Real estate businesses frantically issued bonds

In order to have enough cash flow to develop real estate projects in the context of thirst, a series of real estate businesses choose to issue bonds. The race to issue bonds of businesses in the second half of last year, early this year attracted attention with the "huge amount" of issuance and interest rates at very high levels. For example, at the end of the first quarter of 2019, Phat Dat Real Estate Development Joint Stock Company (PDR) issued VND 200 billion of corporate bonds. This bond has an interest rate of 14.5%, much higher than previous issues (12% and 10.5%).


In May, Van Phu Investment Joint Stock Company (VPI) also issued 8,000 bonds with a total value of VND 800 billion (each bond has a face value of VND 100 million). It is known that Vietnam Prosperity Joint Stock Commercial Bank is an investor. The first interest period is subject to the issuing interest rate of 12%/year.


Recently, the bond issuance plan was also informed by a real estate corporation based in District 1, Ho Chi Minh City. Accordingly, the company intends to issue 1,300 individual bonds, each worth VND 1 billion in June 2019. This is a non-convertible corporate bond, with collaterals, with a term of 4 years and pays interest every 3 months.


If we take the milestone in 2018, this is a good time for long-term bond issuance needs of businesses in the real estate industry, and gradually forming very strong underground waves. For example, from November 2018, Dat Xanh Group (DXG) asked shareholders to issue up to 1,400 five-year convertible bonds, worth VND 1,400 billion (par value of VND 1 billion per bond).


Photo taken on a corner of East Ho Chi Minh City. Photo: Quynh Tran


At the end of 2018, Saigon Thuong Tin Real Estate Joint Stock Company (TTC Land) also individually issued up to 470 billion VND of non-convertible bonds, without warrants and guarantees. This bond has a term of 3 years and will be issued in December 2018. It is known that businesses will use the proceeds from the bond issuance to increase the scale of financial activities, make investments in the company's programs and projects.


Previously, in August 2018, a northern real estate giant (listed on Ho Chi Minh City floor) once issued up to 20 million 3-year bonds (from August 2, 2018 to August 2/2021), with a total value of VND 2,000 billion. Besides, by September 2018, the company has issued more bonds worth VND 5,000 billion, with a term of 2 years (from September 13, 2018 to September 13, 2020). In fact, in October 2017, this unit also issued VND 5,500 billion of 3-year bonds (from September 19, 2017 to September 19, 2020).


Another real estate giant, Sunshine Group Joint Stock Company, issued 100 million bonds, each worth VND 100,000, equivalent to a total value of VND 10,000 billion. This type of bond has a term of 3 years (from October 8, 2018 to October 8, 2021), is not convertible, not accompanied by warrants, has no collaterals and no payment guarantee. Businesses will use the cash flow from bonds to increase the size of working capital and implement investment projects.


Recently, the Ho Chi Minh City Real Estate Association (HoREA) has sent a dispatch to report on the difficulties and risks of the Ho Chi Minh City real estate market in the first 6 months of 2019, including the assessment that the wave of broadcasting Bonds show signs of thirst for real estate businesses.


According to the Association, the roadmap to gradually restrict credit to the real estate market is being implemented by the State Bank as planned. This move makes it difficult for businesses to manage alternative capital. One of the solutions selected by many businesses to supplement capital is to issue corporate bonds. Besides expanding cooperation with foreign enterprises (FDI), or seeking capital on the stock market.


According to information that HoREA quoted the report of securities companies, in the first 5 months of this year, the total bonds issued by real estate, construction and infrastructure businesses were worth up to 16,230 billion VND, equivalent to 27% of the total value of bonds issued. Notably, there were real estate businesses issuing bonds with very high interest rates, up to 12-14.5%/year, double the savings interest rate.


According to Mr. Tran Khanh Quang, General Director of Viet An Hoa Real Estate Investment Joint Stock Company, the wave of bond issuance of real estate and infrastructure businesses has boomed recently with high interest rates stemming from 4 causes:


Firstly, the bank tightens credit on real estate, so for businesses that want to develop projects, bonds are the optimal alternative capital mobilization channel.


Secondly, the common term of bonds is usually at least 2-3 years (very few types have a term of 1 year). This time period is quite safe to turn around a project, helping the use of capital of the enterprise be stable, have enough time to deploy and bring the works to the destination on schedule.


Thirdly, bond issues in the last 6-12 months all have a common feature of long-term mobilization, so businesses accept to pay high interest rates. Moreover, for bonds with no collateral, the interest rate is even higher than guaranteed bonds.


Fourthly, the new trend of real estate businesses is to develop urban area projects. These projects are very large in scale, require extremely "huge" capital flows, while banks are limiting loans. In this context, issuing high-interest bonds is still the most feasible plan today.


According to Vnexpress