Businesses prefer corporate bonds to bank loans Tens of trillions of dong worth of corporate bonds have been issued recently by enterprises, mostly real estate development firms.   Capital is now easily accessed by import/export companies and trade businesses, but it is never enough for real estate developers. IJC, an infrastructure development firm, late last week released the board of directors’ resolution on a plan to issue VND400 billion worth of five-year corporate bonds to SeABank. The bond interest rate will be 12.2 percent for the first year. In late September 2014, IJC announced a plan to issue VND600 billion worth of bonds to raise funds for the Sunflower II project. IJC is not the only business which has decided to issue bonds instead of borrowing money from banks. Nam Bay Bay, a civil engineering company, Sao Mai Group, Ngan Son, Vingroup, Ocean Group, Masan and the Kinh Bac Urban Development Corporation all have issued bonds so far this year, totalling tens of trillions of dong. Even the Saigon Securities Incorporate (SSI), dubbed as the “big guy who is never short of money” has also decided to issue VND1-1.5 trillion worth of nonconvertible bonds to expand its securities trading business. Analysts noted that issuing bonds is one of two favorite ways businesses, especially real estate developers, choose to mobilize capital. In fact, issuing shares to increase chartered capital is believed to be the best solution for businesses. It allows them to improve financial capability, and they don’t have to pay interest on the capital. However, now is not the right time for businesses to issue shares, because the stock market remains gloomy and investors do not want to pour more money into stocks. A lot of companies, including DGL, ASM and HAR, did not succeed with their share issuance campaigns recently. Many existing shareholders refused the right to buy additionally issued shares, because the share market prices are near the share face value. Therefore, they would rather make transactions on the bourse than by cash to buy shares directly from enterprises. An analyst noted that issuing corporate bonds to mobilize capital is similar to getting a bank loan. IJC, for example, still mortgaged assets when it issued corporate bonds. Meanwhile, the bond interest rates, in most cases, are higher than bank loan interest rates. The interest rate is fixed for the first year, but from the second year, it will float. In general, it is calculated by the average bank loan interest rate, plus a margin of 3.5-4.5 percent per annum. “No one can say that the margins are low,” he said. He pointed out that low interest rates have only been applied to convertible bonds with negotiable conversion prices. However, convertible bonds could cause the so-called “stock dilution”, which would cause losses to investors. TBKTSG