Recently, the Ministry of Finance must continuously send warning notices. And now, Decree 81/2020 / ND-CP was born, since the beginning of September 2020, corporate bond issuance activities are clearly regulated and more strictly controlled.
Open market “3 no”
For a long time, the corporate bond market was like an open market with “3 no”: no collaterals, no credit rating, no underwriting unit. Because open, businesses, especially real estate businesses, take advantage of this tool to raise capital. Many businesses launch interest rates twice as high as bank interest rates to attract individual investors.
While individual investors often do not grasp the regulations, do not understand the “internal situation, health” of businesses, but only see the high return on investment. For a long time, bank staff also cooperated in consulting to let customers have idle money to transfer to enterprise bond investment, although the Ministry of Finance has issued many warning warnings in investment in corporate bonds.
According to data of the Hanoi Stock Exchange, the separate volume of corporate bond issuance in May 2020 was over VND 27,000 billion; The total volume of individual corporate bonds issued in the first 5 months of 2020 was VND 91,600 billion, an increase of 15% compared to the same period in 2019. Generally, from the end of 2018, when Decree 163/2018 / ND-CP ( regulations on corporate bond issuance) came into effect, so did the corporate bond market soared.
Market capitalization in 2018 was only equal to 9% of GDP, by the end of 2019 it was 10.85% of GDP (equivalent to VND 640,000 billion), in which the volume of corporate bonds issued by individuals accounted for half, reaching over VND 332,000 billion. In the first 6 months of 2020, there were 130 enterprises offering bonds, mobilizing a total of 156,300 billion dong (with 818 issues).
On average, the corporate bond market increases by about 45% per year. In particular, real estate businesses increase capital mobilization by issuing bonds. Securities companies, commercial banks, real estate companies often distribute bonds targeting individual investors.
The Ministry of Finance has repeatedly sent written recommendations to enterprises to formulate plans to issue bonds to be feasible and ensure the ability to repay debts; We recommend investors to buy bonds only when they are fully aware of bond information and carefully consider possible risks. Bonds should not be purchased only because of high interest rates, because there is a possibility that the bond investment (including both principal and interest) may not be recovered if issuing businesses face difficulties.
Control debt bubble risk
Decree 81/2020 / ND-CP amending and supplementing a number of articles of Decree 163/2018 / ND-CP will take effect from the beginning of September 2020, under which new regulations will control risks of debt bubble of bond issuing businesses.
Specifically, the situation of businesses issuing bonds with a volume of many times larger than equity (in some cases 10 to 50 times of equity) will be controlled by the regulation of limiting the issuance scale individual bonds in accordance with the capital size of the business. That is, force businesses to meet financial safety ratios, safety assurance ratios in their operations in accordance with specialized laws.
The volume of bonds to be issued must ensure that the outstanding bonds individually issued at the time of issuance do not exceed 3 times the equity according to the latest quarterly financial statements. Outstanding bonds (including the expected issuance volume) and individual outstanding bonds not exceeding 5 times of equity (not applicable to credit institutions).
This will cause issuing businesses to calculate more carefully in the use of financial leverage, thereby orienting cash flow into actual business and production activities, avoiding the situation that the capital is used for wrong purposes. There should be potential risks for the market.
Another fact is that in 2019, there will be 16 enterprises issuing bonds from 10 times or more, including enterprises that split up and issue more than 50 times, in order to increase mobilization from individual and small investors. To limit this situation, Decree 81/2020 stipulates a reduction in the number of bonds issued, each issuance must be separated by a minimum of 6 months (each batch lasts no more than 3 months from the date of information disclosure). .
And in order to use the capital for the right purpose, the supplement decree stipulates that enterprises must specify the purpose of issuing bonds in the issuance dossier (for credit institutions, they must specify the issue to increase Tier 2 capital used for lending, investment or other uses.)
This will help investors know the purpose of issuance of businesses, to consider and choose when investing and can control and monitor their investment cash flow. At the same time, this provision also limits the situation that businesses issue bonds to reverse debts, or investors hold each other’s bonds in order to meet operational standards but not for investment or capital calling purposes.
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