The Government of Vietnam recently released a draft decree (“Draft Decree”) amending Decree 153/2020/ND-CP that was issued on 31 December 2020 on the trading of privately placed corporate bonds on the domestic market and selling corporate bonds on the international market (“Current Decree”). The Draft Decree was designed to facilitate a more transparent and effective corporate bond market. The Ministry of Finance of Vietnam is seeking appraisals and opinions from the Ministry of Justice to finalize the Draft Decree. There is no guarantee that the contents of the Draft Decree will not change before it is officially issued later this year.
1- Further requirements applicable to issuers
Under the Draft Decree, corporate bond issuers may not use bond proceeds to finance capital contributions, acquire shares or bonds of or provide loans to, other corporate entities.
The issuer must meet the following additional conditions to issue a bond:
- Total outstanding bond value (including the proposed bond issue volume) not to exceed three times the owner’s equity as recorded in its most recent quarterly financial statements;
- Business results of the year preceding the proposed bond issuance having been profitable with no accumulated loss based on audited financial statements; and
- If the total outstanding bond value (including the proposed bond issuance) exceeds 100% of its owner’s equity recorded in the most recent quarterly financial statements, the proposed bonds must be secured or guaranteed bonds.
2- Strict requirements applicable to individual investors
(a) Individual professional securities investors may only purchase secured bonds or guaranteed bonds issued by public issuers.
(b) Individual professional securities investors are defined as:
- Any holder of a securities practicing certificate;
- Any individual holding listed securities or securities registered for trading on a stock exchange (exclusive of securities in margin accounts and repossession) worth at least VND 2 billion (USD 86,253) for at least two years prior to the proposed purchase of the bonds as confirmed by the investor’s securities company; and
- Any individual whose taxable income in the most recent year is at least VND 1 billion (USD 43,126) according a submitted tax return or tax deduction vouchers issued by an employer or income payer.
3- Corporate bonds trading on stock exchange
According to the Current Decree the trading of corporate bonds on a stock exchange would be guided by a further document to be issued by the Ministry of Finance, but it provides details on (i) the conditions, application and procedures for corporate bonds to be registered and deposited with the Vietnam Securities Depository, and traded on a stock exchange, and (ii) how to change or de-register the same from trading on the stock exchange. The Draft Decree would enhance and promote the trading of corporate bonds on the stock exchange as well as strengthen the management and supervision of corporate bonds on the secondary markets.
4- Shorter time for a bond program
Under the Draft Decree, the time limit for a bond distribution in a tranche would not exceed 30 days from the date of regulatory publication of information about the bond issue (versus 90 days under the Current Decree). The total time limit for all tranches under a bond program would not exceed six months (versus 12 months under the Current Decree) from the issue date of the first tranche.
5- Forced redemption
For the first time, the Draft Decree provides measures for an early redemption of a bond within 45 business days upon request by a competent authority or by bondholders if the issuer breaches the regulations on corporate bond issuance or defaults on any of its bond-issuing plans.
6- Representative of the bondholders
Under the Draft Decree, the issuer must appoint a representative of the bondholders among one of the securities investment fund managers, securities companies, and commercial banks (including foreign bank branches in Vietnam), which are accepted by the Vietnam Securities Depository as depository members. A representative of the bondholders may not be or be related to: (i) an adviser on the bond offering, (ii) a guarantor of the bond, (iii) a security provider who provides assets to secure the bond, or (iv) the issuer’s majority shareholder.
For any change to the representative of the bondholders, the Draft Decree would require the approval of bondholders holding 65% or more of the total outstanding bonds at a particular time.
The Draft Decree introduces several important developments and some of the amendments align with the provisions of the Law on Securities 2020. However, some provisions of the Draft Decree, such as provisions on the issuance of green bonds, are still quite general and would likely need to be further guided by regulations of the Vietnamese government or the Ministry of Finance.
The information provided here is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
