Behind schedule cost chance as Vietnamese builders face $2.3 bln in maturing bonds

Vietnamese real estate developers are under growing debt repayment pressure as VND59 trillion ($2.35 million) worth of bonds mature by the end of this year.

Noting this, Minister of Planning and Investment Nguyen Chi Dung suggested at a regular cabinet meeting early this week that the Finance Ministry identify and implement solutions to issues related to corporate bonds. It has also recommended that the Ministry of Construction work to clear obstacles, especially legal hitches, hindering real estate projects.

Meanwhile, the VIS Rating agency had assessed that out of VND9 trillion ($358.4 million) of bonds maturing in July, 60% were at risk of having principal repayments delayed, mostly by real estate firms.

The agency estimates that over the next 12 months, approximately 18% of outstanding bonds totaling VND207 trillion ($8.24 billion) will reach maturity. Of this, 27%, primarily in the residential real estate and construction sectors, are at risk of delayed principal repayments. Notably, 65% of these bonds have already experienced late interest payments, the ratings agency said.

According to the Hanoi Stock Exchange (HNX), as of July 15, 80 firms had defaulted on payment of interest or repayment of principal of bonds. The HNX estimates that the total outstanding individual bonds of these 80 enterprises amounted to approximately VND190 trillion ($7.57 billion), representing about 18.7% of the total outstanding individual corporate bonds in the market. The majority of these bonds had been issued by real estate developers.

The Ministry of Finance has reported that in the first seven months of 2024, there were 174 corporate bond issuances totaling VND161.5 trillion ($6.43 billion), a 2.6-fold increase over the year. Of this total, VND38.7 trillion ($1.54 billion) were issued by real estate companies, a 24% year-on-year increase. Notably, 84.4% of these real estate bonds were secured bonds.

A report by MBS Securities says the annual average yield rate for real estate corporate bonds has risen to 12%, more than double that of corporate bonds issued by credit institutions and twice as high as bank interest rates for similar terms. Additionally, the terms for these real estate bonds are shorter, averaging just 2.7 years.

Experts from financial data provider FiinGroup have noted that since H1/2023, many real estate firms have faced liquidity challenges. As a result, several corporate bonds have been traded with yields as high as 20-25%, typically issued by companies struggling with project implementation. These companies will be under significant financial pressure over the next 12-18 months, with limited capacity for refinancing or raising new capital.

VnDirect Securities has noted in a report that although the local real estate market has overcome its most challenging period, it remains subdued. It says in a report that many bond issuers, particularly those in the real estate sector, continue to face significant cash flow constraints, leading to delays in bond debt repayments.