Purchase of Corporate Bonds by Credit Institutions and Foreign Bank Branches

On 1 September 2011, the State Bank of Vietnam (SBV) issued Circular No. 28/2011/TT-NHNN (Circular 28) guiding the purchase of corporate bonds by credit institutions, finance companies and branches of foreign banks (collectively referred to as 'credit institutions').

To be eligible for such purchase, a credit institution must be set up and operating in accordance with the Law on Credit Institutions with its establishment and operating license issued by the SBV specifying its right to purchase corporate bonds.

Salient provisions of Circular 28 are discussed below.

Scope of application

The scope of application of Circular 28 is limited to the purchase of corporate bonds by credit institutions on the primary market within the territory of Vietnam, including the purchase by the credit institutions of corporate bonds not taken up by investors pursuant to the underwriting agreement with the issuer. Corporate bonds may be issued by way of either a private or public offering.

Conditions for credit institutions to purchase corporate bonds

To be permitted to purchase corporate bonds, a credit institution must:

• be established under Vietnamese law;
• have the right to purchase corporate bond described in its establishment license; and
• satisfy the requirements on prudential ratios;
• have an internal system of credit rating including credit rating for bond issuers;
• issue regulations on purchase of corporate bonds in accordance with Circular 28 and relevant legal documents.

Branches of foreign banks are not entitled to purchase convertible bonds.

Principles on purchase of corporate bonds

Corporate bonds are purchased according to the following principles:

• the purchase of corporate bonds by credit institutions must be compliant with the Law on Credit Institutions, the Law on Securities, the Law on Enterprises, Circular 28 and relevant legal documents;
• the total investment in corporate bonds will be counted in the total of outstanding credit;
• the purchase of convertible corporate bonds must be compliant with the Law on Credit Institutions and the SBV's guidelines on capital contribution and share purchase; and
• corporate bonds must be purchased in Vietnamese dong.
  

Provisions for stock depreciation

Credit institutions must set up reserves and conduct risk handling pursuant to the guidelines of the Ministry of Finance for listed bonds and the guidelines of the SBV for unlisted bonds.

Orgnisation of implementation

Circular 28 requires credit institutions to issue their regulations on corporate bonds and send these regulations to the banking inspection bodies for the purpose of supervising their purchase of corporate bonds.

Corporate bonds purchased by credit institutions prior to the effective date of Circular 28 are allowed to be in circulation till the maturity date.

Effectiveness

Circular 28 will come into effect on 20 October 2011.

For inquiries related to this Legal Update, please contact Mai Phuong Nguyen, Cuong Nguyen or your usual contacts with our firm.

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