On September 16, 2022, the Vietnamese government issued 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 on the thresholds for bondholders to approve changes to the terms and conditions of the bonds, and imposing additional disclosure requirements by issuers. The new decree also imposes additional requirements and responsibilities on the issuers and securities intermediaries concerned, and limits the scope of eligible investors. Given the need for efficient pricing and time to market, the time to issue bonds has been reduced from 90 to 30 days.
However, the most notable aspects of the new decree may be its omissions. In earlier versions of the new decree, certain financial requirements imposed on issuers would have further restricted liquidity in a difficult economic environment – namely, the total value of outstanding bonds could not exceed three times equity, as indicated in the last quarterly report financial statements and if the total value of the bonds outstanding exceeded 100% of the owner’s equity in those financial statements, the bonds should have been secured or guaranteed.
The absence of these provisions in the final version of the new decree is good news for investors and issuers, as it could reduce obstacles for issuers entering the market in a stormy global environment.
1. The offer and time to market
- Issuers may only issue bonds for the purpose of implementing programs, investment projects and restructuring their principal debt. In particular, bonds generally cannot be issued to increase capital or restructure its sources of capital (as permitted by former Executive Order 153). A key change is that the bonds cannot be used to refinance the debts of subsidiaries or affiliates of the issuer.
- Bonds may be guaranteed by domestic credit institutions and branches of foreign banks and international and foreign financial institutions.
- The private placement plan must now include additional information, such as the use of the outstanding bond proceeds and the proposed offering plan. The private placement plan must also include details of the repayment terms and information on several additional financial ratios, as well as an assessment of the financial capacity and solvency of the issuer. Decision-making matters requiring supermajority approval of bondholders should be clearly defined. Secured bonds must include specific details regarding secured assets, valuation, registration and prioritization of bondholders.
- The RFP now specifically requires an issuer credit rating if (i) the total value of bonds issued by the issuer within 12 months on a face value basis exceeds VND500 billion (USD165 million) and 50% of its equity or (ii) the total value of bonds outstanding at the time of the application exceeds 100% of its equity, according to its most recent financial statements. Previously, a credit score was only required for a public offering, and under former Executive Order 153, a credit score was not required for a private offering. While this provision is clearly aimed at improving the quality of broadcasts, some broadcasters may encounter difficulties in meeting this new requirement.
- The regulatory deadline for the completion of the offer has been shortened from 90 days to 30 days. For multi-tranches bids, the lead time for each tranche was also shortened from 90 days to 30 days (the total bid lead time was shortened from 12 months to 6 months).
2. Optional Early Redemption and Modifications to the T&Cs
The new decree allows bondholders to request early redemption in certain limited scenarios. The first is when the issuer violates corporate bond offering and trading laws and the violation cannot be rectified or the proposed remedy is not approved by bondholders representing at least 65% of bonds of the same class. The second is when the issuer violates the terms of the approved private placement plan and the violation cannot be corrected or the proposed corrective action is not approved by bondholders representing at least 65% of the bonds of the same category (or other cases specifically provided for in the private placement plan).
In addition, changes to the terms and conditions of domestic bonds or changes to bondholder representatives now require the approval of bondholders representing at least 65% of bonds in the same class.
These represent a key step in ensuring transparency and investor protection in the bond market, which industry experts have deemed insufficient.
3. Scope of eligible investors
The new decree provides guidance on the requirements applicable to eligible investors, as well as documents attesting to this eligibility. The new decree explicitly confirms the responsibilities of issuers and securities companies in determining and certifying the eligibility of investors with regard to participation in private bond issues.
The new decree further stipulates, with respect to individual investors, that a person must hold a portfolio of securities listed or registered for trading worth at least VND 2 billion based on the price average daily market for at least 180 days in order to be certified as a professional securities investor and this certification must be renewed every three months. Bondholders must not transfer bonds or jointly invest in bonds with non-qualifying investors. These new provisions are intended to minimize the avoidance schemes of the thresholds required for a person to be a professional investor in securities through trust agreements or capital contributions.
In addition, the new decree increased the nominal value of the bonds from 100,000 VND (approximately $4.20) (and a multiple of 100,000 VND or approximately $4.20) to 100 million VND (approximately $4,200) (and a multiple of 100 million VND or approximately around US$4,200). This increase also limits the field of eligible investors and seems intended to exclude small retail investors.
4. Increased responsibilities of securities intermediaries
The new decree provides that (i) only securities companies are allowed to provide auction, guarantee and agency services, and (ii) commercial banks and branches of foreign banks are allowed to provide services agency if approved by the State Bank of Vietnam and licensed. to engage in filing service by the State Securities Commission. These intermediaries must not be related parties to the issuer.
The new decree also imposes additional responsibilities on these intermediaries to provide truthful and accurate information on the issuance of bonds to investors and to ensure the distribution of bonds only to eligible investors. This is a clear step towards greater accountability for securities intermediaries.
5. Clarity on bond registration, deposit and trading
Upon completion of the offering, the bonds must be (i) registered and deposited with the Vietnam Securities Depository (VSD) and (ii) registered for trading on the Exchange. Previously, there was no specific 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 secondary market trading of bonds with the requirement that bonds can only be traded on the Exchange’s trading system, provided that:
- such transactions are processed by a securities company or a commercial bank or a foreign bank branch approved as a commercial member by the Exchange; and
- the purchasers are investors eligible to subscribe to these bonds under the private placement plan concerned.
Some exceptions exist in the context of transfers by court order or arbitration award and other exceptions awaiting further guidance from the Department of Finance.
The VSD’s bond registry and depository and the Stock Exchange’s bond trading system are expected to go live from June 2023.
1 Decree No. 53/2021/ND-CP on the offering and trading of private domestic corporate bonds and the offering of international corporate bonds (Decree 153).