Credit Ratings in Bond Issuance: A Common Practice to Protect Investors

According to the draft amendment of Decree 155, public bond issuances must be accompanied by a credit rating for either the bonds or the issuing entity. To gain deeper insights into this matter, VietnamFinance – Investment & Finance Magazine conducted an interview with Ms. Ba Thi Thu Hue, FiinRatings' Head of Commercial.

According to the draft amendment of Decree 155, public bond issuances must be accompanied by a credit rating for either the bonds or the issuing entity. To gain deeper insights into this matter, VietnamFinance – Investment & Finance Magazine conducted an interview with Ms. Ba Thi Thu Hue, FiinRatings' Head of Commercial. 

Access March’s full version of Bond Spotlight here: THIS LINK

In recent months, the corporate bond market has been quiet, recording no new issuances. Instead, the most notable trend has been the increase in debt maturity extensions by many enterprises. How do you assess the current maturity pressure in the corporate bond market? 

Ms. Ba Thi Thu Hue: In the first two months of the year, the market saw no corporate bond issuances, except from banks and securities firms. This was partly due to the impact of the Lunar New Year holiday. However, it also highlights that businesses still do not see bonds as an effective capital-raising channel. Additionally, the demand for corporate bonds remains weak and requires more time to recover sustainably. 

Regarding the trend of extending or restructuring bond debt, both the scale and intensity have decreased compared to the peak period of 2023 and the first half of 2024. According to FiinRatings, the total value of distressed bonds, including delayed principal or interest payments and rescheduled bonds, stands at 5.54 trillion VND, which is only 26.8% of the total recorded in Q1 of the previous year. 

Figure 01: Maturity distribution in 2025

Source: FiinRatings

As for maturity pressure, it is estimated that around 192 trillion VND in corporate bonds will mature in 2025 (excluding accrued interest). Specifically, in Q2 2025, approximately 40.6 trillion VND in privately issued bonds will reach maturity. Of this amount: 

• 16.5 trillion VND (40.7%) comes from the real estate sector, 

• 11.9 trillion VND (29.2%) from other industries, 

• 8.2 trillion VND (20.2%) from credit institutions. 

When evaluating bond credit ratings, what factors do rating agencies like FiinRatings consider? How does this differ from issuer credit ratings? If an issuer faces financial difficulties, does the bond rating change immediately? 

Ms. Ba Thi Thu Hue: Technically, when assessing a bond credit rating, we start with the issuer’s credit rating and then analyze additional factors related to the bond’s specific terms and conditions. These include debt seniority, the purpose of issuance, collateral quality, and third-party payment guarantees, among others. 

For example, if a real estate company decides to expand into the energy sector, where it has no proven experience or expertise, we would be more critical when assessing the bonds issued for this new venture. These factors are crucial in determining bond-specific ratings, separate from the overall rating of the issuing entity. 

Additionally, if an issuer experiences financial distress, we reassess the impact of this situation on the bond rating. However, a downgrade is not automatic in every case. For instance, if a bond is fully guaranteed by a financially strong and highly rated financial institution, its credit rating may remain unchanged even if the issuer itself faces financial difficulties. 

Source: FiinRatings, CGIF

If an issuer has multiple bonds with different credit ratings, could investors misinterpret the company's actual risk level? 

Ms. Ba Thi Thu Hue: As mentioned earlier, it is common in both global and Vietnamese debt markets for an issuer to have multiple debt instruments and bond issuances, each with different credit ratings. This is precisely the purpose of credit ratings—to differentiate risk levels, providing the market and investors with a basis for investment decisions and risk management. 

While a company may issue bonds with varying credit ratings, to assess its overall risk level, we primarily rely on the issuer’s credit rating as the baseline for evaluating and determining the rating of any specific debt instrument or bond issuance. 

The reason is that when we rate an issuer, our assessment already incorporates a comprehensive evaluation of all its outstanding bonds and capital-raising plans. This means that the issuer’s rating reflects its overall financial leverage and risk exposure. 

However, investors should pay attention to the fact that different bonds from the same issuer can have different ratings. The key is for investors to fully understand which specific bond they are investing in. Bonds with different credit ratings will also come with varying interest rates, reflecting their respective risk levels. As a result, bond ratings not only help investors better understand the financial products they are choosing but also give them more confidence in making informed investment decisions - even when all the bonds come from the same issuer. 

Why haven't issuers in Vietnam widely adopted bond credit ratings? Do you think the cost is the biggest barrier? 

Ms. Ba Thi Thu Hue: At FiinRatings, we have already conducted credit ratings for several bond issuances. Through our work with businesses, we have found that cost is not the biggest barrier to adopting bond credit ratings. 

One of the main reasons issuers remain hesitant is that they have not yet fully recognized the value that bond credit ratings can offer. 

In many cases, the terms and conditions of rated bonds are not significantly different from those of traditional bonds. As a result, the bond rating often does not differ much from the issuer’s credit rating, making it harder for businesses to see the direct benefits of the service.  

Additionally, some companies believe that since they have already identified investors during the bond structuring process, they do not see the immediate necessity of obtaining a bond credit rating. 

_____________________________________________

About FiinRatings 
FiinRatings, a member of FiinGroup and technical partner of S&P Global Ratings, is a licensed credit rating agency under Vietnam’s Ministry of Finance. Our services include credit ratings, green bond verification, and independent evaluations (Second Party Opinion - SPO), catering to issuers, lenders, and investors across diverse sectors in Vietnam. 

FiinRatings’ SPO services provide independent evaluations of financial instruments, policy frameworks, or transactions aligned with principles set by global institutions like the International Capital Market Association (ICMA) and the Climate Bonds Initiative (CBI). Notably, FiinRatings is the first approved verifier for CBI Climate Bond Standards in Vietnam. 

« Go Back