On 31 December 2020, the Government of Vietnam issued Decree No. 153/2020/ND-CP (Decree 153), to regulate the private offering of corporate bonds for the local market and corporate bonds offering for the international market. Decree 153 is effective from 1 January 2021.
After the issuance of Decree 153 in 2021, the corporate bonds market in Vietnam witnessed rapid growth. The Ministry of Finance (MoF), when noticing non-compliance and/or high-risk financing via corporate bonds, prepared a draft decree to amend some provisions related to the private offering of corporate bonds in the domestic market in Decree 153 (Draft Decree).
The intention is to further tighten regulations in Decree 153 with the objective to lower risks for investors and make the market more transparent.
In this update, we will look at the key legal issues in the Draft Decree.
Under the Draft Decree, companies may not issue bonds to contribute capital in any way, to acquire shares or bonds of other companies, or to lend to other companies. Furthermore, the capital raised from the issuance of corporate bonds may only be used for the issuing company, with the same purpose as the one stated in the issuance plan and information disclosed to investors.
This change in the Draft Decree, if passed, could potentially have a negative impact on the ability of Vietnamese companies to raise funds for leveraged buy‑out deals, making it harder for them to compete with foreign counterparts. The MoF is asked to reconsider this amendment for this reason.
The Draft Decree requires that prior to performing any purchase or sale of bonds, the investor must have its professional securities investor status confirmed.
Some are of the opinion that it is not necessary to confirm professional securities investor status before the sale of bonds, given that the investor already owns the bonds and there is no need to limit the right of investors to sell.
According to the Draft Decree investors have the right to request the issuer of the bonds to repurchase the bonds before maturity if it is discovered that the issuer uses money collected from the issuance for purposes other than those stated in the bonds issuance plan or undertaking to investors.
The provision is unclear as to how discovered is determined, e.g. whether an investigation report by the competent state authority is required to confirm the violation of the issuer.
Furthermore, the Draft Decree requires bonds issuers to have credit rating results by credit rating agencies as part of the issuance documents for bonds offered to individual professional securities investors, bonds issued without collateral or payment guarantee, or bonds issued by a corporate issuer that has suffered business losses accumulated by the issuance year or accrued in the previous year. Similarly, the Draft Decree only allows individual professional securities investors to buy privately offered bonds with credit ratings. The exception is when the purchases are legally performed under a court or arbitration decision that has taken effect or an inheritance.
Some experts are of the view that the credit ratings’ requirement deprives investors of their freedom of choice and is not practically viable in the near future, considering the lack of credit rating agencies in the market.
The Draft Decree clarifies that the bondholders’ representative is responsible for supervising the use of raised capital from the bonds’ issuance, receiving and managing the collateral, supervising the performance of the issuing company’s undertakings, and performing other responsibilities in securities regulations, if any.
The intention of the Draft Decree is to lower risks to investors and the financial system, as well as give more transparency to the market of privately offered corporate bonds. However, if the Draft Decree is passed without further modification, we believe there may be an undesirable negative impact on the corporate bonds market. Various public opinions should be taken into consideration to obtain a decree with a more balanced and practical approach to achieve the intended purpose of better regulating the market.
For more information, please contact:
Huyen Pham / Senior Associate
Duc Tran / Associate
© 2022 ACS Legal Vietnam Company Limited – All rights reserved
This legal update is not an advice and should not be treated as such.
Download pdf: Draft Decree Intends to Lower Risks for Investors in Corporate Bonds
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