In the recent years, the corporate bond market has experienced strong development. The corporate bonds are considered as an effective capital mobilization channel that the enterprises will choose because of its flexibility. Through this form, many enterprises have mobilized large capital sources, especially small-scale enterprises, whose ability to borrow from banks is low and the loan amount does not meet their needs. Currently, when the pandemic situation is under control, the enterprises are accelerating the recovery of production and business activities, leading to a sharp increase in capital demand. However, with financial difficulties due to the impact of the pandemic as well as difficulties from lending policies of credit banks, which are considered as catalysts for the market of corporate bond, private issuance become vibrant.
Based on the current situation of the corporate bond market with many potential risks and studying international experience, the Government has issued relevant guiding documents and decrees to manage the issuance of corporate bonds to enhance publicity, transparency, and limit risks for investors, including Decree No. 153/2020/ND-CP dated Dec 31, 2020, offering and trading corporate bonds privately, offering corporate bonds to the international market (“Decree 153”). The basic provisions related to corporate bonds are specified as follows:
1. Definition of corporate bonds (“CB”)
CB are understood as securities with a term of 01 year or more issued by the enterprise, confirming the lawful rights and interests of the owner to a portion of the debt of the issuing enterprise.
2. Basic terms and conditions of CB
- Term, quantity, and form of bonds: decided by the enterprise in each placement based on its demands for funds and under provisions of law.
- Currency used in issuance and payment for bonds: Vietnamese dong.
- Face value: one hundred thousand (100,000) Vietnam Dongs or a multiple of one hundred thousand (100,000) Vietnam Dongs.
- Form of bonds: certificates, book entries or electronic data at the discretion of the enterprise for each placement under the current regulations.
- Nominal interest rate/coupon rate: can be the fixed interest rate for the entire bond term; floating interest rate; or a combination of fixed interest rate and floating interest rate. In case of floating interest rate or combination of fixed interest rate and floating interest rate, the enterprise must indicate the reference rate which is used as the basis for determining the nominal interest rate in the bond issuance plan as well as for notifying information to the investor buying bonds.
- The method of principal and interest payment shall be decided by the enterprise based on its demand for capital use and the practices of the issuing market, to be notified to investors before the placement.
3. Conditions on private placement of corporate bonds in the domestic market
3.1 Regarding the private placement of the non-convertible bonds without warrant (excluding the private placement of the securities companies, fund management companies that are not public companies), the enterprise must meet the following requirements:
(i) Being a joint stock company or limited liability company duly established and operating under the law of Vietnam.
(ii) Having fully paid principals and interests of the issued bonds or due debts in the last consecutive years preceding the placement (if any): except the case of private placement to creditors that are selected financial organizations.
(iii) Having Maintained financial adequacy ratios and prudential ratios in operations under regulations of specialized laws.
(iv) Having a bond issuance plan approved and accepted under Article 13 of the Decree 153.
(v) Having financial statements of the year preceding the year of issuance audited by an accredited audit organization under provisions of this Decree.
(vi) Entities participate in the placement: professional securities investors as defined in Law on securities.
3.2 Regarding the private placement of the non-convertible bonds without warrant of the securities companies or securities investment fund management companies that are not public companies: the enterprise must meet the recruitments as stated in point (i), (iii). (iv), (v) and (vi) of Section 3.1.
3.3 Regarding the private placement of convertible bonds or warrant-linked bonds, the following requirements must be met:
(i) The issuer is a joint stock company.
(ii) Entities participate in the placement: professional securities investors, strategic investors, in which the number of strategic investors must be less than 100 investors.
(iii) Satisfying the requirements of placement as stated in point (ii), (iii), (iv) and (v) of Section 3.1.
(iv) There is an interval of at least 06 months between two private placements of convertible bonds or warrant-linked bonds.
(v) The conversion of bonds into shares and execution of warrants must ensure the ratio of holding by foreign investors as prescribed by law.
4. The procedures for private placement in domestic market
4.1 Regarding the private placement of non-convertible bonds without warrant of the public companies and companies other than public companies; private placement of convertible bonds, warrant-linked bonds by companies other than public companies (excluding securities companies, securities investment fund management companies), the issuer shall:
(i) Prepare the private placement dossier.
(ii) Disclose information before the placement to the investors registering bond purchase and send the disclosed information to the Stock Exchange (within 01 working date before the bond issuance date)
(iii) Organize the placement under following methods: issuance bidding, underwiring, brokerage, and direct sale. The enterprise must complete the bond distribution within 90 days from the date of information disclosure before the private placement.
(iv) Register and deposit the issued bonds.
4.2 Regarding the private placement of the convertible bonds, warrant-linked bonds of the public companies; the private placement of convertible bonds, warrant-linked bonds of the securities companies, security investment fund management, the issuer shall:
(i) Prepare the private placement dossier.
(ii) Send the dossier to State Security Commission of Vietnam (“SSC”) to consider and approve within 10 days from the date of receiving adequate and valid dossier.
(iii) After obtaining the written approval from SSC, disclose information before the placement and organize the bond private placement. Proceeds from the placement shall be transferred to the escrow account opened at a bank or branch of foreign bank.
(iv) Report on results, enclosed with confirmation of proceeds given by the bank or branch of foreign bank where the escrow account is opened, to SSC within 10 days from the completion date of the placement.
(v) Receive a notification from SSC that publish at the same time the information on its website within 03 working days from the date of receiving adequate report on results.
(vi) After receiving the notification from SSC, have the proceeds from the placement.
(vii) Register and deposit the issued bonds.
The above is a summary of the current legal provisions related to corporate bonds and the process of the private placement of corporate bonds in the domestic market. It can be said that the capital mobilization channel through the form of corporate bonds has now become an important capital mobilization channel. However, in the face of new risks in the market, Ministry of Finance will continue to strengthen management and supervision as well as improve the legal framework for the market to continue to develop sustainably and transparently and effectively.
Src: PLF