bond

 

Large conglomerates, when issuing corporate bonds, now tend to target individual investors instead of focusing on institutional investors, according to analysts.

Investors last week received an offer from a large securities company which planned to issue 2-year corporate bonds in the third quarter.
The interest rate of 8.5 percent per annum has been fixed for the first year, while the interest rate for the next year will be calculated with the average interest rate for 12-month term deposits set by four commercial banks, Vietcombank, BIDV, Agribank and VietinBank plus 2.2 percent.
The fact that the securities company emailed investors who are clients about the bond issuance shows that individual investors are the target of the campaign.
One month ago, ACB successfully issued VND2 trillion worth of 5-year bonds. Twenty-seven investors and seven institutional investors bought the bonds.
Individuals can also buy government bonds retail through commercial banks which act as intermediary institutions. Sacombank is one of the distributors.

Analysts said that bonds will attract individual investors because the bond interest rate is higher than medium- and long-term deposit interest rates. This means that the investors can be sure they have a real positive interest rate for their investments.

The bond interest rates are very competitive compared with the dividends paid by companies to investors. Many businesses do not make profits high enough to pay dividends, or they pay in cash and shares but at a low rate of 5 percent.
“The interest rate of over 8 percent is not bad in the current circumstances,” an analyst commented.
In principle, in case businesses, or the bond issuers, go bankrupt, bonds will be among the priority debt items for repayment.
Some businesses have issued convertible bonds to individual investors in the past. However, investors face high risks in case the share prices drop sharply compared to the convertible prices.
Meanwhile, convertible bonds are choosy about the buyers: only investors who hold enterprises’ shares can buy bonds.
Raising funds is an urgent need of businesses in the context of global integration and stiff competition, but issuing bonds is no longer a favorite method to mobilize capital.
If investors are interested in corporate bonds and businesses continue to issuing bonds to raise funds in the time to come, analysts say the deposits at banks will decrease.
They warned that the trend would not only affect banks’ capital mobilization of capital, but also their lending.
Since businesses can find capital through bond issuance, they won’t seek capital from banks, especially the businesses which don’t have assets to mortgage for loans.

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