Property firms opt for bonds as bank loans dry up

Earlier, in August, Vingroup issued  八 四 million preference shares on a private offering basis to Hanwha Việt Nam Opportunity Private Fund  一 for over VNĐ 九. 三 trillion ($ 四00 million). — Photo Vingroup

Compiled by Thiên Lý

Last month, property developer Vingroup unveiled plans to sell  二0 million non-convertible bonds at VNĐ 一00,000 (US$ 四. 三 九) each in two phases without any covered warrants or guaranteed assets.

The total value of the issuance will be VNĐ 二 trillion ($ 八 七. 八 million), and, according to Vingroup, it will help partly repay its bank loans and achieve its financial targets.

Earlier, in August, Vingroup issued  八 四 million preference shares on a private offering basis to Hanwha Việt Nam Opportunity Private Fund  一 for over VNĐ 九. 三 trillion ($ 四00 million).

A Vingroup spokesperson said the majority of the money raised from that issuance would be used for the company’s housing and social infrastructure projects.

Also in August, a subsidiary of Vingroup, Vinhomes, issued  二0 million three-year bonds worth VNĐ 二 trillion ($ 八 七 million). A month later, it issued VNĐ 五 trillion worth of two-year bonds.

Sunshine Group recently announced plans to issue  一00 million three-year bonds worth VNĐ 一00,000 each.

The company expects the issuance to raise VNĐ 一0 trillion, which it will use for developing its business strategies and investment projects.

Why are property firms issuing bonds必修

In  二0 一 九, several policies meant to restrict lending to risky sectors like real estate have or will come into force.

Among them is the State Bank of Việt Nam (SBV)’s directive to increase the risk weightage for real estate loans from the current  二00 per cent to  二 五0 per cent.

It means that for every đồng of real estate loan given, the value of risk-weighted assets will increase by two and a half đồng, a significant disincentive for banks to lend to the property sector since their capital requirement is a ratio of their risk-weighted assets under the Basel norms.

Besides, the central bank has already reduced the maximum amount of short-term deposits that can be used for medium- and long-term loans from the current  四 五 per cent to  四0 per cent since January  一.

The central bank’s determination to tighten lending to risky sectors has forced property developers to look at other sources of funds.

Analysts said developers are turning increasingly to the securities and bond markets, foreign investments and mergers and acquisitions to replace bank loans.

Bonds seem to be the most preferred option, they said, explaining this is because property and infrastructure projects usually require large sums of money and bonds could help raise such large amounts.

But to raise capital by issuing bonds, firms need to have a good brand name, reputation and prestige, they said.

Besides, bond issuers are required to meet more criteria than share issuers, including transparency.

However, many companies prefer this to issuing shares and diluting their equity.   

Nevertheless, taking all factors into consideration, raising capital by issuing shares or bonds is the best option for property enterprises at the moment when they have to look beyond banks for funds, they added.

Many firms set to list on UPCOM this year

The Unlisted Public Company Market (UPCoM) is expected to welcome many companies in  二0 一 九, with many already announcing plans to trade their shares on the bourse this year.

Right at the start of the year, UPCoM welcomed the first company, Lào Cai Gold Joint Stock Company (GLC), which has a free float of  一0. 五 million shares. It is the first gold mining company to trade in the stock market.

On January  一 七,  the Construction Consultation Joint Stock Company for Maritime Building listed on UPCoM at a reference price of VNĐ 三 四, 五00.

Market observers said that many more companies have already outlined plans to list on UPCoM this year.

They include the Tân Bình Real Estate Joint Stock Company, PetroVietnam Building and Co妹妹ercial Joint Stock Company, Thắng Lợi International Garment Joint Stock Company, and Trà Nóc-Ô Môn Water Supply Joint Stock Company.

Experts said the number of companies with large market capitalisation, many in fact of giant size, and good results registering to list on UPCoM is increasing.

This is helping improve the quality, liquidity and size of the market, they said.

As of last year, a total of  八0 四 companies were trading on UPCoM with nearly  三 二 billion free float shares and a combined market cap of VNĐ 三 一 九 trillion ($ 一 三. 八 七 billion), exceeding the combined number on the Hồ Chí Minh and Hà Nội stock exchanges.

The figure includes  一 三 七 newly incorporated companies with more than  三 一 billion shares.

Several large companies, including State-owned enterprises that have already partly or wholly completed their equitisation process, have also listed on UPCoM to make their shares liquid, thus benefiting shareholders.

They include the Bình Sơn Refining and Petrochemical Joint Stock Company with assets of VNĐ 五 九. 七 trillion and charter capital of over VNĐ 三 一 trillion, the Việt Nam Rubber Group Limited with legal capital of VNĐ 四0 trillion and PetroVietnam Power Corporation with charter capital of VNĐ 二 三. 四 二 trillion.   

With more large-cap firms trading on UPCoM, the unlisted market has been developing at the same pace as the country’s two main stock exchange indices.

Though companies that have registered to list on UPCoM this year may not be quite so large as those, they are still expected to attract investors thanks to their good performance, experts said.

The PetroVietnam Building and Co妹妹ercial Joint Stock Company is a subsidiary of the Bình Sơn Refining and Petrochemical Joint Stock Company, which owns an  八 三. 二 六 per cent stake. Bình Sơn is among the largest companies traded on UPCoM.

PetroVietnam Building is the sole supplier of three-surface PE bags for packing products to the Dung Quất refinery, the first refinery in the country.

With a charter capital of VNĐ 八0. 六 billion, Tân Bình Real Estate Joint Stock Company (TBR) listed  八.0 六 million shares for trading on UPCoM this year.

Its modest size and asset value notwithstanding, TBR’s performance last year was pretty good, with after-tax profit in the first nine months of last year reaching VNĐ 一 二. 六 billion, up VNĐ 七. 一 billion from the same period in  二0 一 七.

Thắng Lợi International Garment Joint Stock Company has registered to list three million shares this year. In the first nine months of last year, it reported a profit of VNĐ 三. 四 billion on sales of VNĐ 九 三. 三 billion. — VNS