With its strong development over the past few years, the corporate bond market has proven to act as an important channel for raising medium- and long-term capital, thus helping alleviate dependence on bank loans.
Since 2019, the corporate bond market has flourished with an annual value of issued bonds at approximately VND 467 trillion. In 2021 alone, the scale of capital mobilization through this channel reached VND 682 trillion, accounting for about 15 percent of GDP.
The growth of the corporate bond market in recent years is attributable to the prompt issuance of relevant regulations, such as Decree 153 of 2020 (Decree 153), the 2019 Law on Securities, the 2020 Law on Enterprises and guiding documents.
However, there remain legal loopholes in the above regulations, making new risks arise. For instance, several firms with financial weakness issued bonds with high interest rates and large volumes, or some amateur individual investors bought privately placed corporate bonds or contributed capital under investment cooperation contracts in accordance with the civil law although they are not qualified for doing so.
To deal with the situation, the Government on September 16 issued Decree 65, revising a number of articles of Decree 153, on private placement and trading of privately placed corporate bonds in the domestic market and offering of corporate bonds to the international market. This is expected to create a healthier corporate bond market for both bond issuers and investors.
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| A press conference to introduce Government Decree 65 of 2022 on corporate bonds__Photo: Pham Hau/VNA |
Change in requirements for use of funds from bond issuance
Decree 65 revises provisions on bond issuance purposes so as to strengthen bond issuers’ responsibilities and obligations in using bond proceeds.
As designed, corporate bonds are issued to implement investment programs and projects, restructure debts (instead of funding sources as provided in Decree 153) of bond issuers, or for other purposes according to specialized laws.
In light of this, bond-issuing enterprises are requested to clearly state the purposes of bond issuance in their bond issuance plans and disclose information to investors registering for bond purchase. They are also obliged to use funds raised though bond issuance for purposes stated in the bond issuance plans and disclosed information.
Regarding principles of bond issuance and use of funds raised, the new rule adds Clauses 4 and 5 to Article 5 of Decree 153, saying that regarding bonds already issued in the domestic market, enterprises may only change the terms and conditions of the bonds once they get approval from competent persons and acceptance of bondholders representing at least 65 percent of the total number of bonds of the same type in circulation.
As per supplemented Article 22.1, bond-issuing enterprises will have to disclose extraordinary information in case of change in terms and conditions of the issued bonds or replacement of the representatives of bondholders. They must also do so when being compelled to redeem premature bonds, or when receiving competent agencies’ decisions on sanctioning of administrative violations in the field of securities and securities market or when being handled for their violations.
The new Decree also increases the par value of corporate bonds privately placed in the domestic market by a thousand times to VND 100 million or its multiples, from VND 100,000 or its multiples under Decree 153.
More specific provisions on professional securities investors
Decree 65 makes it clearer as to how to identify professional securities investors who may invest and trade in privately placed bonds.
Under amended Article 8, professional securities investors are investors that have securities-related financial capacity or professional qualifications. They must ensure that the value of their listed securities or securities registered for trading is at least VND 2 billion, calculated according to the average daily market value of such securities for at least 180 consecutive days prior to the date of identification of the professional securities investor status, exclusive of the value of margin loans and value of securities put for trading. Professional securities investor identification will be valid for three months.
Another novel point is the addition of provisions on representatives of bondholders, aiming to strengthen supervision of the use of funds from issued corporate bonds as well as implementation of other commitments by bond issuers.
Accordingly, the representative of a bondholder must report to the State Securities Commission and the Stock Exchange on a quarterly and annual basis, or in case the bond issuer is found to have committed violations, affecting bondholders’ interests.
Bondholders’ representatives must comply with the securities law and Article 1.11 of Decree 65 when providing representation services and submit to the management and supervision by the State Securities Commission. Depending on the nature and severity of their violations, these representatives will be administratively sanctioned or examined for penal liability in accordance with law.
Shorter time for information disclosure
The new Decree revises provisions on the time limit for information disclosure and contents subject to disclosure in order to increase the transparency of bond issuers and the use of funds raised through bond issuance.
Specifically, the time limit for disclosing information on results of private placement of corporate bonds is shortened to five days from 10 days. The decree says that no later than five working days from the date of completion of the private placement of corporate bonds, enterprises must disclose information about the results of the private replacement to the bondholders and send the disclosed content to the Stock Exchanges.
In case the bond private placement fails or is cancelled, within five working days from the end of the bond distribution, bond issuers must disclose information and send the disclosed content to the Stock Exchanges.
Regarding premature redemption of bonds, the new rule states that enterprises may prematurely redeem the issued bonds as agreed with bondholders or are subject to compulsory redemption as requested by the bond investors.
The compulsory redemption is applicable when bond issuers violate regulations on private replacement and trading of corporate bonds under decisions of competent authorities, or breach bond issuance plans, and such violations are irremediable or remedial measures are not accepted by bondholders representing at least 65 percent of the total number of bonds of the same type in circulation; or fall into other cases as stated in the bond issuance plans.
However, it is noted that the compulsory redemption of bonds is not applicable in case the bonds are subject to withdrawal under decisions of competent authorities.
Particularly, the premature redemption of bonds offered to the international market must comply with the State Bank’s regulations on foreign exchange management. After being redeemed, the bonds will be cancelled.
Speaking at a seminar held in May, Dr. Can Van Luc, member of the National Monetary Policy Advisory Council, said that from now to 2030, the country needs to mobilize VND 700 trillion to 1 quadrillion per year in medium- and long-term capital, in addition to bank loans. Meanwhile, the corporate bond market is a potential channel for capital mobilization.
“However, to develop a healthier corporate bond market, more comprehensive solutions are needed”, Luc said. He suggests revising Decree 156 of 2020 on sanctioning of administrative violations in the field of securities, and making amendments to the 2019 Law on Securities, including raising standards on professional investors.
There should be regulations on credit rating so as to help investors determine the quality of bond issuers and risks of issued bonds, specifying cases subject to compulsory rating or optional rating, the economist suggested.
It is also necessary to seek solutions for improving the quality of bonds to be issued, such as issuing more specific provisions on the scale, frequency of and conditions for bond issuance; and facilitating the bond issuance through simplification of procedures and shortening of time for dossier processing, the expert stressed.-
