Pending for guidance from management agencies

The State Securities Commission has just announced the cancellation of 9 bond offerings from July 2021 to March 2022 with a total value of VND 10,030 billion of companies under Tan Hoang Minh Group including Viet Star Co. Ltd, Winter Palace Jsc and Soleil Investment Jsc. According to information published on the corporate bond portal, the bonds of the above enterprises are all secured by land use rights with valuation certificates or by stock collateral with the value according to the valuation certificate with a value of 130% - 200% of the value of the mobilization sessions.

However, experts of VCBS Securities Company noted that these are mostly unlisted enterprises, so the ability to liquidate collateral assets will be less feasible and take a long time in the recovery process.

Approx VND 189.000 billion by the end of 2021, of which 73% will mature in the period 2022-2024

In fact, most of the bond lots have been distributed to individual investors with flexible value and maturities packages. Along with that, out of 8 bond lots that have been disclosed, 2 lots have completed the first interest payment period for bondholders. This has many potential complications in the process of canceling the bond issuance of these enterprises.

Therefore, according to VCBS, more time is needed to wait for the guiding documents of the management agencies for the settlement direction for bondholders. In case the management agencies can coordinate with Tan Hoang Minh to properly settle the interests of bondholders being organizations and individuals, the extent of damage will be limited to a narrow scope. On the contrary, if Tan Hoang Minh defaults or goes bankrupt, then the financial market as well as the banks involved in granting credit to Tan Hoang Minh will suffer stronger spillover effects.

On the banks' side, the direct impact of the cancellation of Tan Hoang Minh's bond issuance results is not strong. As a bond buyer, according to available information, credit institutions have participated in buying at least 3 bond issuances of Tan Hoang Minh group, however, the size of VND 3 trillion of bonds of 3 above and VND 10,000 billion of bonds of all 9 issuances is still a low proportion compared to the total credit of the whole banking system.

How to avoid chain collapse?

In an assessment report on the impacts of recent policies to correct the corporate bond market, FiinRatings - Vietnam's credit rating company expressed concern about bonds due in the next 2-3 years repayment pressure. The scale of corporate bond outstanding in the real estate industry is about VND 189 trillion at the end of 2021 and FiinRatings data shows that 73% of this value will have a maturity point in the next 3 years (2022 - 2024). This not only creates greater debt repayment pressure of real estate businesses in the context of gradually recovering from the Covid-19 pandemic and legal changes, along with recent events that have an impact on liquidity risk of distribution agents with commitments to buy back bonds, namely financial institutions such as securities companies and banks.

In addition, this debt repayment pressure can affect the risk of the stock market because stocks are pledged as collateral assets for bonds or pledged to buy low-quality or problem bonds as indicated by the regulatory authorities.

In credit market practice, when a business is late in paying the principal or interest on a loan to this investor, a cross default clause can often be activated, i.e. a repayment clause can be pre-maturely triggered with other creditors. This will be highly applicable to the terms of credit contracts (borrows or bonds) of enterprises mobilized from foreign financial institutions.

Data from FiinRatings shows that the outstanding balance of foreign currency loans, including bonds of only listed Vietnamese real estate companies, is currently at about 4 billion USD. This is a small number considering the credit size of the real estate industry (about 7% of the total credit balance – excluding 12.79% of the credit balance for homebuyers) as well as the hazard for national financial safety. Accordingly, the localization of units that are found to be infringing and related issues to ensure the interests of individual investors will also help avoid creating negative impacts that bring a "domino" effect to the environment. Not only are issuers implementing, complying well and transparently, even weak issuers with high risks are proactively transparent about information. This also avoids negative effects on bank credit and spillover effects to the stock market like what happened when tough measures “three red lines” were applied with real estate developers in China.