FiinRatings CEO: Financing solution based on credit differentiation is the key for current real estate financing and corporate bond turmoil

This is the key message from keynote speech by Mr. Nguyen Quang Thuan, FiinRatings’ CEO at the Annual Investor Conference “Emerging Vietnam 2023” organized by Ho Chi Minh City Securities Corporation (“HSC”) on 14-16 June 2023. During this event, Mr. Thuan has participated as a panelist in real estate sector discussion and presented as a keynote speaker on Vietnam corporate bond market.

Firstly, speaking at the panel: Real Estate sector “Navigating the Storm”, Mr. Thuan has shared his view on potential triggers and the conditions under which the real estate market can recover from its current state given challenging macroeconomic environment, low banking credit growth YTD and corporate bond turmoil.

The policy forbearance (for banking credit under Circular 02 and for corporate bond restructuring under Decree 08) are important to help problematic borrowers and bond issuers ease the pressure from debt coming due. However in substance, corporate credit quality remains unchanged.

To facilitate financing for real estate developers, legal issues and the advancement of the project licensing process are the most important factors in making developers or real estate projects bankable again, Thuan pointed out. Indeed, legal issues are currently a deadlock not only to bank loans, but also to the issuance of corporate bonds and project M&A, which provide a soft-landing mechanism for many distressed real estate developers.

Secondly, in the keynote presentation “Vietnam Corporate Bond Market: The Story of Default, Spillover Effects and Credit Outlook”, FiinRatings’ CEO has shared the current state of corporate bond market and default situation. Accordingly, the bond default rate is expected to increase further due to macro challenges and financing landscape for real estate developers.

According to the base scenario of a stress test carried out by FiinRatings, the current default on corporate bonds could lead to a 1.4% change in the percentage of non-performing loans in the banking system in 12 months. The actual impact on the banking sector would depend on a number of factors, including macroeconomic variables, policy support measures, particularly in the context of legal and project licensing procedures, among others. Nevertheless, systemic risk for the banking sector is assessed at a low level, but deterioration in asset quality is well expected. Problematic bonds account for a relatively small proportion of total bank lending, but headwinds still continue to affect property developers and many other sectors.

In addition, Mr. Thuan also shared market insights and credit outlook for several key sectors, namely residential properties, industrial properties, energy, banking, and securities brokerage. With regards to the credit quality of real estate developers, although progress has been made, challenges still remain. As a result, the market in general still holds a relatively cautious view towards businesses operating in the real estate industry. However, Mr. Thuan emphasized that, even in unfavorable conditions, institutional investors can still distinguish companies with good credit health based on a clear set of criteria, thereby achieving optimal return on investment, while still balancing risk management for the entire portfolio.

To quantify the difference in credit quality among companies in the industry, FiinRatings illustrated the use of credit rating results to determine interest rates for bonds issued. This is also the demand of many investors, bond funds and large organizations in jointly building a common platform for corporate bond transactions. Subsequently, to develop a common bond trading database to support investment decision making, such as building a yield curve as benchmark for the market. On this point, Mr. Thuan said that FiinRatings acts as a bridge between investors and market participants, jointly developing the bond market in Vietnam and facilitating market liquidity.

Concluding his presentation, Mr. Thuan shared the credit rating framework rating criteria applicable for Vietnamese corporates and what FiinRatings has announced to support both issuers and investors in the credit market. Mr. Thuan also shared key challenges for an investor in assessing creditworthiness for a Vietnamese enterprise with only public information available.

As a local licensed credit rating agency, FiinRatings is committed to support participants in the capital market to making investing decisions with confidence in Vietnam.

The presentation deck can be downloaded at:

1. “The Story of Default, Spillover Effects and Credit Outlook”

2. “Funding for Real estate sector” (Excerpt)