Association proposes credits for real estate firms to pay for maturing bonds

HoREA Le Hoang Chau said the move is expected to help bolster investor confidence in the market as many real estate firms have failed to make bond principal and interest payments on time.

“A credit package worth up to 70% of the value of the issued bond batch should be disbursed directly to bondholders,” he said.

For the other 30% of the bond batch value, the association has proposed issuers negotiate with bondholders on a bond payment extension under a recently issued Government decree, he added.

“Decree 08, aimed at removing difficulties for the corporate bond market, is not effective enough to regain investor confidence in the market,” according to Chau.

The decree, which allows issuers to extend bond terms by up to two years, only helps prevent the market from collapsing but it does not actually protect the rights and benefits of bondholders, experts said.

The controversial proposal comes at a time when the State Bank of Vietnam (SBV) has tightened credit into risky sectors, such as real estate, to ensure capital flows into priority fields, such as manufacturing.

The SBV has recently inspected commercial banks to ensure they are in line with the Government’s requirements related to monetary policies and the restructuring of bad debts.

According to data from the SBV, credit to the real estate sector was worth 2.58 quadrillion VND (109 billion USD) as of the end of 2022, up 24.3% year-on-year and accounting for 21.2% of the entire economy’s total outstanding credit.

The corporate bond market boomed in 2020 and 2021, with an issuance volume of 462 trillion VND and 658 trillion VND, respectively, according to the Vietnam Bond Market Association.

However, following arrests and investigations related to the bond issuance and improper use of capital by several major real estate developers last year, the market has suddenly become frozen.

Aggressive bond issuance for the past few years has caused huge pressure on issuers, mostly property developers, as they are now facing serious liquidity crises and cannot issue new bonds to restructure debts.

VNDirect Securities Corporation estimates the maturity value of corporate bonds this year at nearly 273 trillion VND, mainly in the second and third quarters.

Many issuers have constantly violated their obligations to pay principal and interest while a number of individual bond investors are looking to sell bonds at a 14-17% discount to get cash back.

Despite the stagnant corporate bond market, it has potential to grow due to high capital demand from businesses, experts have said.

They have, however, pointed out that investor confidence will not return unless the Government addresses all the problems they face and safeguard their rights.

In a related issue, the city government has ordered the Department of Construction to continue working with relevant agencies to remove challenges facing 156 real estate projects in the city, mostly legal bottlenecks, a demand also made by HoREA.

Bui Xuan Cuong, deputy chairman of the People’s Committee, has instructed the department and relevant agencies to work with HoREA and real estate developers on this issue and report back to the city authorities by April 15.