Worry about bad debt bonds
Vietnam's corporate bond market has recently begun to recover positively with a sharp increase in issuance and improved market sentiment.
However, there are still difficulties and backlogs, especially bond debts and overdue bonds that need to be promoted to be resolved to clear the capital flow. In fact, in the past two years, many businesses have continuously postponed payment obligations, including overdue bond debts due to the inability to arrange cash flow. Notably, many issuers have high bond debt with a negative financial picture such as SDI Corp, Saigon Glory, Hung Thinh Land, Hung Thinh Quy Nhon, etc.
Maturity pressure is always an existing risk for the corporate bond market when the amount of bonds maturing in the fourth quarter of 2024 and 2025 is still high, in which bonds of real estate enterprises have a much higher risk of overdue and potential bad debt than the market average.
According to VIS Rating's estimates, in 2024, about VND40,000 billion of high-risk bonds will come from 35 issuers, mostly real estate and construction enterprises. These enterprises have low debt repayment capacity, reflected in a very high debt/equity ratio, insufficient cash resources/maturity bond value, and low profit margins before tax, depreciation and interest compared to other issuers.
In the next 12 months, about 20% of the total value of VND259,000 billion of bonds will mature with a high risk of late payment; 90% of them have been late in paying bond interest at least once and businesses have high leverage ratios and low cash resources, especially real estate businesses.
Notably, Decree 08/2023/ND-BTC of the Government allows businesses to extend or postpone debt repayment for 2 years; by 2025, many bond lots will no longer have the extension or postponement of debt repayment, so experts are concerned that the amount of bonds with delayed principal and interest payments may increase again from the second half of 2025 and continue to increase in 2026.
How to handle bad debt bonds?
Dr. Can Van Luc - Economic expert said that basically, 60% of enterprises have extended their 2-year term, enterprises proactively buy back bonds according to the issuance conditions and start issuing again to reduce capital pressure. In addition, the real estate market is warming up, enterprises are willing to sell assets to set aside a portion to pay off debts.
Therefore, Dr. Can Van Luc assessed that the phenomenon of bond default is unlikely to occur because the most difficult time has passed, and there are many synchronous solutions to solve it. In fact, when offering products for sale, real estate businesses do not need to discount 40 - 50% like before, discounting about 10% is enough to sell.
Besides, in handling bad debt of corporate bonds, experts said that removing legal obstacles for real estate projects plays a leading role, from which banks can disburse capital so that projects can be implemented on schedule.
Accordingly, Mr. Nguyen Quang Thuan - General Director of FiinRatings proposed to remove the legal issues of real estate. When this issue is resolved, the corporate bond debt can be handled in about 2-3 years. Because the largest source of money for real estate enterprises is not bank loans or bonds, but money from customers. From this perspective, Mr. Thuan believes that, in addition to supporting the rescue of corporate bonds, the solution to recover the real estate market is also very important.
“The Government’s policy is to encourage the mid- and low-end housing segment. Therefore, we need to prioritize removing and developing this segment, thereby opening up capital flows for businesses to recover. This is an indirect way to remove obstacles, so that the capital market can make a soft landing and begin to go deeper. We should not only focus on rescuing bonds, but the most important thing is to remove legal barriers to real estate. Then, handling overdue debt will become very easy,” Mr. Thuan emphasized.
