(Bloomberg) -- Vietnam is seeking to expand the nation’s corporate bond market as it grapples with a credit crunch for a real-estate sector hurt by a handful of highly-leveraged companies, according to Finance Minister Ho Duc Phoc.
The government does not see a wider impact beyond the select firms that have engaged in bad or illegal practices, he told Bloomberg News in Hanoi on Tuesday. It’s working to ease access to capital for property developers given the market rout and enable easier access to funding for years to come.
“Those companies in financial trouble are the ones that expanded too much and beyond their capacity, such as building dozens of projects at the same time and exceeding their financial abilities,” he said. “Now as the central bank tightens credit limits to fight inflation, these companies are facing liquidity problems and hurting their investors’ confidence.”
By 2030, Vietnam is aiming to grow corporate bond volumes to 25% of gross domestic product from about 11% currently, he added. The outstanding corporate bonds market is worth about 1,200 trillion dong ($48.3 billion).
Among other points mentioned, Phoc said the government wants to:
- Speed up the process for developers to get legal rights to develop land
- Work with the central bank to decrease borrowing costs for companies and help with restructuring debt payments
- Boost investor confidence following recent anti-graft measures
- Ensure bond issuers are offering buyers accurate information and repay the bond on time when it dues to build up investors’ trust
The statements come amid the government’s sweeping regulatory probe on corruption in the corporate bond market that’s landed heavily on Vietnam’s real estate developers. Property firms are now faced with a funding crunch, along with higher rates and warnings by the central bank against risky real estate loans, sending investors fleeing.
The broad anti-corruption crackdown may also have large implications for one of Southeast Asia’s fastest growing economies, home to some of the largest suppliers of conglomerates like Apple Inc. and Samsung Electronics Co.
Slumping Markets
Vietnam’s corporate bond sales and volumes tumbled this year, with sales through private placements falling by 51% to 240.76 trillion dong through October, according to the Vietnam Bond Market Association. That represents 96% of the total corporate bond sales, it added, citing exchange and securities data. The benchmark VN Index has slid 36%, driven by property and bank firms, to become the world’s worst-performing major gauge.
Concerns are now growing that the real estate market is at risk of a severe downturn that could be a drag on the broader economy. In response, the government appointed a team of ministerial-level officials to address the property sector’s credit crunch.
A turnaround may be coming. Prime Minister Pham Minh Chinh has said he wants to make it easier for property companies to access funds, issue bonds and obtain permits to sell projects, which in the process will restore confidence, said Phoc.
Among other changes, officials are also looking to make the process of changing construction permits easier and faster while giving developers more flexibility to change schedules to reflect market opportunities. That would include shifting from a planned office development to building an apartment complex and more affordable housing, he said.
But to convince the market that the guideline changes will help deliver this vision of a more streamlined system, the government must first ease investor concern, which he said has been hurt by recent speculation.
“The stock market has recently been hurt by a lost of investors’ confidence and rumors so we will give more information in official channels and must take measures to boost companies’ operations,” Phoc said, without providing details. The finance ministry is meeting with banks and companies to discuss solutions to stem the rout on Wednesday.
--With assistance from Clarissa Batino and Catherine Bosley.
©2022 Bloomberg L.P.
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