Corporate bond trading platform to be new growth driver

The platform, officially launched on July 19 and under the management of the Hanoi Stock Exchange (HNX), is designed to oversee the trading of over 1,600 individual corporate bond tickers.  

Delegates at the platform launching ceremony. Photo: Minh Phuong

As per the trading regulations, trading of individual corporate bonds on HNX’s system is conducted through individual corporate bond trading members, which are securities companies. The individual corporate bond trading system exclusively accepts trading orders from those firms.

In the secondary market for private corporate bonds, transactions are carried out on an agreement-based mechanism. Under this arrangement, investors are required to thoroughly understand all relevant information and provide confirmation before making purchases. The settlement mechanism for these transactions is similar to that of the derivatives market, with both immediate and end-of-day settlement procedures.

On its first day of trading, the corporate bond market saw active participation with four bond codes traded by 39 investor orders. The total trading volume for the entire market exceeded five million bonds with a value of over VND1.78 trillion (US$75.3 million).

Notably, 95% of the total value was paid immediately, with the remaining 5% to be paid at the end of the trading day.

Prior to the opening of the market, data from the exchange showed that 19 ticker symbols of three enterprises had already been approved for registration and were available for trading from the very first session.

Experts see this development as a significant step forward for the market. Nguyen Quang Thuan, CEO of FiinGroup, pointed out that a single trading platform would help address major challenges in the current market.

Thuan added that the first benefit is a greater focus on ensuring information transparency, which helps investors make informed decisions and take responsibility for their investments.

Moreover, the addition of individual bonds to the platform will help solve liquidity issues when needed, while facilitating the creation of yield curves for each bond based on credit ratings, bond quality ratings and maturity.

This mechanism, according to Thuan, would solve the problem of bond valuation, which is essential for risk management, reporting and compliance with investment institutions.

"The establishment of a bond valuation tool also expands the investor base, including participation from foreign investment financial institutions," he said.

Ultimately, the centralized declaration and transaction system will lead to better identification and management of bondholder information, ensuring quick and clear protection of investors' interests, as opposed to letting bonds float freely in the market, he continued.

The corporate bond market remains a key capital source for the economy. Photo: The Hanoi Times

Channeling capital into the economy

Vietnam has set an ambitious GDP growth target of 6-6.5% for 2023. To achieve this target, the Ministry of Planning and Investment (MPI) expects the growth rate to reach 8-8.9% in the last six months of the year. This will require significant leverage to generate the necessary momentum, with capital mobilization playing a leading role.

Vietnam relies on three main channels for capital mobilization: bank credit, share capital, and bond capital. Mobilizing medium and long-term capital through commercial banks can lead to instability in the banking system, as they rely primarily on short-term deposits while providing medium and long-term loans.

Equity capital, on the other hand, can provide long-term financing, but it raises concerns about dilution of control rights for business owners, leading to more complex and challenging corporate governance.

In contrast, the bond capital channel provides a means for enterprises to access stable, medium- and long-term funding with predictable interest rates, encouraging investment in infrastructure, factories, and enterprises to drive economic development.

However, Minister of Finance Ho Duc Phuc acknowledges that the size of Vietnam's corporate bond market is still relatively modest compared to its potential and regional market correlations. The current outstanding debt of the total corporate bond market, including individual corporate bonds, is only about 13% of GDP.

Under the National Financial Development Strategy for 2030, the government aims to increase outstanding corporate bond market debt to at least 20% of GDP by 2025 and to at least 25% of GDP by 2030.

Achieving these targets will require improving the quality of the market, Phuoc said.

Given the economic difficulties and the significant impact on companies' operations, bond issuers will face considerable pressure to meet obligations related to existing bonds and raise new capital through bond issuance, he noted.

In the second half of 2022, the individual corporate bond market experienced a widespread psychological "shock" as investors witnessed the arrest of several corporate executives by the authorities. This loss of confidence, coupled with cash flow liquidity issues for troubled companies repaying bonds, intensified the riskiness of the market.

"To alleviate the burden of high traditional credit leverage and provide dedicated sources of capital for enterprises, the development of the corporate bond market became a crucial solution," Phuoc said.

However, the minister acknowledged that the launch of a trading platform is only the first step, and that much more work remains to be done. This includes building and developing a market appropriate to the level of the economy and expanding access to international markets.

Chairwoman of the State Securities Commission, Vu Thi Chan Phuong, pointed out some limitations that have emerged during the past period of growth in the corporate bond market.

Improperly issued documents by some enterprises have raised concerns about legal violations and subsequent actions by authorities. In addition, difficult production and business conditions have led to debt expansion, affecting private bond issuance and causing instability in the financial market and outstanding bond balances, Phuong said.

At a recent conference held by the Ministry of Finance, Prime Minister Pham Minh Chinh stressed the need to distinguish corporate bonds issued by commercial banks and financial institutions from other types of bonds, regardless of whether they are reputable issuers with extensive experience. In addition, the Prime Minister stressed the importance of facilitating well-functioning enterprises to raise capital through bond issuance to support economic recovery.