The trading system for privately-placed corporate bonds, which was introduced on July 19, is anticipated to improve liquidity on the corporate bond market. This is a positive step but there are still several measures that need to be implemented before the market is back on track.

Bond offerings via private placement still lackluster Bond sales via private placement continue to be poor. The past year has seen fluctuations in the market, impacting investor sentiment. Many companies have struggled to repay debts, leading to a decline in new bond issues. In the second quarter of this year, there were only 29 corporate bond issues totaling nearly VND19.3 trillion. This represents a significant drop of 34.4% compared to the first quarter and a staggering 83.1% decline from the same period in 2022. Out of these debt sales, 28 were via private placement, accounting for around VND17.3 trillion, which makes up 89.6% of the total issuance value. For the first half of 2023, the total value of corporate bond sales was around VND48.7 trillion, down a hefty 73.3% compared to the same period in 2022. Bonds offered via private placement accounted for VND42.8 trillion, down 75.6% year-on-year. While there was a surge in new corporate bond issues in March following the introduction of Decree 08/2023, which regulates bond offerings through private placement in domestic and international markets, the market returned to a lackluster state in the second quarter. The main reason for this stagnation is the lack of confidence among investors, as many issuing organizations face poor business and cash flows, resulting in delayed bond repayments. Efforts to revitalize the market       In light of the challenging market conditions, the Hanoi Stock Exchange (HNX) has teamed up with the Vietnam Securities Depository (VSD) to establish a trading system for privately-placed corporate bonds. This platform will feature a whopping 1,600 privately issued corporate bond listings and have the capacity to process 15,000-20,000 orders per second, with a total of 20-30 million orders per session. Previously, private bond trading involved transfers through depository organizations, mainly among investors and between investors and depository institutions. Investors holding privately issued bonds had to sell them through intermediaries like banks and securities companies, often incurring higher fees or having to wait until the bonds reached maturity. With the implementation of Decree No. 65/2022, all privately issued bonds must now be traded on the centralized private bond trading system on a stock exchange. This regulatory change, combined with the launch of the bond trading system, is expected to enhance transparency, reduce risks for investors, and foster liquidity in the corporate bond market. Do Bao Ngoc, deputy general director of Vietnam Construction Securities JSC (CSI), highlighted the significance of the bond trading platform in the current situation where Vietnam lacks a centralized secondary bond market. He emphasized that the platform's launch will provide the economy with a more efficient and professional capital-raising channel, appealing to foreign investors and attracting additional foreign capital. Furthermore, companies will be incentivized to improve transparency and professionalism when seeking capital in the bond market. Ngoc said, "The trading platform will create a buying and selling channel for investors, enhancing market liquidity and making corporate bonds a significant capital-raising avenue for businesses, reducing reliance on bank credit." According to him, the operation of the secondary corporate bond trading system and the development of credit rating markets will be fundamental factors enabling the corporate bond market to operate according to its intended principles and become a long-term capital-raising channel for companies. Measures to bolster liquidity While the bond trading system is expected to improve liquidity, additional actions are necessary to revitalize the market and move away from lackluster trading. Regulatory agencies should prioritize rebuilding investor confidence and engagement. Nguyen Tuan Anh, deputy general director responsible for funding at Vietnam Bank for Industry and Trade Securities JSC, stressed the need for regulation of the retailization process of the secondary bond market. Clear rules should be adopted to ensure that only qualified financial institutions and licensed individuals can engage in private bond distribution. Moreover, distributing and advisory organizations should play a more significant role in helping investors understand the differences between publicly issued bonds and privately issued bonds, enabling them see the pros and cons of holding corporate bonds. Anh also pointed out that while existing laws and decrees regulate public bond sales and primary market transactions, the secondary market has not received the same level of regulatory oversight. This lack of oversight would entail a risk if widespread retail trading occurs in the secondary market, blurring the line between public and private bond sales. A report by FiinGroup in the first quarter of 2023 showed that over 33% of corporate bonds are held by individuals, with the rest owned by professional investors, securities companies, and commercial banks. However, after purchasing bonds, some securities companies and commercial banks engaged in reselling to individual investors through schemes like "strategic partnership contracts" or "flexible savings accounts," essentially transferring a significant portion of corporate bonds back to non-professional investors. "It is crucial to control and supervise the extent, volume, and categories of investors participating in trading corporate bonds. While these regulations already apply to stock groups, similar rules for bond groups are currently lacking," Anh said. He also suggested encouraging and directing investor funds towards purchasing publicly issued corporate bonds to minimize risks, while bonds offered via private placement should only be sold to professional investors. To this end, Anh emphasized the role of management and supervision in determining whether privately-issued bonds should be made available to the public by financial institutions. This is essential for regulatory and supervisory bodies to devise strategies to prevent and mitigate potential impacts on investors and ensure the market's legality and transparency. Dr. Can Van Luc recommended implementing policies that encourage credit rating agencies to comprehensively rate companies rather than solely focusing on those issuing corporate bonds through private placement. Additionally, licensing two or three credit rating agencies with sufficient capacity and promoting international credit rating would further enhance the market's credibility. According to the Prime Minister's direction, government agencies will grant licenses to three agencies in the near future, aiming for a total of five credit rating agencies by 2030. Apart from the mentioned matters, Anh said that authorities should continue amending the legal framework to align with international practices. Currently, there is no clear distinction between privately issued corporate bonds and other types of businesses in the regulations under Decree 08/2023 and Decree 65/2022. "This lack of private placement differentiation between financial institutions and other business entities creates inconsistencies that affect the private bond market's quality," he underlined.