Risk of Payment Delays as Vietnamese Developers Encounter $2.3 Billion in Upcoming Bond Maturities

Vietnamese real estate developers are facing increasing pressure to meet debt repayment obligations, with a staggering VND59 trillion (approximately $2.35 billion) worth of bonds set to mature by the end of this year. This looming financial burden has raised alarms in the industry, prompting urgent discussions among key stakeholders.

At a recent cabinet meeting, Minister of Planning and Investment Nguyen Chi Dung underscored the urgency of the situation, urging the Ministry of Finance to promptly identify and implement solutions to the challenges posed by corporate bonds. His concerns echoed the widespread sentiment among developers who are grappling with not only maturity timelines but also the legal hurdles that obstruct progress in ongoing real estate projects.

Recent assessments from VIS Rating Agency revealed a troubling trend: out of VND9 trillion ($358.4 million) in bonds maturing in July, a staggering 60% were deemed at risk of experiencing delays in principal repayments, predominantly among real estate firms. This precarious status is not an isolated case; over the next 12 months, an estimated 18% of outstanding bonds totaling VND207 trillion ($8.24 billion) will reach maturity, with 27% of those in the residential real estate and construction sectors indicating a high likelihood of delayed payments. Alarmingly, 65% of these bonds have already encountered late interest payments.

According to the Hanoi Stock Exchange (HNX), as of mid-July, approximately 80 firms had defaulted on interest payments or principal repayments on their bonds. The total outstanding individual bonds for these companies is estimated to be around VND190 trillion ($7.57 billion), representing about 18.7% of the overall corporate bonds in the market, with a majority issued by real estate developers.

In the first seven months of 2024, the finance ministry reported a significant increase in corporate bond issuances, with 174 bonds amounting to VND161.5 trillion ($6.43 billion)—a 2.6-fold increase compared to the previous year. Among these, VND38.7 trillion ($1.54 billion) were issued by real estate entities, marking a 24% year-on-year rise. Notably, a substantial 84.4% of these bonds were secured bonds, reflecting the heightened risk appetite among investors.

A report from MBS Securities highlighted a stark reality for investors, revealing that the average yield rate for real estate corporate bonds has surged to 12%. This rate is more than double that of bonds issued by credit institutions and significantly higher than bank interest rates for comparable terms. Adding to the complexity, the average term for these real estate bonds is only 2.7 years, placing additional pressure on developers.

Financial analysts from FiinGroup noted a concerning trend: since the first half of 2023, many real estate firms have been grappling with liquidity challenges, leading some corporate bonds to trade with yields as high as 20-25%. Typically, these high-yield bonds are linked to companies facing difficulties in project implementation. As such, these firms are expected to face considerable financial strain in the coming 12-18 months, with limited options for refinancing or raising new capital.

Despite signs of recovery in the local real estate market, VnDirect Securities reported that the path ahead remains fraught with obstacles. Many bond issuers, particularly in the real estate sector, continue to confront serious cash flow issues, resulting in persistent delays in bond debt repayments. This ongoing situation highlights the precarious balance that developers must strike between meeting their financial obligations and navigating an uncertain economic landscape.