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Risk warnings on renewable energy corporate bonds in Vietnam

Risk warnings on renewable energy corporate bonds in Vietnam

Saturday 15, 01 2022
Despite having mobilized trillions of dong from corporate bonds with high interest rates, Vietnam’s renewable energy industry is believed to have a lot of potential risks. Many people think that renewable energy bonds are in danger of making the same mistakes as traffic enterprises in BOT projects many years ago.

According to statistics from the Vietnam Bond Association and securities companies, in the first nine months of 2021, energy businesses mobilized nearly 22,000 billion VND through corporate bonds.

By the fourth quarter, the number of issued bonds of renewable energy companies, although somewhat slowed down, still maintained their growth momentum. This wave is forecasted to continue to explode in the coming time when many renewable energy projects are still under construction.

Capital mobilization through corporate bond increased sharply

Information on the HNX shows that in the second half of December 2021, Hoan Cau Solar LA Company successfully mobilized 1,100 billion VND of 5-year bonds. This enterprise is developing the Solar Park 5 solar power plant project, phase 1, with a total capacity of 625MWp and an area of 500ha.

Hoan Cau Solar LA Company

This plant belongs to the Solar Park project, located in Duc Hue district, Long An province, including 12 factories with a capacity of 1600 MWP on an area of 1000 ha. This project has been completed and put factories 1, 2, 3, 4 into operation.

Previously, Construction Trading Joint Stock Company (Vietracimex) successfully issued 1,070 billion VND of bonds in September 2021. The mobilized capital was used by Vietracimex to finance the investment cooperation plan (BCC) with Ca Mau 1A Energy Company, Ca Mau 1B Energy Company to implement the Ca Mau 1A, 1B wind power plant project.

This is a component plant of Ca Mau Wind Power Project 1 - phase 1 with a total investment of over 10,000 billion VND by Vietracimex with a capacity of 350 MW, including 4 plants 1A, 1B, 1C and 1D.

Another large enterprise in the energy sector was also approved to issue 500 billion VND of non-convertible bonds, without warrants or collateral. The purpose of this bond issuance is to raise additional working capital to finance ongoing wind power projects in Tra Vinh and Soc Trang.

Previously, a large enterprise mobilized 9,500 billion VND via bond channel in just 9 months of 2021. The purpose of the bond offering is to deploy other renewable energy projects and supplement working capital for business operations. Last year, this business and its member units mobilized about 13,000 billion VND, most of which was poured into renewable energy projects in Ninh Thuan.

Similarly, Gia Lai Power Company has recently successfully raised 700 billion VND in bonds. In September 2021, Bac Phuong Wind Power Company and VKT - Hoa An Solar Power Company mobilized hundreds of billions of VND in bonds from a credit institution to invest in renewable energy projects in the South.  

Gia Lai Power Company

Most of these businesses offer interest rates which are both fixed and floating, ranging from 9-11%/year. In fact, the amount of bonds issued by renewable energy businesses is not inferior to that of real estate businesses, all of which are in a state of "thirst for capital".

Risk of breaking the financial plan

In fact, there are still a lot of investment opportunities in Vietnam’s energy sector when the Government aims to cut down on polluting power sources.

Besides, according to the draft Power Plan VIII by the Ministry of Industry and Trade, the contribution of renewable energy sources in the total capacity of the power system will increase sharply in the future, accounting for 40.6% of total capacity of the power system by 2045. In particular, wind power and solar power will be the main driving forces, while biomass power and small hydroelectricity (under 30MW capacity) will account for a negligible proportion.

The main point of view in the draft Power Master Plan VIII is to reduce coal power and strongly encourage the development of renewable energy and new energy. In particular, offshore wind power plays an important role and will be prioritized in the coming period.

This is an opportunity for domestic and foreign private investors to participate in the energy sector, which was previously mainly invested by state-owned enterprises.

According to Assoc. Prof. Dr. Dinh Trong Thinh, currently, in order to realize the goal of abolishing coal-fired power and fossil energy, renewable energy enterprises are in dire need of capital to develop new projects. While self-capital is limited and the ability to mobilize from credit institutions is limited, the massive bond issuance in recent years is understandable.

However, similar to real estate corporate bonds, renewable energy projects also have many potential risks, especially those without payment guarantees. A payment guarantee is an intermediary that stands to receive payment on behalf of the issuer if the issuer is unable to pay.

financial failure

There are also many concerns about the risk of financial failure of projects when a lot of solar power projects are now in a dilemma. If deployed, they will continue to suffer from losses and still cannot be sold because many projects do not have power transmission lines (especially projects in Ninh Thuan, Binh Thuan).

Even wind energy projects that are supposed to have more policy incentives are facing many difficulties, and the time to recover capital is relatively long.

It takes decades for a renewable energy project to enter the production cycle to make a profit, while corporate bonds are only issued in 5 years at most.

There are even concerns that, with the current growth rate, renewable energy bonds will likely make the same mistakes as traffic enterprises in BOT projects many years ago.

Source: theleader

Compiled by VietnamCredit



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