Property companies bond issuances surge by 41%

Bond issuances topped VND311.2 trillion, and were mostly private placements, according to the Vietnam Bond Market Association (VBMA), which seeks to protect investors in the bond market.

The banking sector accounted for VND176 trillion, followed by property.

For the latter, issuances were lower than in 2020-21, when the market was booming, but 20% higher than in 2019, the year before the Covid-19 pandemic hit.

The single largest issuance, by developer Luxury Living, was worth VND4.8 trillion.

Most property firms offered 12% interest, though some offered even more. The highest was 14% by Vinam Land, a company based in Phu Yen Province, and social housing developer Thuan Thanh, according to the VBMA.

Property developers were mostly inactive in the bond market in the first half of 2023, with some months seeing no new issuances at all, and only stirred when new regulations took effect allowing them to negotiate bond rollovers and repayment methods with investors.

But, considering the property market slump, it was apparent that most companies issued bonds to refinance existing debts rather than for business operations, analysts at securities firm DSC said.

The bond market, an excellent source of capital for medium- and long-term projects, had a rough year in the wake of the Van Thinh Phat scandal, in which the property developer’s chairwoman Truong My Lan and her associates were arrested in October 2022 for fraud related to the issuance of bonds worth trillions of dong.

According to credit rating agency VIS Rating, companies in the property sector have poor financial health, indicated by their high leverage ratios and low cash reserves.

The debt-to-EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) ratio for property firms that had issued bonds in the first nine months of 2023 was 10.2, the highest of any sector.

But the agency expected real estate businesses to improve their debt repayment capabilities this year as their business recovers, generating cash flows and allowing them to access new finance sources.

Consequently, new issuances will come with fewer risks and bad debts will ease in the banking system starting in 2024, according to VIS Rating.