February 2019 with many open conditions have made them helpful tools for companies in capital mobilization. However, the high openness of the issuance conditions has made the corporate bond market develop complicatedly, uncontrollably, and now it’s time to tighten the noose.
A lack of supervision in the market
The corporate bond market has never been so prosperous. The general report on the corporate bond market in the first 8 month of the SSI Joint-stock Securities Company has shown that out of the 129,016 billion offer for sale, 90.08% of the bonds have been sold and issued on the market with various terms. The current scale of the corporate bond market is around 10.2% of the GDP.
Even though commercial banks lead the market regarding the amount of issued bonds (56,060 billion VND), the attention also points towards 44 real estate companies with many issuances with a total of 36,946 billion VND (accounting for 31.5% of the total issuance value). This is because there are a lot of commercial banks included in the units purchasing bonds issued by real estate companies.
Even though the SSI Statistics shows that only 20% of real estate bonds are purchased by banks and nearly 9% are purchased by securities companies, in reality, the game on the stock market mostly lie in the hand of financial organizations. This shows that companies issue bonds to relieve debts for banks beside new capital mobilization. Only the banks and issuance companies may understand this.
Secondly, statistic shows that 22,664 billion VND (61%) is listed as bonds sold to domestic investors. However, no company has published the identity of these domestic investors. Meanwhile, until now, the bond market has not sold a lot to individuals lacking the market knowledge, except for private real estate investors purchasing bonds as a method of early payment to real estate projects.
Real estate companies issuing bonds with high interest rate or 23% of the bonds offer for sale being leftover, a long with potential drawbacks from the beginning of the year until now are showing a lack of supervision from managing agencies.
Easy regulations lead to massive release
The 163/CP Decree on issuance of corporate bonds is a "prop" for a fast growing corporate bond market today. The questions above emerged from the conditions being too open. The regulations only tighten listed companies on disclosure of information, issuance results, etc. while the decree is very open to joint stock companies (JSCs) or limited liability companies.
For example: if joint stock companies want to issue bonds, they only need to operate for a year, and if the at the end of the 90-day financial year, there has been no financial statement or no financial statement has been audited, only the audited financial statement of the preceding fiscal year is enough for the issuance conditions to be met.
Joint stock companies only need the administrative council to pass the issuance plan to sell bonds. They only need the approval of the General Meeting of Shareholders if they want to sell convertible bonds with warrants. If they are public companies, they need to register with the National Stock Committee to issue their bonds with warrants. Public companies need to prepare the bonds issuance file, present their purposes, and how to make use of the capital more tightly. After that, they also have to make the regular 6-month and 1-year report on capital disbursement plan, etc.
In theory, joint stock companies, or one-member limited liability companies also need to do the same. However, in fact, they just follow their own methods. Most of the companies only prepare the file for the offer for sale, without caring about the rest.
This is also the reason why many companies listed due to overload of corporate bonds issuance, such as the Novaland or Sunshine Group case, in which they move the issuance to their unlisted subsidiaries to prevent detailed information publication.
The 163 Decree also regulates the publication of information on corporate bond issuance implemented on the website of the issuing companies and specialized information on corporate bonds at the Stock Exchange as regulated. However, as on the website of the Hanoi Stock Exchange, the publication of bond information section is for Government bonds issuance. Corporate Bonds belong to the news/news publication section with a few short line publishing information on bonds exchange of listed companies, instead of all the information regarding the corporate bond market.
It’s time to tighten the issuance of corporate bonds by making it compulsory for issuing companies to issue bonds with credit rating.
Answering on the Vneconomy recently, Deputy Director of the Department of Finance and Banking and Financial Institutions (of the Ministry of Finance) Nguyen Hoang Duong said that due to credit rating has not been compulsory for issuing companies, on the market there has been only Sai Gon Phat Thinh Rating Joint Stock Company that has registered and is qualified to provide this service.. However, in order to tighten the issuing conditions and to help unprofessional investors manage risks, the Ministry of Finance will adjust the Stock Laws, requiring companies issuing corporate bonds to perform credit rating.
This is the true measure of the reliability of corporate bonds, avoiding the race to issue valuable papers but pushing the risk completel