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Experts still can see problems in bond market   2010-08-11 - Dau tu

More and more businesses are trying to issue corporate bonds in order to raise capital for their investment projects.  The bond market has developed strongly, but experts say it still has many problems. 


Do Ngoc Quynh, Secretary General of the Bond Market Association told Dau tu (Investment) newspaper that businesses nowadays have a deep knowledge of the bond market and they are more capable of raising capital by issuing corporate bonds.


Experts all say that with the recovery of both Vietnam’s economy and the world economy, the demand for Government bonds and corporate bonds in Vietnam will increase sharply.


Nguyen Tien Thanh, Director of the HCM City Branch of Tan Viet Securities Company, said that the company will pay special attention to providing consultancy services on corporate bond issuances, as this will be a potentially big business in the upcoming year.

It is clear that many enterprises now consider corporate bond issuances a major means to mobilize capital. Directors of businesses believe that bond issuances in 2010 will be bustling. As the national economy has recovered from the economic downturn, companies will have a strong desire to expand businesses and they will need more capital. 

Nevertheless, Quynh said, many problems still exist in the bond market.  Market liquidity is still low, so corporate bonds are not put into the secondary market for further transactions.


Meanwhile, Quynh said, bond issuers now set bond prices and bond interest rates depending  on their “feelings”, with no clear basis for defining interest rates.


Experts say that because Government bond market rates still fluctuate considerably, there is no benchmark for defining interest rates for corporate bonds.  A stable Government bond market would allow corporate bond rates to be set more predictably. 


In principle, interest rates on corporate bonds are defined based on the credit ratings given by bond issuance organizations.


The credit ratings can help bond issuers define reasonable interest rates for their bonds, which then help investors decide whether to buy the bonds. However, credit ratings still remain unfamiliar in Vietnam.


Quynh has also emphasized the need to establish credit rating firms in Vietnam, saying that the Bond Market Association intends to ask for permission from the Ministry of Finance to establish a credit rating firm.


However, experts have warned that it would not be easy to establish credit rating firms in Vietnam. It will take a long time for a credit rating firm to build up its reputation and cement its position in the market.  Meanwhile, in the first period of operations, credit rating firms would not have income to maintain their operations.


Ta Ngoc Huu, Public Relations Director of Vietnam Credit, a credit rating firm, said that even the announcement of unsolicited ratings would be difficult for Vietnam Credit. “We are still not big enough to sell information to media agencies, and it would be too costly or inconvenient for us to organize press conferences to announce the results of our surveys,” Huu said


Meanwhile, Vietnamese companies have not gotten used to the fact that they are given credit ratings by private firms. Last year, Vietnam Credit gave credit ratings to commercial banks and it faced strong protest from the banks.

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