Wednesday , June 7 2023

Property developers call for bond maturity extension


Property companies have proposed that the maturity of their issued bonds be extended to a later date to reduce payment pressure this year.

In recent years many property developers have been issuing bonds “excessively” to fund their projects, which has caused disruptions in the financial markets that led to a decline in confidence in the property sector, Nguyen Quoc Hiep, chairman of property developer GP Investment, said at a meeting Friday.

The meeting, hosted online by Prime Minister Pham Minh Chinh, was called to resolve the urgent issues that are plaguing the property sector, and bonds were among the topics discussed.

By the end of last year, the outstanding value of corporate bonds was around VND2,000 trillion ($83.98 billion), in which property developers accounted for 30%.

The large bond issuance poses risks to companies that have to pay back investors this year. The estimated redemption value of corporate bonds is nearly VND273 trillion, mostly in the second and third quarter, according to brokerage VNDirect.

More than 37.6% of that figure is accounted for by property developers, with the biggest amounts attributed to Novaland, Saigon Glory and An Khang.

Hiep proposed that the maturity of these bonds be extended so that issuers can have more time to arrange their payments.

He also proposed that debt trading companies such as DTC and VAMC be allowed to purchase property projects which have firm legal foundations to help ease payment pressure for companies that are unable to pay their debts.

Can Van Luc, chief economist of lender BIDV, said that the Ministry of Finance and the Ministry of Construction can issue guidelines on “trading bonds for properties” to help cool down the market, which is a solution that China has implemented well.

Data from the State Bank of Vietnam (SBV) shows that banks bought VND117.02 trillion worth of bonds issued by property developers as of the end of last year, accounting for 48.5% of total bond investment.

The central bank said in a report that recent difficulties on the property market were not caused by credit policies as it has not tightened loans to the sector. The problems lie in the property sector itself, the bank said.

“Property developers issued bonds with a lack of cashflow management and low issuance criteria,” SBV said. “Consequently, they fell into trouble when there were challenges in the market.”

Property developers are now waiting for changes to be made in a decree on bond issuance, which is expected to help them raise money from individual investors.

Hiep warned that the changes need to include a term to limit companies with small equity from issuing large amounts of bonds, and that the responsibilities of the issuer and the consultancy should be stated clearly to avoid fraud.

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