Real estate bonds under dual pressure

A recent report from MBS Securities reveals a sharp decline in corporate bond issuance, with the total value of bonds successfully issued dropping by 82 per cent in the first half of July compared to the previous month and by 38 per cent year-on-year.

Notable issuances during this period have been predominantly from banks. VietinBank raised VND 3 trillion through bonds with a 120-month maturity and an interest rate of 6.1 per cent per annum. SHB issued VND 2 trillion in bonds with a 36-month term and a 6 per cent annual interest rate. HDBank released VND 1 trillion in bonds with a 96-month term and a 7.47 per cent annual interest rate.

The surge in bond issuance by commercial banks is seen as a strategic move to strengthen medium- and long-term capital to support corporate borrowing needs. Credit growth in the first half of the year was 6 per cent and is projected to reach 14 per cent in the latter part of 2024.

Banks continue to lead in bond issuance, with approximately VND 96.2 trillion in bonds issued year-to-date, marking a 140 per cent increase from the same period last year and accounting for 65 per cent of the total issuance. The weighted average interest rate stands at 5.4 per cent per annum, with an average term of four years.

In contrast, the real estate sector has issued VND 32.6 trillion in bonds, a notable decrease from VND 47.5 trillion in the same period last year. Real estate bonds have a weighted average interest rate of 12 per cent per annum and an average maturity of 2.7 years.

Major real estate issuers include Vinhomes JSC with VND 12.5 trillion, Vingroup with VND 10 trillion, and Hai Dang Real Estate Investment and Development Co., Ltd. with VND 2.5 trillion.

The real estate sector continues to face difficulties in bond issuance and must contend with upcoming bond maturities. According to MBS, the default rate on bonds is accelerating.

As of July 18, the estimated value of bonds repurchased before maturity was VND 10.1 trillion, a 60 per cent decrease from the previous month. Since the beginning of the year, over VND 84.5 trillion in corporate bonds have been repurchased before maturity, a 42 per cent decrease year-on-year.

MBS attributes the rising default rate to the substantial maturity pressures faced by companies. In July 2024, three additional companies reported delays in principal payments, increasing the total number of defaulting companies to 116. 

The total value of defaulted bonds is estimated at VND 209.8 trillion, representing 21 per cent of the market's total bond debt, with the real estate sector accounting for the largest share at around 68 per cent of the default value.

VIS Rating has estimated that about 60 per cent of the VND 9 trillion in maturing bonds may not be able to repay principal on time in July. Of the VND 5.4 trillion in bonds at risk of non-repayment, VND 5.2 trillion are issued by firms in the residential real estate and construction sectors that failed to make timely interest payments last year, including Novaland, Nam Land, Big Gain, Dai Thinh Phat and Kita Invest.

"Over the next 12 months, approximately 18 per cen of the bonds in circulation, totaling VND 207 trillion, will mature. We estimate that 27 per cent of these bonds are at risk of not repaying principal on time, primarily in the residential real estate and construction sectors. Furthermore, 65 per cent of these bonds have already missed interest payments," VIS Rating forecasts.