VIETNAM is seeking to expand the nation’s corporate bond market as it grapples with a credit crunch for a real-estate sector hurt by a handful of highly-leveraged companies, according to Finance Minister Ho Duc Phoc. 

The government does not see a wider impact beyond the select firms that have engaged in bad or illegal practices, he told Bloomberg News in Hanoi on Nov 22. It’s working to ease access to capital for property developers given the market rout and enable easier access to funding for years to come. 

“Those companies in financial trouble are the ones that expanded too much and beyond their capacity, such as building dozens of projects at the same time and exceeding their financial abilities,” he said.

“Now, as the central bank tightens credit limits to fight inflation, these companies are facing liquidity problems and hurting their investors’ confidence.” 

By 2030, Vietnam is aiming to grow corporate bond volumes to 25% of GDP from about 11% currently, he added. The outstanding corporate bonds market is worth about 1,200 trillion dong (RM217.83 billion). 

Among other points mentioned, Phoc said the government wants to:

• Speed up the process for developers to get legal rights to develop land.

• Work with the central bank to decrease borrowing costs for companies and help with restructuring debt payments.

• Boost investor confidence following recent anti-graft measures. 

• Ensure bond issuers are offering buyers accurate information and repay the bond on time when it dues to build up investors’ trust. The statements come amid the government’s sweeping regulatory probe on corruption in the corporate bond market that’s landed heavily on Vietnam’s real estate developers. Property firms are now faced with a funding crunch, along with higher rates and warnings by the central bank against risky real estate loans, sending investors fleeing.

The broad anti-corruption crackdown may also have large implications for one of South-East Asia’s fastest-growing economies, home to some of the largest suppliers of conglomerates like Apple Inc and Samsung Electronics Co Ltd. 

Vietnam’s corporate bond sales and volumes tumbled this year, with sales through private placements falling by 51% to 240.76 trillion dong through October, according to the Vietnam Bond Market Association. That represents 96% of the total corporate bond sales, it added, citing exchange and securities data. The benchmark VN Index has slid 36%, driven by property and bank firms, to become the world’s worst-performing major gauge. 

Concerns are now growing that the real estate market is at risk of a severe downturn that could be a drag on the broader economy. In response, the government appointed a team of ministerial-level socials to address the property sector’s credit crunch. — Bloomberg

• This article first appeared in The Malaysian Reserve weekly print edition