Need to study mechanism for bankrupt enterprises

"Zombie Bonds": Need to study mechanisms for bankrupt businesses

In fact, some businesses today exist like zombies, unable to repay their bonds. According to Dr. Le Xuan Nghia, an economic expert, the most feasible solution for these cases is to allow bankruptcy.

According to VIS Ratings' estimates, about 27% of maturing bonds are at risk of default in the next 12 months (including 65% of previously overdue bonds). Meanwhile, the pressure to mature corporate bonds in the 2024-2025 period remains very high.

In this situation, there are concerns that bond defaults will occur, especially real estate bonds. However, Dr. Can Van Luc, an economic expert, said that real estate businesses have overcome the most difficult period (June - August 2023) thanks to Decree 08/2023/ND-CP allowing negotiations to extend and postpone debt repayments.

Basically, 60% of real estate enterprises have extended their bonds for 2 years (June 2025 peak), enterprises proactively buy back bonds according to the issuance conditions and start issuing again to reduce capital pressure. In addition, the real estate market is warming up, enterprises are willing to sell assets to set aside a portion to pay off debt.

“The phenomenon of bankruptcy is unlikely to happen because the most difficult time has passed, there are many synchronous solutions to solve it. In fact, real estate businesses do not need to discount products by 40-50% like before, a discount of about 10% is enough to sell,” Dr. Can Van Luc commented.

Regarding this issue, Mr. Nguyen Quang Thuan, General Director of FiinRatings, said that overdue debt is the biggest problem of the corporate bond market in the period of 2024-2025.

“The support should not only focus on rescuing bonds but most importantly on resolving real estate legal issues. Once this issue is resolved, handling overdue debt will be very easy,” Mr. Thuan suggested.

However, in reality, some businesses today exist like zombies, unable to repay their bonds. According to Dr. Le Xuan Nghia, an economic expert, the most feasible solution for these cases is to allow bankruptcy.

"Regarding the problem of not paying principal/interest on bonds on time, causing investors to lose confidence, I think the most basic solution is bankruptcy. Any enterprise that cannot pay its debt, and is in such a bad situation, should be declared bankrupt and investors need to learn to accept risks and losses," Dr. Le Xuan Nghia suggested.

However, Dr. Can Van Luc said that in Vietnam, it is difficult for normal businesses to go bankrupt, and it is even more difficult for businesses with bond debt to go bankrupt.

According to the Bond Market Association, the most important factor in developing the bond market is transparency. There are many measures and tools to maintain transparency, including internal corporate governance, audits, inspections/checks by regulatory agencies, and mandatory information reporting. Credit ratings also contribute to increasing transparency and making the market develop more healthily and substantially.

Regarding the bankruptcy issue, Mr. Do Ngoc Quynh, General Secretary of the Vietnam Bond Market Association, said that perfecting and improving the effectiveness of the Bankruptcy Law is very important. All development is based on the law of elimination, otherwise it will be like "a body that cannot digest food will have many diseases".

“Decree 08 allows for extension negotiations, but individual investors do not have the capacity to evaluate issued bonds, so when businesses request an extension, individual investors are in a state of panic. Many individual investors are forced to accept the extension negotiations. On the other hand, there is currently no answer to the question, “If we do not accept, how can we sue the business?”. It is necessary to recognize that if we continue to extend the term with businesses that cannot recover, the situation may get even worse,” Mr. Quynh frankly said.

Source: https://baodautu.vn/zombie-trai-phieu-can-nghien-cuu-co-che-cho-doanh-nghiep-pha-san-d222566.html