Bond maturity pressure still "surrounds" real estate businesses

By 2024, the real estate sector will account for the highest proportion with more than VND123,000 billion of maturing bonds. Maturity pressure continues to "surround" the real estate sector in the context of a still gloomy market.

As 2023 draws to a close, many real estate businesses are anxious about bonds due for payment. This is because Decree No. 08/2023/ND-CP amends, supplements and suspends the implementation of a number of articles in the Decrees regulating the offering and trading of individual corporate bonds in the domestic market and the offering of corporate bonds to the international market on December 31, 2023.

Decree 08 aims to stabilize the interests of bond-issuing enterprises and investors buying bonds; notably, the provision provides enterprises with a legal basis to negotiate with investors and restructure bond debts, reducing debt repayment pressure. From there, enterprises have time to adjust their scale of operations, restore production and business to create cash flow to repay debts.

However, by December 31, 2023, three provisions of Decree No. 65/2022/ND-CP amending and supplementing a number of articles of Decree No. 153/2020/ND-CP regulating the offering and trading of individual corporate bonds in the domestic market and the offering of corporate bonds to the international market (Decree 65) will come back into effect.

Specifically, defining professional securities investors as individuals who buy individual corporate bonds, mandatory credit ratings, and reducing the time for distributing bonds. This makes experts fear that the temporary “lifebuoy” of businesses is about to disappear.

Meanwhile, real estate businesses still have to constantly find many ways to bring short-term bond debt to zero or are behind in payments to investors.

Economist, Dr. Dinh Trong Thinh commented that the regulations of Decree 65 are very strict, leading to the real estate market almost stagnating in late 2022 and early 2023, making it impossible for many businesses to issue bonds. This makes it difficult for both buyers and sellers.

While the market has not yet overcome difficulties, Decree 08 is about to expire, the resumption of Decree 65 in 2024 will hardly bring good results because it is not really suitable for the reality in Vietnam.

For example, requiring businesses to have a credit rating before issuing bonds is too strict in the current context. This could lead to consequences that make many businesses unable to issue bonds and go bankrupt - Mr. Thinh raised the issue.

According to this expert, some countries like Singapore do not require businesses to have credit ratings but only encourage businesses to issue credit ratings. If businesses are forced to do so, it will cause many difficulties and consequences for the market.

Or in a developed market like Japan, investors must be able to read financial reports, be able to analyze interest rate risks to make safe investment choices and take full responsibility for their investment decisions. A professional investor must be someone who understands the market and the nature of bonds and stocks, has the ability to evaluate, analyze, make investment decisions and take full responsibility for those decisions.

With only about 2 weeks left until Decree 08 expires, businesses falling into difficult situations due to not being able to issue bonds and not being able to pay debts could cause the real estate market to have a more difficult time, even falling into crisis. Therefore, according to Mr. Thinh, it is necessary to continue to extend Decree 08 for a longer period to regulate and stabilize the market.

From a business perspective, Mr. Nguyen Quoc Hiep, Chairman of GP. Invest, suggested that to stimulate real estate finance, it is necessary to continue to restore confidence in corporate bonds because many real estate businesses are struggling with bonds.

EZ Property General Director Pham Duc Toan shared that he has never seen businesses in such difficulty as now, from production, trade to import-export, real estate. There are many unemployed workers. Therefore, if we expect the real estate market to brighten in the short term, it will be very difficult.

According to Mr. Toan, the "blood clot" of the real estate market is corporate bonds. The extension period under Decree 08 expires at the end of 2023, but almost no real estate company has enough cash flow to repay the bond debt. That is very dangerous.

However, from the perspective of securities experts, recently, the group of listed real estate enterprises has handled the crisis well. Many enterprises have brought their bond debt balance to a safe level. However, many enterprises are still struggling to handle cash flow issues and face a large pressure of maturing bonds in 2024. However, this group of experts does not evaluate too negatively because they believe that the capital mobilization market has improved, and enterprises can mobilize cash flow more easily than before.

In 2024, corporate bonds are still considered an issue that needs attention. In the short term, businesses still need to rely on bank capital for development. The corporate bond market needs more time to restructure before fully recovering and developing more sustainably in the long term. From there, it will play a good role as an important capital mobilization channel for businesses.

The Real Estate Brokers Association said that real estate businesses are still trying to extend the time to restructure debt through the issuance and repurchase of corporate bonds and negotiating maturity extensions. To escape the risk of default, real estate businesses need to proactively come up with a plan to repay bonds, and the most important key is to unblock customer confidence.

Experts say that many businesses have completed financial restructuring, especially reducing the proportion of corporate bonds in their capital structure. This is the foundation for businesses to recover strongly in the upcoming cycle when policies have a clear "permeation" into the market; creating a large differentiation in opportunities for businesses with a more sustainable capital structure.

Negotiating bond extension will continue to be the trend in the coming time. However, difficulties still lie ahead because extending the debt repayment period only helps businesses have time to stabilize production and business and restructure corporate debt to recover. Basically, it is just transferring debt from one time to another.

To avoid the risk of bankruptcy, businesses need to take advantage of the opportunity to restructure their debts; seriously consider selling off assets, even accepting break-even or losses to have cash flow to pay off debts and complete projects that can be liquidated immediately upon being put on the market - experts recommend.

In addition, in addition to familiar financial sources such as bank credit and corporate bonds, there should be mechanisms and policies to develop, attract and ensure effective operation of capital from other financial products from Real Estate Investment Funds (REITs), Housing Savings Funds, real estate securitization... or foreign direct and indirect investment channels.