Minister of Finance Ho Duc Phoc told the local media about the Government’s determination to provide a favorable legal environment for a safe, sustainable, and transparent corporate bond market.
|Minister of Finance Ho Duc Phoc.|
What is your assessment of the current state of the local corporate bond market?
Vietnam’s corporate bond market has been operating for a long period but has only seen major improvements in the past five years. To date, the market is considered an effective mid- and long-term capital mobilization channel for enterprises and helps reduce the economy’s dependence on the mid-and long-term capital of the banks’ credit.
However, the development pace of the corporate bond market remains lower than expected, with total outstanding loans of the market at 15% of the GDP, including corporate bonds via private placement at VND1,204 trillion (US$48.4 billion), or 12.8% of the GDP.
Under Vietnam’s finance development strategy until 2030, the Government set the goal for total outstanding loans in the corporate bond market to reach at least 20% of the GDP by 2025, and 25% by 2030.
Even then, Vietnam remains far behind regional countries with developed corporate bond markets, such as Malaysia (56% of the GDP), Singapore (38% of the GDP), and Thailand (25% of the GDP).
From my point of view, however, the local corporate bond market has seen encouraging development over the recent years, as Vietnam has put in place a legal framework to support market expansion and businesses to mobilize capital for operation.
Its rapid development amid a volatile economic environment due to the Covid-19 pandemic and other global uncertainties, nevertheless, has exposed certain shortcomings that should be properly addressed to ensure sustainability in the future.
What are the major issues of the market so far?
The Government remains firm on the view that the development of the corporate bond market is essential to create a diversified financial platform for businesses to mobilize capital in the mid-and long term.
But in reality, the local market has only in the early stage of development, and would inevitably face a bumpy road ahead. Violations from certain individuals and organizations in the corporate bond market are lessons for us to improve, but not widespread. As such, the Government would need some adjustments to ensure the market’s healthy development.
I think for any market, besides the state governance via legal framework, supervision activities, and disciplinary measures, the most important thing is the awareness and law compliance of market participants.
Regulations on private placement of corporate bonds under the Law on Securities are more open toward international standards, for which the main responsibilities lie on each bond issuer. The quality of the market, therefore, is largely dependent on the behaviors of market participants.
The key principle is that bond issuers are fully responsible for their activities, and transactions are made purely based on trust. Recent statistics show banks and real estate firms make up 71% of the total volume of bond issuance. So the main point is that bond issuers have to comply with legal requirements and ensure transparency in every process.
Meanwhile, investors should be aware of legal issues related to bonds that they plan to purchase to protect themselves from any potential risk.
Part of the responsibility is also on intermediary agencies responsible for providing the bond issuance services. In the coming time, the Government would intensify supervision activities to deal with violations in the market.
What do you think about the suggestion on tightening the private placement of corporate bonds?
The development of the corporate bond market in the past years was mainly thanks to private placement activities. As the majority of companies turn to this method due to its simpler procedures compared to public listing.
The Government would continue to encourage the private placement of corporate bonds as long as bond issuers continue to comply with regulations and are responsible for their bonds.
In the coming time, the Government would further simplify procedures and support companies in public listing for companies to have different options.
At present, the Hanoi Stock Exchange (HNX) is responsible for managing bonds and derivative markets. Its main responsibility is to hold auctions for stocks under the privatization scheme of state-owned enterprises and aims to continue developing the bond market as a main capital mobilization channel for the state coffers.
In the future, the Government expects the HNX to improve efficiency in both the Government and corporate bond market, at the same time improving the liquidity for the secondary market and supporting the operation of the primary one.