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Real estate firms issue bonds to raise capital

As the State Bank of Vietnam (SBV) has ordered tight control over real estate loans by credit institutions, property firms and developers have to seek alternative ways to raise their capital, and many of them have decided to issue shares to fund their business.
Real estate firms issue bonds to raise capital ảnh 1Real estate firms must seek alternative ways to raise their capital as the State Bank of Vietnam (SBV) has ordered tight control over real estate loans. (Photo: VNA)

HCM City (VNA) – As the State Bank ofVietnam (SBV) has ordered tight control over real estate loans by creditinstitutions, property firms and developers have to seek alternative ways toraise their capital, and many of them have decided to issue bonds to fundtheir business.

The central bank increased the risk weighting of real estate loans from 200percent to 250 percent in 2019, which is a significant disincentive for banksto make loans to the property sector since their minimum capital requirement isa ratio of their risk-weighted assets under the Basel norms.

Meanwhile, the SBV’s regulation on reducing the maximum quantum of short-termdeposits that can be used for medium- and long-term loans from 45 percent to 40percent will reduce banks’ liquidity.

To that end, realty enterprises need to count on other source, especially whenthe interest rate risks are high.

Phat Dat Real Estate Development Corporation (PDR) has recently announced thesuccessful issue of 150 billion VND (6.46 million USD) worth of 1-year bonds ata per-annum yield rate of 14 percent. This is the fourth bond issuance so farthis year in the firms. Earlier, it put up for sales 850 billion VND worth ofbonds at interest rates of 14.45 percent, 12 percent and 10.5 percent.

Dat Xanh Group also successfully made a sale of 234 billion VND worth offive-year bonds, offering an annual yield rate of 7 percent.

According to the Ho Chi Minh City Real Estate Association (HoREA), businessesoperating in the fields of property, construction and infrastructuredevelopment issued bonds worth more than 16.2 trillion VND during January-May,or 27 percent of the total value of bonds which have been already put up forsales.

Last year, there was a huge crowd of businesses, including Vingroup, Vinhomes,Nam Long, Novaland, TTCLand and Van Phu Land, issued bonds to raise morecapital.

The value of bonds by Vingroup and Masan Consumer Holding alone reached 33.2trillion VND.

Actually, bond issuance is an important channel for realty firms to add morecapital and restructure their finance. The yield rates offered by the companiesare usually high, up to 12-14.5 percent per year, doubling the deposit interestrates at commercial banks.

However, the firms would have to pay higher costs, which pose grave risks fortheir financial situation and investors as well.-VNA
VNA
#State Bank of Vietnam (SBV) #tight control #real estate loans #credit institutions #property firms #risk weighting #short-term deposits #issue bonds #alternative ways #Ho Chi Minh City Real Estate Association #Vietnam News Agency #Vietnamplus

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