Corporate bond market development necessary for stable capital supply for enterprises

Thursday, 2019-04-25 18:14:40
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Measures are needed to make the corporate bond market a stable capital supply for enterprises. (Photo for illustration)
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NDO – In recent years, the Vietnamese bond market has developed rapidly, with positive results in terms of both size and liquidity, effectively contributing to the mobilisation of resources for economic development. However, compared to the capital required for enterprises to boost their production and business operations, more solutions are needed to make the corporate bond market a stable capital supply for businesses, especially start-ups.

According to the Department of Banking and Financial Institutions (the Ministry of Finance), by the end of 2018, the bond market size reached about 39.12% of GDP. For the Government bond market, there has been development according to international practice related to products, liquidity and market organisation, reaching 27.25% of GDP by the end of 2018 and playing a key role in the bond market development.

For the corporate bond market, although there has been rapid growth in recent years, its scale is still small, only 8.57% of GDP by the end of 2018, while liquidity remains limited, not yet becoming a main capital mobilisation channel for enterprises. Therefore, when there is a demand for capital mobilisation, including medium and long-term capital, enterprises still have to access bank credit, which results in pressure and potential risks.

From such a situation, the requirement is to promote the development of the corporate bond market to create favourable conditions for enterprises to mobilise capital. Moreover, promoting the development of this market is a must to help promote it into a capital mobilisation channel that will play a key role for enterprises to develop their production and business operations.

Among the solutions implemented to develop the corporate bond market, it can be said that the completion of the institutional policy on issuing corporate bonds plays a fundamental role. Deputy Head of the Department of Banking and Financial Institutions, Nguyen Hoang Duong, said that, currently, the legal framework for initial public offering (IPO) and private investment of public equity (PIPE) is developed synchronously from the law and decree levels to guiding document level, meeting the capital mobilisation needs of enterprises and gradually approaching international practices. Accordingly, IPO is being held under the provisions of the Law on Securities, while PIPE has also been specified. The Ministry of Finance also pays great attention to promoting businesses to raise capital through issuing bonds to increase the supply for the corporate bond market.

In addition to the above solutions, the issuance of regulations and the operation of investment policies by investors in the bond market in general and the corporate bond market in particular has been basically completed. According to the Ministry of Finance, there is the participation of commercial banks, investment funds, insurance enterprises, securities companies, foreign investors and individual investors in the corporate bond market. In particular, commercial banks are playing a key role as they are the biggest investor in the market due to good financial potential.

To support the development of the corporate bond market, the legal framework for credit rating services has been issued and is being implemented. Currently, the Ministry of Finance is considering registration documents so that organisations wishing to provide credit rating services can deploy them in the bond market. “The restructuring of securities businesses has been actively implemented, through restructuring their organisation, improving financial capacity, expanding the scope of operations and improving service quality when participating in the bond market,” said Chairman of the Board of Directors of the Hanoi Stock Exchange, Nguyen Thanh Long.

At a member meeting of the Government bond market held earlier this year, there were various new solutions introduced to orient the market development and action plans in 2019. In particular, for the corporate bond market, it is expected that an information centre on corporate bonds will be established in Hanoi, along with other key measures, such as encouraging businesses to mobilise bond capital and follow the process of revising the Securities Law on the following contents: the concept of professional investors, conditions and procedures for IPO, the ability to attach credit ratings to IPO, scope of issuance and transaction of corporate bonds in PIPE.

It is important that the State Bank of Vietnam and market members continue to coordinate and exchange information on plans, timing, terms and stated interest rates at bond issuance and monetary administration.

In addition, coordination between the Ministry of Finance and the State Bank in completing the policy mechanism related to the development of the bond market in connection with the monetary market also needs to be strengthened, besides enhancing periodical exchanges and consultation between management agencies and market makers on market developments and bond issuance.

These are important solutions, playing a decisive role in realising the Party and Government's policies and orientations in order to develop the corporate bond market into an important medium and long-term capital mobilisation channel for enterprises, which will help them gradually reduce their dependence on the banking system and create favourable conditions for businesses to mobilise bond capital, especially PIPE deals.