New decree a critical move for corporate bond market revival

Amendments to the newly-issued Decree 65 on private corporate bond placement are very urgent, says Dr. Le Xuan Nghia, member of the National Financial and Monetary Policy Advisory Council.

Decree 65/2022/ND-CP, which was issued on September 16, amends and supplements Decree 153 on private placement of bonds.

What do you think about the draft decree amending and supplementing a number of articles of Decree 65 that the Ministry of Finance is collecting feedback on?

The draft, featuring a number of important changes, will have a great impact on the market. It will amend Article 8 of Decree 65, allowing a one-year delay to tightened regulations on "professional securities investors" to the beginning of 2024 instead of 2023.

Another one-year delay until 2024 is also applied to the requirement that issuers must have credit ratings when offering large amounts of bonds. This regulation both creates conditions for current amateur investors to continue investing in bonds and enables new issuers to issue bonds without violating regulations. Legally, this is very important to support future market recovery.

Other important amendments include an extension of a maximum two years for the payment of previously issued bonds with outstanding balance. This means new issuances are permitted for two more years to reverse debt.

Bond issuers and holders are allowed to negotiate on the conversion of principal and interest payments of maturing bonds into loans or other assets. This is very consistent with the real developments of the market.

The above are all extremely important amendments and supplements, expected to have a great impact on market development and regaining investor confidence. When investor confidence is restored, liquidity will recover and real estate prices will therefore stop falling and gradually recover.

Only when the market has liquidity, can businesses conduct restructuring activities. Because at present, firms that want to restructure have to sell off their assets.

The amendment of Decree 65 as proposed by the Ministry of Finance is very necessary and the revised decree should be issued as soon as possible.

Will too loose regulations lead to greater risks?

In my opinion, the above regulations are not too loose, but meet market requirements. It is worrisome that the finance ministry does not create a mechanism for businesses to restructure. If the congestion persists, market collapse will be only a matter of time.

To help businesses restructure, the first thing is to gain investor trust. Most regulations in the draft aim to take back investor confidence, thereby creating liquidity for the market. Investors will return to the market while issuers, with deferred bond payments, will suffer less pressure waiting for real estate recovery to sell off their assets for debt payment and restructuring.

Is one year enough for businesses and the market to recover as expected by the finance ministry?

I think it depends on the situation. First, let's postpone for a year and then consider the next steps. One year is also considered a valuable period of time for issuers to prepare documents for public offering. Enterprises can also take advantage of one year to accelerate credit rating and auditing processes for transparent information in accordance with current regulations.

It is also a valuable year for the finance ministry and especially the State Securities Commission to have time to add new human resources capable of processing hundreds of thousands of dossiers for public offering to be submitted in 2024. We cannot do it with our current workforce so the acceleration of public offerings is now meaningless.

Our orientation is to gradually reduce private placements and promote public offerings, but it also takes time to prepare for this. The preparation comes from the needs of issuers, investors and regulators like the State Securities Commission.

What do you think about the impact of the upcoming amended decree on the market?

I think it will have a very positive impact and the first beneficiary will be the real estate market. With the recovery of the property market, bad debts of commercial banks will not be expanded because when real estate prices go down, bad debts increase, while the value of collateral (mainly real estate) increasingly falls.

The revised decree will also help stocks of real estate companies and banks gradually regain value, contributing to gradual recovery of the stock market.

The corporate bond market has been narrowed down by the government's tightened supervision over issuances of corporate bonds via private placements under Decree 65 and market concerns following the arrests of entrepreneurs on charges of committing fraud in this field.

The value of corporate bonds issued via private placements in the country dropped 56% year-on-year in the past 11 months, while that of public offerings was down 60%.

Since the beginning of the year, businesses have bought back VND163,974 billion ($6.96 billion) in bonds, up 32% year-on-year.