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Real Estate Debt Crisis Builds in Vietnam

I am just now "dialing in" to the Vietnamese bond market story that has developed for the better part of a year. In 2022 the Vietnamese Government launched a crackdown on issuers of corporate bonds. Reuters reported on three high profile arrests in April and there have since been more, leading Vietnamese firms to buy back their debt in October. Issuance of new corporate bonds dropped 25% in October compared to the year before.

One new regulation, known as Decree 65, limits ownership of Vietnamese corporate bonds to institutional investors. This has caused a structural drop in demand as the pool of investors who are even qualified to own bonds is reduced.

A "Zombie Company" is one that generates no profits and requires periodic issuance of new bonds to stay afloat. The fall off in new bond issuance, caused by a selloff among investors of Vietnamese corporate bonds, could be revealing which firms are Zombie-like.

According to the Hanoi Stock Exchange, 54 companies have delayed payments on their outstanding debt, including the nation's second largest real estate developer - Novaland. A month earlier, the number was only 6.

The Straits Times reported in December that some developers have been forced to liquidate properties at a 40 percent discount. Overall, Fitch ratings is forecasting a real estate price decline of in the year ahead. An estimated 4.6 billion USD of corporate debt issued by Vietnamese firms is due to mature in 2023. Large companies all over the world often count on short term funding from the bond market to refinance their debts, and have major problems when the funding is unavailable.

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