Developing the Corporate Bond market- International Experience and Lessons for Vietnam Companies

Abstract

-Vietnam is in the process of developing into a middle-income country in the world. The widespread epidemic of covid-19 has had a negative impact on most Vietnam enterprises. However, the Vietnamese government s success in disease control has contributed to the recovery of business performance and efficiency. Vietnamese enterprises used to mobilize capital mainly through banking channels. In recent times, bonds are an important longterm capital mobilization tool for businesses, helping businesses reduce their dependence on commercial banks. This article mentions the development of the Vietnamese corporate bond market based on the experiences of several countries around the world. Keywords--business (Es), bonds (B), bond market (BM), corporate bonds (CB), credit rating (CR) _________________________________________________________________________________________________ 1. EXPERIENCE IN DEVELOPING THE KOREAN CORPORATE BOND MARKET 1.1. History of establishment and development Korea s bond market was formed in the early 1950s when the Government issued Country Construction bonds to promote economic development and rebuild the country after the war. After that, businesses also started to issue bonds to attract capital (ADB, 2018). Before 1972, Korean corporate bonds (CBs) were only issued separately by a few large companies. In 1972, bond guarantees were introduced paving the way for the public issuance of CBs. All publicly issued CBs at that time were guaranteed by commercial banks (CBs), securities companies (SC) and financial institutions (FI). Until the mid-1980s, CBs were guaranteed to dominate the Korean CB market. The major investors of CB are investment funds and banks. The loosening of regulations on CBs led to a sharp increase in corporate bond mobilization (Hwang, 2016). Credit rating (CR) is an important criterion for investors in making financing decisions The 1997 Asian financial crisis had a strong impact on the Korean CB market. During the crisis, a number of major issuers went bankrupt. This caused a deterioration in the asset quality of financial institutions that guaranteed bond payments and caused the Korean financial market to freeze. The Korean government tried to restructure the CB market with a series of market infrastructure changes. Thereafter, the CB market has undergone significant structural changes after the crisis. Unsecured bonds gradually replace bonds guaranteed by major financial institutions. The CB market is also becoming more diversified with the introduction of asset-backed securities. This also increases the proportion of foreign investment in the CB market. In addition, the credit rating (CR) criteria of the bonds have also been changed, following a clearer and more transparent orientation. Therefore, the Korean CB market has gradually become a market with many high quality bonds. At the same time, the Government has also implemented many measures to facilitate the issuance of CBs with lower CR: introducing high-interest bond investment funds, launching the institutional investor market with enough conditions. sue and encourage liabilities collateralized by low-rated bonds. These measures have encouraged lower ranked companies to raise more money through the CB market. 1.2. Market situation The Korean CB market can be considered as an effective long-term capital mobilization channel and continuously grows steadily over time. In 2000, the scale release CB South Korea reached 292 trillion KRW only has increased more than 4 times, reaching more than 1,200 trillion KRW in 2017. Asian Journal of Business and Management (ISSN: 2321 2802) Volume 9 – Issue 2, April 2021 Asian Online Journals (www.ajouronline.com) 49 The trading size CB Korean growth also amazing in the past. Basically, the transaction size on the secondary market tends to increase in the period 2000 2017. However, it can be seen that 2003 2007 was the period when the CB market reached a low level, the transaction size translation is only between 50,000 60,000 billion KRW. In contrast, in 2013, the transaction market peaked at nearly 190,000 billion KRW. The reason is that during this period, the Korean Government has implemented a number of policies to increase market transparency, promote bond transactions.