The majority of enterprises would contact commercial banks when they need capital to develop investment projects. They do not think of issuing corporate bonds to raise funds, even though it is very difficult to access bank loans at this moment, while the lending interest rates are overly high.
According to the Saigon Securities Incorporate SSI, only 30 enterprises have registered to issue corporate bonds in 2011, with the bond values much lower than that of 2010.
Only 10 enterprises issued corporate bonds in the first four months of the year, which helped raise only 4000 trillion dong worth of capital for enterprises, though enterprises had to pay the high interest rates of 13.5-15.5 percent per annum.
According to the Asian Development Bank ADB, by the end of 2010, the total value of bonds in Vietnam, including government bonds, local authorities’ bonds, the bonds guaranteed by the government and corporate bonds, had reached 15.3 billion dollars only. Meanwhile, the value of issued corporate bonds was 1.5 billion dollars, the lowest level among regional countries.
According to the Vietnam Bond Market Association (VBMA), in 2010, enterprises could mobilize 45,500 billion dong from 45 bond issues. The figures were 39 bond issues and 30 trillion dong in 2009.
VBMA’s Secretary General, Do Ngoc Quynh has noted that previously, only big and well-known enterprises with strong financial capability, dared to seek capital from bond issue. However, things have been different since 2007 which witnessed the considerable increase in the number of enterprises issuing bonds and the bond issue scale.
Especially, according to Quynh, it is a growing tendency that the bond issues have been moving from state owned enterprises to the non-state economic sector.
Experts all agree that the bond market in general and the corporate bond market in particular, have great potentials to develop. However, Vu Tien Loc, Chair of the Vietnam Chamber of Commerce and Industry VCCI has pointed out that up to 75 percent of businesses still try to seek capital from bank loans every time when they need capital, even though not all enterprises can borrow capital from banks, and they have to pay very high interest rates for the loans.
“It seems that very few enterprises think of seeking capital from non-bank sources, such as share issues, finance leasing or corporate bond issues,” Loc noted.
It is clear that mobilizing capital through issuing bonds has many great advantages. This allows enterprises to use mobilized capital in a flexible way for a long term. Enterprises can also use capital right after the bond issues, while they do not have to pay principals and interests periodically. Besides, it is less costly to issue corporate bonds than to issue shares or borrow money from banks.
Loc from VCCI said that the enterprises which issue corporate bonds to mobilize capital can enjoy tax incentives on the borrowed capital which allows them to reduce the capital costs. Especially if issuing convertible bonds, enterprises will have to pay very low interest rates, or do not have to pay interests.
However, enterprises still keep indifferent to issuing corporate bonds, while they have been relying totally on bank loans. The enterprises, which successfully issued bonds, were mostly the state owned big economic groups, listed companies and the companies which had attractive investment projects.
Why don’t enterprises want to issue bonds, despite the great potentials? It is because they cannot meet the requirements to issue bonds. According to Loc, many enterprises are still bad at management capability. They have backward production technologies, lack a qualified labor force, do not have high prestige to mobilize capital. Especially if they do not have experience in keeping the accounts in a transparency; while transparency of accounts and enterprise prestige are the two most important factors which ensure successful bond issues.