Vietnam’s domestic bond issuance is set to recover in 2024 after a plunge following tighter regulations and corporate distress over the past two years. As corporate bond issuance rises, Moody’s newest domestic affiliate Vietnam Investors Service (VIS Rating) will play a crucial role in enhancing market transparency and building investor confidence.
“Moody’s is firmly committed to supporting VIS Rating as it aims to provide independent, best-in-class ratings that will empower investors to make better, more informed decisions,” said Ms. Wendy Cheong, managing director and regional head of Asia-Pacific, Moody’s Investors Service.
In November 2023, Moody’s and VIS Rating hosted an official launch ceremony that was attended by distinguished guests from various Vietnamese ministries including the Ministry of Finance and government agencies, the US Embassy, as well as leaders from the local business community. The domestic credit rating agency was set up by Moody’s in collaboration with several local financial institutions and granted a credit rating licence by the Ministry of Finance in September. Moody’s is the largest minority shareholder in VIS Rating.
Ribbon-cutting ceremony at VIS Rating’s launch with (front row) Ms. Wendy Cheong, MD and Head of APAC, Moody’s Investors Service; Mr. Nguyen Hoang Duong, Deputy Director General, Banking and Financial Institutions Department, Ministry of Finance; and Mr. Pham Phu Khoi, Chairman of VIS Rating.
Leveraging Moody’s global best practices and extensive capabilities, VIS Rating has built out its ratings and research function. These include developing its rating methodologies; publishing research reports; engaging in market outreach through industry events and media interviews; as well as developing its own database and ratings platform.
“VIS Rating will continue to draw on Moody’s expertise and deep insights to introduce global best practices to the domestic market. This will help enhance market transparency and support the development of efficient and liquid debt capital markets in Vietnam,” said Mr. Tran Le Minh, managing director and CEO of VIS Rating.
Over the past two years, several bond defaults hit the Vietnamese debt capital market with the majority coming from the troubled property, construction and renewable energy sectors, according to a report by VIS Rating.i The report found that new bond defaults peaked in the first quarter of 2023 and will decrease in 2024, mainly due to regulatory measures allowing debt workout mechanisms to resolve or avoid bond defaults. According to VIS Rating’s corporate bond database, the total value of defaulted bonds reached D173trn (US$7bn) at end-2023.
Looking ahead, VIS Rating expects Vietnam’s credit outlook to improve over the course of 2024, underpinned by low financing costs, improving domestic operating conditions and a slower pace of defaults.ii Recent policy measures to lower interest rates and support corporate refinancing needs will gradually take hold. VIS Rating believes this will help to ease the liquidity stress faced by bond issuers, especially those in the property, construction and utilities sectors.
In January 2024, the stricter eligibility criteria for individual bond investors and the adoption of mandatory credit ratings under Decree No. 65 will be implemented (see chart).
“VIS Rating expects the corporate bond market to enter a new development phase in 2024 as market discipline strengthens following more stringent requirements for all stakeholders, sparking a recovery in new bond issuance,” added Mr. Minh.
Vietnam’s domestic bond market has large growth potential with outstanding corporate bonds comprising just 12% of GDP as of December 2023. As the market develops, credit ratings and research will play a meaningful role by helping companies access new sources of capital, diversify their funding base, enhance market transparency, as well as maintain investor confidence during times of market stress.
As such, VIS Rating has a vital role to play. It has conducted joint events with Moody’s, as well as foundational and market educational outreach to deepen Vietnam’s credit culture and bring value to local market participants.
For Moody’s, VIS Rating not only broadens its network of domestic affiliates in Asia but also complements its cross-border coverage. Since Moody’s first assigned a sovereign rating to Vietnam in 1997, it has grown to become the leading global rating agency in terms of cross-border coverage in the country.
“As Vietnam’s domestic bond market flourishes, Moody’s is here for the long haul. We will continue to provide technical and talent support to VIS Rating on its exciting journey to become the country’s rating agency of choice,” said Ms. Cheong.
i “Corporate Bond Market Perspective: Proactive negotiations will slow down bond defaults in 2024, marking the start of a new development phase and recovery of bond issuance”, Vietnam Investors Service, 10 October 2023
ii “Vietnam 2024 Credit Outlook: Low interest rates and policy measures will support the recovery of domestic operating conditions and dampen the effects of external uncertainties”, Vietnam Investors Service, 12 December 2023
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