Is collateral the best “security” for corporate bonds?

Correct understanding of collateral

Participating in investment in the corporate bond market, collateral is a factor that is of great interest to investors. According to the analysis of FiinGroup Joint Stock Company, if the collateral is real estate and the project is built on real estate, it is necessary to know where the project is located, whether the valuation unit has a name or not.

Is collateral the best guarantee for corporate bonds?  - Photo 1.

International practice does not stipulate that the issuance of bonds must be guaranteed by assets (photo: Tuoi Tre)

Collaterals are stocks with high volatility and are highly dependent on the credit capacity of the issuer. Therefore, if the issuer has difficulty in repaying the debt, the value of the shares will also decline rapidly, affecting the value of the collateral. In reality, only institutional investors have the ability to dispose of or restructure a business, and the process is often lengthy so it doesn’t mean much in terms of guarantees for individual investors.

In addition, bonds backed by real estate and assets formed from loans are also very risky. If it is not completed according to the investment plan, the value of the collateral will be significantly affected, in addition, the prolonged processing time of the collateral will affect the investor’s ability to recover investment capital. private.

Mr. Nguyen Quang Thuan, Chairman of the Board of Directors and General Director of FiinGroup emphasized, one point people are often interested in is collateral, but for us personally, we should not pay too much attention to this issue, because collateral assets The guarantee is not effective in assessing the ability to repay the debt, but only in the case of capital loss, how “competitive” for that property, but if invested, there are many other more important factors.

“Evergrande Group in China recently, in a period of liquidity failure, failed to pay interest, due principal and faced a debt of more than 300 billion USD. It is worth mentioning, 54% of Evergrande’s total debt is “have collateral” but in fact bond investors and creditors cannot quickly handle it.

Included in this pile of collateral were shares of Evergrande itself. However, the market price of bonds and stocks is only 20-25% compared to one year ago. Thus, the bank that is appointed to manage and supervise the collateral also bears. Basically, investors lose all their money if they sell at this price, or delay the interest and principal for 5 years and wait for the business to be restructured”, Mr. Thuan gave an example.

The leader of FiinGroup also pointed out that collateral has a greater effect on bank credit activities. With bonds directly offered to the public, or indirectly through private placement and redistribution, there is not much meaning for risk assessment as well as debt recovery.

“We only scrutinize the collateral and its impact on return when that rating is likely to be in the speculative rating zone. So, to rate a bond or An issuer is very complex, the key is for an investor to understand the business and financial profile of the industry, depending on the level of risk, the level of safety in different industries is different. The real estate industry will be riskier than the food industry, or the renewable energy industry is fundamentally less risky in the long term, but there are still certain challenges in terms of funding. Telling about changes in legal, business environment, quality of corporate governance, … from there, we can make basic issues of bond evaluation,” said a representative of FiinGroup.

Agreeing with the above view, Dr. Le Xuan Nghia, Analyst, international practice does not stipulate that the issue of bonds must be guaranteed by assets, because the bond buyer is an individual and the issuer is an organization, so the Handling collateral for bonds is extremely complicated.

Create powerful investors

Many experts have suggested that, in order for the corporate bond market to develop sustainably, it is necessary to create powerful bond investors that advanced countries have done.

Is collateral the best guarantee for corporate bonds?  - Photo 2.

To invest in corporate bonds, investors need to be professional securities investors in accordance with the law.

Mr. Tran Huy Doan, Deputy Head of Investment Department of ACBS Securities Company suggested that in Vietnam, funds such as health insurance and social insurance mainly use mobilized capital and are deposited in savings. Therefore, the policy can bring these investment funds to participate in the bond market, proceed to research and invest in stocks… From there, orient individual investors to participate in these funds. This also contributes to streamlining savings deposits of people, instead of only short-term deposits of 3-6-12 months, they can boldly deposit up to 3-5 years.

According to the Ministry of Finance’s recommendation, to invest in corporate bonds, investors need to be professional securities investors in accordance with the provisions of the law, fully assess the risks when investing in bonds. Enterprises, should not buy bonds through invitations of service-providing organizations without carefully understanding the financial situation of the issuer and the terms and conditions of the bonds.

“In fact, the stock market also had a time when stocks on the unofficial floor (OTC) were traded a lot, the demand for buying was very high but the information was incomplete, very risky. Gradually the stocks More and more good things are listed on the official bourse, and the “chaotic” situation on the OTC is gradually overcome because investors have better options and more transparency.At the same time, investors are becoming more and more popular. more professional after entering the market”, a representative from the Ministry of Finance informed.

The corporate bond market, like the stock market, needs to be placed in a strict, public and transparent governance system from the outset. That is the control way to minimize risks for both businesses, investors and the economy,” said a representative of the management agency.

It can be seen that the scandals in the financial market over the past time are just the start of the process of healthy business environment in Vietnam, and at the same time affirm the determination of the Government and the authorities in this regard. building a sustainable and efficient market system, contributing to ensuring macro stability, promoting economic growth and development.

According to Diem Ngoc

Business Forum

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