Analysts call for restoring investors' trust after bond frauds

The economy was expected to bounce back in 2022 from the Covid-19 woes of the previous two years, but businesses are unable to access resources to achieve a recovery.

The corporate bond market, which was a key cash mobilization channel for companies in recent years, has come to grief this year with issuance in the first nine months plummeting by 43% year-on-year to VND248 trillion (US$10.03 billion).

But the recent arrests of major property industry executives for issuance-related wrongdoing have persuaded companies to redeem their bonds prematurely.

They bought back VND135 trillion worth of bonds, meaning the net issuance for the year is just over VND100 trillion as against VND700 trillion of last year total.

Property developers have been struggling to fund their projects as a result after being heavily reliant on bond issuances in previous years.

With banks running out of credit quotas, they are unable to lend much-needed cash to developers or even manufacturers.

Nguyen The Minh, director of analysis at Yuanta Securities, said: "Manufacturers have to withdraw money from banks to cover expenses, which in turn makes it difficult for banks to give out more loans. It’s a vicious circle."

All three main cash mobilizing channels for businesses, stocks, bonds and bank credit, are sluggish this year, he said.

Some businesses have to redeem maturing bonds soon, but do not have enough time to raise the required money, he warned.

"Selling property takes time. It is not as quick as selling shares in the stock market."

While some analysts called on banks to help out property developers, Le Duy Binh, CEO of consultancy Economica Vietnam, warned that other industries would have difficulty accessing capital if the sector is prioritized.

The bigger goal should be reestablishing public trust in the markets, he said.

Many bank depositors have been complaining in recent times that they were "tricked" by bank employees into buying bonds after they had thought they were only depositing their money in the bank.

Binh said companies need to come clean about their current financial difficulties to shareholders and investors.

Minh said if investors are assured they would get all their money back, trust in the market would return.

"Corporates therefore need to ensure that they pay the bonds that mature."

Minister of Finance Ho Duc Phoc has said: "Companies need to maintain their trustworthiness with bond investors at all costs" even if it means selling off assets to raise the money.