JOURNALIST: - Dr. Hiếu, how would you assess the impact of Decree 08, and do you believe it's necessary to extend the temporary suspension of Decree 65?
Dr. NGUYỄN TRÍ HIẾU: - Decree 08 was introduced to temporarily suspend specific regulations outlined in Decree 65. However, it has not fully addressed the challenges faced by the corporate bond market. The market remains relatively inactive, with no notable bond issuances from major companies, indicating that the market has yet to recover. Regarding the extension of the suspension, in my opinion, it might not be necessary.
Decree 08, in essence, attempted to alleviate difficulties for issuers rather than instill confidence and protect investors. Regardless of the decree, if an issuer faces challenges in repaying debt, negotiations between parties to extend the timeline or find alternative repayment solutions, such as with projects or real estate, can still take place. Essentially, existing civil agreements continue to be in effect.
The primary issue at present is that investors have not yet regained confidence in the corporate bond market. Some argue that while Decree 08 has relaxed certain aspects, it hasn't yielded significant results. As of January 2024, Decree 65 will be reinstated, potentially complicating the corporate bond market.
Although this may be true, focusing on the long-term goal suggests that Decree 65's regulations aim to enhance the corporate bond market, avoiding the pitfalls witnessed during the bond cases in 2022. It emphasizes assessing the issuer's ability to repay debt during document reviews, implements regulations on the qualifications of professional investors, and underscores the need to enhance the credit rating of issuing companies. These measures aim to empower investors to make informed decisions about purchasing bonds.
- Sir, you've talked about credit ratings for bond issuers, and this has been a hot topic during market crises. Can you explain how credit ratings help address risks in the market?
- First, it's important to recognize that no economic sector can guarantee an issuer's ability to repay debt. Authorities assess this ability but can't assure that businesses will repay debts. Credit rating agencies don't guarantee repayment within a specific timeframe, nor do they advise investors on which bonds to buy. Their role is to evaluate an enterprise's ability to repay debt based on financial surveys, considering factors like the number of bonds, time, and interest rates. They assign ratings from best to average or bad based on the assessed ability to repay debt.
Investors use this information to gauge risks and make their own decisions. Corporate bonds are less risky when there's a third-party guarantee for payment, such as a bank stepping in if the issuer can't repay. However, in such cases, the bond's interest rate is very low, similar to savings rates, and these guarantees are rare.
This doesn't mean credit ratings are unnecessary; they provide crucial support for the market. Investors consider ratings along with factors like the issuer's ability to repay debt and the appropriateness of the interest rate when making decisions.
- Sir, considering the current licensed credit rating companies, do you think they can meet the demands of the market? And how do we ensure that these rating agencies remain fair and independent?
- Well, in Vietnam, the credit rating process isn't deeply rooted, and these rating companies are relatively new. If we suddenly mandate credit ratings for all issuing companies, it might overwhelm them, leading to increased competition on pricing, potentially compromising the quality of the ratings.
However, if we want to enhance our credit rating system, we need to provide these companies with opportunities to assess and rank. Currently, the Vietnamese bond market represents only about 15% of GDP, falling short of the government's target of reaching at least 20% by 2025 and 25% by 2030, and lags behind some neighboring countries. To achieve these goals, simply relying on Decree 65 isn't sufficient; there's a need for stricter regulations on bond issuance to safeguard investor rights.
Given recent significant shocks, recovery may take up to three years. Currently, the market involves businesses purchasing from one another, and banks buying from businesses, as they understand each other's financial situations.
However, individual investors are still hesitant to enter the individual bond market, even though it constitutes a significant portion of the Vietnamese bond market. Analyzing aspects like cash flow, the path of cash flow, and selecting the right index for analyzing outstanding debt is complex and challenging. Without a clear understanding, inaccurate investment decisions can occur, potentially harming investors. Credit ratings for issuing companies can play a crucial role in addressing these challenges.
- Thank you very much.
