On 16 September 2022, the Vietnamese government released the long-awaited Decree No. 65/2022/ND-CP (the New Decree) amending Decree 1531. The New Decree aims to enhance transparency in the corporate bond market and appears designed to protect investors in several key areas, such as requiring greater specificity in offering documents, setting a floor with respect to bondholder thresholds to approve changes to the terms and conditions of the bonds, and mandating additional information disclosure obligations by issuers. The New Decree also imposes additional requirements and responsibilities on issuers and relevant securities intermediaries, and limits the scope of eligible investors. In recognition of the need for efficient pricing and coming to market, the timeline for bond issuance has been reduced from 90 to 30 days.
However, the most notable aspects of the New Decree may be its omissions. In earlier drafts of the New Decree, there were certain financial requirements imposed on issuers that would have further constrained liquidity in a challenging economic environment – namely, the total outstanding bond value could not have exceeded three times owner's equity as reflected in the most recent quarterly financial statements and if the total outstanding bond value exceeded 100% of the owner's equity in such financial statements, the bonds would have needed to be secured or guaranteed.
The absence of these provisions from the final version of the New Decree is welcome news for investors and issuers alike as it may reduce roadblocks to issuers coming to market in a stormy global environment.
1. The Offering and Timeline to Market
- Issuers may only issue bonds for purposes of implementation of programs, investment projects and restructuring its principal indebtedness. In particular, bonds may generally not be issued to increase capital or restructure its capital sources (as permitted under the former Decree 153). A key change is that bonds cannot be used to refinance debts of subsidiaries or affiliated companies of the issuer.
- Bonds may be guaranteed by domestic credit institutions and branches of foreign banks and international and overseas financial institutions.
- The private placement plan is now required to include additional information, such as the use of proceeds from outstanding bonds and the proposed offering plan. The private placement plan must also include details on repayment terms and information on several additional financial ratios, and assessment on the issuer's financial ability and solvency. Decision-making matters requiring the supermajority approval of bondholders must be clearly set out. Secured bonds must include specific details regarding the secured assets, valuation, and registration and priority ranking of bondholders.
- The offering application now specifically requires a credit rating of the issuer if (i) the total value of bonds issued by the issuer within 12 months based on par value exceeds VND 500 billion (US$165 million) and 50% of its equity or (ii) the total value of outstanding bonds at the time of application exceeds 100% of its equity, according to its most recent financial statements. Previously, a credit rating was only required in the context of making a public offering, and under the former Decree 153, there was no requirement to obtain a credit rating for a private offering . Whilst this provision is clearly designed to enhance the quality of issuances, certain issuers may struggle to meet this new requirement.
- The regulatory timeline for completion of the offering has been shortened from 90 days to 30 days. With respect to multi-tranche offerings, the timeline for completion of each tranche has also been shortened from 90 days to 30 days (with the total timeline for the offering shortened from 12 months to 6 months).
2. Optional Early Redemption and Amendments to the T&Cs
The New Decree permits bondholders to request early redemption in certain limited scenarios. The first is where the issuer commits a violation of the laws on offering and trading of corporate bonds and the breach cannot be rectified or the proposed rectification measure is not approved by the bondholders representing at least 65% of the bonds of the same class. The second is where the issuer breaches the terms of the approved private placement plan and the breach cannot be rectified or the proposed rectification measure is not approved by the bondholders representing at least 65% of the bonds of the same class (or other cases as specifically provided in the private placement plan).
In addition, changes to the terms and conditions of domestic bonds or changes of bondholders' representatives now require approval of bondholders representing at least 65% of bonds of the same class.
These represent a key step in ensuring transparency and investor protection in the bond market which industry experts have considered to be lacking.
3. Scope of Eligible Investors
The New Decree provides guidance on requirements for eligible investors, as well as documentation as evidence for such eligibility. The New Decree explicitly confirms the responsibilities of both issuers and securities companies in the determination and certification of investor eligibility with respect to participation in private bond issuances.
The New Decree further stipulates with respect to individual investors that a person must hold a portfolio of securities listed or registered for trading with value of at least VND 2 billion based on the average daily market price for at least 180 days in order to be certified as a professional securities investor and such certification must be refreshed every three months. Bondholders must not transfer bonds to, or jointly invest in bonds with, non-eligible investors. These new provisions aim to minimize avoidance schemes of the threshold requirements for a person to be a professional securities investor through trust contracts or capital contributions.
Moreover, the New Decree has increased the par value of bonds from VND 100,000 (about US$4.20) (and a multiple of VND 100,000 or about US$4.20) to VND 100 million (about US$4,200) (and a multiple of VND 100 million or about US$4,200). This increase also limits the scope of eligible investors and seems designed to exclude small retail investors.
4. Enhanced Responsibilities of Securities Intermediaries
The New Decree provides that (i) only securities companies are permitted to provide services of auction, guarantee and agency, and (ii) commercial banks and branches of foreign banks are permitted to provide agency services if approved by the State Bank of Vietnam and licensed to engage in depository service by the State Securities Commission. These intermediaries must not be related parties of the issuer.
The New Decree also imposes additional responsibilities of these intermediaries to provide true and accurate information on the bond issuance to the investors and ensure distribution of bonds only to eligible investors. This is a clear step towards promoting more responsibility on the part of securities intermediaries.
5. Clarity on Registration, Deposit and Trading of Bonds
Upon completion of the offering, bonds must be (i) registered and deposited with the Vietnam Securities Depository (VSD) and (ii) registered for trading with the Stock Exchange. Previously, there was no particular guidance on these requirements. These new provisions should increase secondary trading and create a more transparent secondary market.
The New Decree provides a roadmap for trading of bonds on secondary market with requirement that bonds may only be traded on the trading system of the Stock Exchange, provided that:
- such trading is processed through a securities company or commercial bank or branch of foreign bank approved as trading member by the Stock Exchange; and
- the purchasers are investors that are eligible to subscribe such bonds under the relevant private placement plan.
Certain exceptions exist in the context of transfers upon a court judgement or arbitral award and other exceptions which are awaiting further guidance from the Ministry of Finance.
The VSD's bond registration and depository and the bond trading system of the Stock Exchange are targeted to come into operations as from June 2023.
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1 Decree No. 53/2021/ND-CP on offering and trading of private domestic corporate bonds and offering of international corporate bonds (Decree 153).