‘The ability to repay bonds of unlisted real estate enterprises is very weak’

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This is the opinion of FiinGroup experts in the recently published analysis report on the corporate bond market.

According to FiinGroup’s statistics over the past 5 years, bonds have become an important mobilization channel for “real estate enterprises”, with an average issuance value of approximately VND 100,000 billion per year, accounting for 30-40 % t total value of corporate bonds (DN) issued.

FiinGroup’s experts assessed that in the context of huge long-term capital demand and tightening of traditional credit channels, the bond channel will continue to serve as a medium and long-term capital source for real estate enterprises in the coming time.

As of June 30, 2021, outstanding corporate bond debt of listed real estate companies is about VND 116,000 billion, equivalent to 17.3% of credit outstanding for real estate business in the banking system.

Considering the listed residential real estate businesses alone, bonds  account for about 46% of the total debt of these businesses.

In the first 9 months of the year, more than 80% of the value of real estate bonds were issued by unlisted companies. Since the majority of real estate bonds are issued by unlisted companies, FiinGroup believes that real estate bonds issued in the whole system will be much larger in reality.

“These businesses have alarmingly weak financial health. This is reflected in the level of financial leverage (net debt/equity) currently at 8.1x while the businesses are listed at only 2.5x.

The level of leverage up to now is still high, when the value of newly issued bonds by unlisted real estate companies in the first 9 months of the year is about VND 100,000 billion, equivalent to 38% of the total assets of these businesses. At the end of 2020. Meanwhile, this figure for listed companies only accounts for about 4%”, FiinGroup said.

According to FiinGroup, the majority of bonds issued by unlisted enterprises are purchased by banks and securities companies, with collateral assets or third-party guarantees.

However, “there is a huge difference in credit quality among issuers because in fact, collateral only has the effect of putting pressure on enterprises to meet debt obligations, while recovery value is very low due to the complexity of collateral handling procedures and the long time required.

This is especially important for investors, not only professional individuals but also financial institution investors to be able to assess the accompanying risks,” FiinGroup said.

Source: vietnambiz.vn – Translated by fintel.vn