No respite for Vietnamese developers with debt maturities


(Bloomberg) — The worst may not be over for Vietnamese developers beset by an ever-increasing regulatory crackdown as funding tightness and a historic stock collapse show little sign of easing.

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No Va Land Investment Group Corp. and Phat Dat Real Estate Development Corp. Shares of both ended lower on Thursday, ending their decline in at least 17 days. Nova Land’s $2026 bond also fell to a record low this week, according to data compiled by Bloomberg.

The Southeast Asian economy has made headlines in recent weeks after a corruption probe hit the country’s property developers, curbing domestic debt sales and causing local equities to become the world’s worst-performing major benchmarks. Despite a pledge from Vietnam’s finance minister to ease the financing crisis for builders, repayment pressure from the sector will keep investors tense for years to come.

“There is a risk that if they push a little too hard,” says Tamma Fabrian, an analyst at Fitch Ratings, “the authorities could trigger a liquidity crisis or hurt investor sentiment.” While this is not the rating agency’s baseline scenario, such an outcome could “impact the entire real estate and banking sector.”

Sales and volume of Vietnamese corporate bonds fell this year, according to the Vietnam Bond Market Association, with sales through private placements falling 51% in October to 240.76 trillion dong ($9.7 billion). This represents 96% of total corporate bond sales. The UN Benchmark Index fell 37% on fears of widespread risk aversion driven by developers and banks.

According to the Asian Development Bank, banks, real estate companies and construction companies are among the largest issuers of corporate notes this year.

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Vietnam’s widespread financial crisis, with rising inflation and a growing mountain of debt, has weakened foreign investor interest in the country’s properties. Winggroup JSC, a leading conglomerate, is the only company to issue foreign currency bonds this year, raising a total of $625 million, according to the Vietnam Bond Market Association.

In an apparent attempt to assuage investor concerns, Vietnam’s Finance Minister Ho Duc Phoc told Bloomberg News on Tuesday that the government sees no greater impact than selected companies engaged in bad or illegal practices. It’s also working to make it easier for developers to access capital in the long run.

He said that by 2030, Vietnam aims to increase the volume of corporate bonds to 25% of GDP, from about 11% currently.

However, investors are not only concerned about the current liquidity crisis, but also about their medium-term redemption risk. ADB data shows that most of their bonds have maturities of less than five years.

“The sell-off in real estate stocks is not surprising given the lack of funding,” said Ruchir Desai, a fund manager at Asia Frontier Capital Ltd. Funding has dried up because liquidity in the real estate sector has dried up.

– With assistance from Nguyen Kiu Giang, Harry Suhartono and Catherine Bosley.

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