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Banking & Finance

VnEconomy conference: Banks not responsible for bond repayments

Released at: 17:35, 16/08/2021

VnEconomy conference: Banks not responsible for bond repayments

Mr. Nguyen Tri Hieu, Economic expert

Banking expert Mr. Nguyen Tri Hieu told VnEconomy's online “Development of the corporate bond market: Balancing the advantages of issuers and investors” conference that banks are just service providers, receiving service fees from issuers without being responsible for whether business can repay the bond principal and interest. That means the risk to investors is significant if the opening company defaults.

According to expert Nguyen Tri Hieu, the reported data shows that the structure of buying corporate bonds in the primary market mainly belongs to securities companies, banks and a few professional individual investors. However, it is impossible to confirm that this amount of bonds is just lying quietly in the pockets of securities companies and banks.

In the US, the banking system is divided into two segments: commercial banking and investment banking. In which, only investment banks are allowed to support bond issuance. In contrast, in Vietnam, banks are very multi-functional, at the same time as commercial banks and investment banks.

Over the past time, the support of banks for Vietnam's corporate bond market is very important. They provide technical support for eligible businesses to issue. After that, the bank also supported the distribution of that amount of bonds. Thanks to that, in the first 6 months of this year, despite the epidemic, the amount of corporate bonds still grew strongly.

Currently, people and retail investors are approaching corporate bonds because they see the shadow of a bank behind the bond.

However, Mr. Hieu emphasized, only a few bonds are guaranteed to be paid by the bank, that is, investors buy bonds from the issuer. will pay instead.

Thus, most of the remaining bonds are underwritten only. That is, if not all bonds are issued, the bank will commit to buy all remaining bonds.

"Banks are just service-providing businesses, enjoying service fees from the issuer but are not responsible for whether the enterprise can repay the bond principal and interest when it is due. , the risk to investors is great if the issuing company defaults," the expert assessed.

In addition, this expert believes that the current amount of bonds is mainly unsecured or secured by stocks. Stocks, on the other hand, fluctuate according to the market. In the case of other security assets, investors also do not have the power to seize collateral like banks. Even when the business defaults, the collateral will also have to be paid in order of priority: taxes to the Government; pay wages to employees; pay off bank debt… near the end to the buyer of the bond. 

"In general, the corporate bond market has many potential risks due to the Covid-19 epidemic that makes businesses unable to operate but still borrow capital. And all risks are concentrated on bondholders," Mr. Hieu emphasized. strong.

In another view, Mr. Tran Tuan Anh, Sales Director, Mirae Asset Securities, said that corporate bonds are not the only direction of businesses looking to raise capital today.

Mr. Tuan Anh explained, securities companies have two roles in the bond market. The first is consulting for businesses to successfully release. Second, distribute bonds to investors.

"In which, as a consultant, we urgently need to "tailor" according to the topic that the business wishes to issue. First, we must consider factors such as financial health, collateral assets. , the ability to access credit capital... From there, an overall financial solution will be offered and corporate bonds are just one of them," said Mr. Tuan Anh.

For example, with an infrastructure investment company, the project usually lasts 10-15 years, it is completely possible to borrow foreign currency. We have many flexible financial institutions, both domestic and international. They specialize in infrastructure development and are willing to lend. And this option will partially support capital needs, instead of putting the burden on corporate bonds.

Then, the corporate bond issue, we will help them distribute. Our target audience are people and organizations with long-term investment needs such as insurance companies, value chain businesses who have a clear understanding of the financial capacity of the bond issuer...

Or, for a technology company, maybe we can help them issue bonds first and then borrow money from abroad. Although the bond issuance is small, it is to confirm that they are fully capable of raising capital in the country. This is a very important step for mobilizing enterprises that want to access foreign capital.

At the same time, Mr. Tuan Anh also did not forget to note that the business of distributing corporate bond products of securities companies or banks is just a normal operation and all comply with current regulations.

Vu Phong
Source:

Vneconomy

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