Real estate bond market faces mounting pressure

Vietnam's real estate bond market is bracing for significant repayment pressures as more than 100 trillion dong ($4.38 billion) worth of bonds are due to mature in the coming years, particularly this year and the next.

According to a report by FiinRatings, a leading financial analysis firm, the market saw a flurry of activity in April, with 13 new bond issuances totaling VND13.9 trillion, a notable 29.1 per cent increase from the previous month and a staggering 5.2-fold surge compared to the same period last year.

While the real estate sector continues to dominate bond issuance, banks have ramped up their fundraising efforts through the bond market. In April, real estate and banking sectors accounted for 56 per cent and 43 per cent of the total issuance value, respectively.

FiinRatings attributes this surge in bond issuances by banks to the tightening liquidity conditions in the market, as evidenced by overnight interbank interest rates exceeding 4 per cent in April. 

The State Bank of Vietnam's persistent liquidity management efforts through open market operations have contributed to this scenario.

Furthermore, deposit mobilization from the public by credit institutions witnessed a slowdown in the first quarter of 2024, reflecting a 0.76 per cent decline compared to year-end 2023, according to data from the General Statistics Office.

Responding to regulatory changes and anticipating a rebound in credit growth, banks have intensified their bond mobilization efforts to bolster medium to long-term capital reserves.

In April, credit institutions led repurchase activities, with total repurchased bonds reaching VND10.4 trillion, up 7.2 per cent from March and 70.6 per cent compared to the same period last year.

Notably, bank bonds accounted for 95 per cent of these transactions, with prominent players like MB and Techcombank leading the pack.

FiinRatings forecasts that upcoming bond repurchases and new issuances will aid banks in restructuring their capital sources, particularly Tier 2 capital, thereby bolstering capital adequacy ratios.

Despite the challenges posed by redemption pressures and debt obligations, entities have demonstrated resilience in meeting deadlines.

As of May 2, the estimated value of corporate bonds due for redemption this year stands at VND257 trillion. Real estate sector bonds account for nearly 39 per cent of this total, indicating significant repayment burdens for the sector.

Looking ahead, the repayment burden on real estate enterprises, particularly concerning bonds with delayed principal/interest payments due in 2022 and 2023, remains substantial.

Challenges persist as market recovery remains uncertain, exacerbated by policy uncertainties and delays, hindering businesses' ability to manage cash flows effectively for debt repayment.

In the secondary market, April witnessed a decline in individual bond transactions, with total transaction value surpassing VND74 trillion, down 24.2 per cent from the previous month.

Despite increased transaction volumes through order matching, market liquidity remains subdued, accounting for only 0.37 per cent of total market turnover. Average daily liquidity in April stood at VND3,900 trillion, representing 83.8 per cent of the previous month's figure.

Credit institutions and the real estate sector continue to dominate trading volumes, with the construction and materials sector witnessing a 5.8 per cent increase, while tourism and entertainment saw a 3.3 per cent decline.