New circular allows banks to redeem corporate bonds

Vietnamese banks can now immediately buy back corporate bonds they have sold under a new circular issued by the State Bank of Vietnam (SBV).

Circular 03, effective from Monday, ceases the effect of Clause 11, Article 4 of Circular 16 dated November 10, 2021 on the purchase and sale of corporate bonds by credit institutions and foreign bank branches.

The new circular allows credit institutions to buy back corporate bonds unlisted on the stock market or unregistered on the unlisted public company market (UPCoM) that they sell without having to wait 12 months from the date of selling as currently stipulated in Clause 11, Article 4 of Circular 16.

The SBV said that the issuance of Circular 03 would contribute to increasing liquidity, removing difficulties for and promoting the development of the corporate bond market in the current difficult situation following the Prime Minister's direction.

Earlier, at a working session with the central bank on Saturday, PM Pham Minh Chinh had asked the SBV to complete a draft circular amending Circular 16.

The PM noted that the revised regulations need to create more favorable conditions for banks to make bond investments in order to increase supply and liquidity, and develop a safe and efficient market.

The corporate bond market experienced overheated growth in 2020 and 2021 with an issuance value of nearly VND462 trillion ($19.66 billion) and VND658 trillion ($28 billion), respectively, according to the Vietnam Bond Market Association.

However, the market slowed after the mid-2022 arrests of real estate business leaders for bond issuance violations and improper use of mobilized capital.

Meanwhile, bond maturity pressure is on the rise, with nearly VND273 trillion ($11.62 billion) being due this year, according to top broker VNDirect Securities Company's estimate. A series of businesses, especially real estate developers, have reported failure to fulfill principal and interest repayment obligations.

To deal with this situation, the government and relevant agencies have taken a series of measures, including the issuance of Decree 08 amending and supplementing Decree 65 on private placement of corporate bonds.

Decree 08, effective from March 5, 2023, allows issuers to extend their bond maturities by up to two years and pay principal and interest with assets other than cash.

The new decree also suspends a regulation in Decree 65 on defining an individual's status as a "professional securities investor". According to the old rule, in order to buy private placement corporate bonds, individual investors needed to hold a securities portfolio, excluding margin loan value, worth at least VND2 billion ($84,300) for 180 days.

The new decree has helped the bond market gradually warm up after nearly half a year of stagnation. In the first three months of 2023, businesses mobilized more than VND24.7 trillion ($1.05 billion) from the bond market.