Risks from issuing ‘many zero’ bonds

Bond 4 “no”

Many regulatory changes in 2022 could have a big impact on the market, but corporate bonds are still growing strongly. The most worrying is the “nothing” bond, including non-convertible, not accompanied by warrants, without collateral, and without credit rating, which is being used by many businesses to raise capital.

For example, VsetGroup Group Joint Stock Company operates in the fields of warehouse leasing, auto repair, construction, landscaping, ornamental plants, photography, entertainment, selling electronic equipment, restaurants, etc. In order to have working capital for production and business, VsetGroup conducted dozens of bond offerings but failed to provide documents and records related to the use of proceeds from the bond offering. Notably, VsetGroup’s bonds are issued without collateral.

The inspection results of the State Securities Commission showed that VsetGroup’s bond offering activities showed signs of abnormality and potential risks for investors. Specifically, VsetGroup has signed more than 670 bond trading contracts with a total value of more than 200 billion dong. However, the company did not monitor, record and present in the financial statements the proceeds from the bond offering, bond interest payment, bond loan principal repayment. Proceeds from the bond offering are withdrawn from the company’s accounts by individuals and are not fully funded, and are not tracked in the accounting records.

The State Securities Commission confirmed that VsetGroup had conduct of offering securities to the public through the mass media and to unidentified investors but did not submit registration documents, violating regulations. in Article 13 of the 2006 Law on Securities and Article 16 of the Law on Securities in 2019. Currently, the State Securities Commission is coordinating with the Police Department to investigate crimes of economic corruption and smuggling under the Ministry of Public Security for consideration. handling the case VsetGroup issued more than 670 bond trading contracts with the value of more than 200 billion dong.

Similarly, Eagle Side Investment and Development JSC has just issued a bond lot worth VND3,930 billion. Eagle Side was established in June 2017 operating in the fields of consulting, brokerage, real estate auction, land use right auction… In 4 years of operation (2017-2020), revenue of Eagle Side at 0 dong, making the company always in a state of loss.

IPA Investment Group Joint Stock Company has issued VND 1,000 billion of 3-year bonds, maturing in 2025. This is a non-convertible bond, without warrants, without collateral and not a secondary debt of the business. Fixed interest rate of 9.5%/year, paid periodically every 12 months. All proceeds will be used to supplement capital to carry out investment projects and other activities of the enterprise. The unit that arranges for IPA Investment Group Joint Stock Company to issue bonds is VNDirect Securities Company, chaired by Ms. Pham Minh Huong. Ms. Huong is the wife of Mr. Vu Hien, Chairman of the Board of Directors of IPA Investment Group Joint Stock Company

Meanwhile, recently established with a charter capital of 300 billion VND, but Sunshine Group Joint Stock Company increased capital rapidly, up to 8,500 billion VND. According to data from the Hanoi Stock Exchange (HNX), from the beginning of 2019 to October 2021, the outstanding bond debt of Sunshine Group and related companies is 22,350 billion VND.

According to the latest data from the Vietnam Bond Market Association (VBMA), in the first 2 months of 2022, the market recorded 8 rounds of corporate bond issuance to the public with a total value of VND 5,509 billion and 26 rounds of corporate bond issuance to the public. privately issued with a total value of 22,185 billion dong. Compared to the same period last year, the total value of bonds issued to the public increased by 31% and the total value of private bond issuance increased by 51%.

Early warning

In the report “Vietnam corporate bonds”, research firm FiinGroup warned, more than 80% of the value of corporate bonds of the real estate industry belongs to unlisted enterprises. These businesses have poor financial health and are very alarming. This is reflected in the level of financial leverage (equity debt) currently at up to 8.1x while listed companies are only at 2.5x. The debt repayment capacity of unlisted real estate issuers is currently very weak. The loan repayment capacity and leverage indicators are at alarming levels.

The bond market report of SSI Securities Company shows that, in 2021, businesses have issued bonds to mobilize a total of VND 722,700 billion, an increase of 56% compared to 2020. The corporate bond market has increased growing rapidly, with a scale from 4.9% of GDP in 2017, up to 16.6% of GDP in 2021. Real estate businesses are still the largest issuer group.

In 2022, the number of mature corporate bonds is about VND 266,000 billion, up 39% compared to 2020 and accounting for about 19% of the outstanding corporate bonds. Meanwhile, the COVID-19 epidemic caused many businesses to face difficulties, and cash flow was depleted, affecting the plan to pay principal and interest on bonds.

According to Duy Quang