New decree to help companies navigate bond private placement entanglements

The long-awaited Decree 65 on private placement of bonds, which was issued on September 16, will provide a spur for qualified issuers to swiftly develop a bond offering strategy, says lawyer Nguyen Thanh Ha, chairman of SB Law.

Decree 65/2022/ND-CP amends and supplements Decree 153 on private placement of bonds. With multiple new regulations, the decree is expected to address difficulties faced by issuers and open up capital flows from this mobilization channel for socioeconomic activities.

Below are assessments of the possible impacts of Decree 65 on the market.

Requiring more transparency for bond issuance purposes

Compared to Decree 153, Decree 65 supplements regulations requiring transparency for bond issuance purposes.

Accordingly, enterprises must specifically state their bond issuance purposes in their published issuance plan and publicize the information to investors who register to buy bonds. This amendment helps enhance the issuing enterprises’ responsibilities and duties with regards to the proper use of proceeds from issuing bonds.

Supplementing rules for issuance of bonds and use of raised funds

In addition, Decree 65 supplements rules for issuance of bonds and use of raised funds. Specifically, for bonds already issued in the domestic market, enterprises are only allowed to change the terms and conditions of bonds specified in Article 6 of this decree when: it is approved by the enterprises’ competent authorities; approved by the number of bondholders representing 65% of the total number of bonds of the same type in circulation.

Along with that, Decree 65 also supplemented the information that changes of terms and conditions of bonds must be abnormally disclosed by the issuer. In addition, the face value of a bond is also revised to increase from VND100,000 or a multiple of VND100,000 to VND100 million or a multiple of VND100 million ($4,190).

Tighter regulations for professional investors

The identification of professional investors is stipulated more tightly in Decree 65. Accordingly, professional investors are those with financial capacity or professional qualifications in securities as prescribed in Article 11 of the Law on Securities.

The decree supplements regulations to increase the professionalism of retail investors when buying privately placed corporate bonds, and minimize fraud by retail investors to buy privately placed corporate bonds.

Supplementing regulations on the representative of bondholders

Another new point in Decree 65 is the supplement of regulations on the representative of bondholders to increase supervision of the purposes of issuing bonds along with enhanced supervision of the fulfillment of issuer commitments.

Enhancing transparency by changing time limit to disclose information

In order to enhance the transparency of bond issuers and use of funds from bond issuance, the time limit for disclosing information on bond offering results in Decree 65 is set to decrease from 10 days to five.

Analysts said that the corporate bond market will see many fluctuations in the short term, related to the review of the compliance level of bond issuance.

According to the Vietnam Bond Market Association (VBMA), in the first eight months of the year, there were 344 private placements of bonds worth about VND211.3 trillion ($8.84 billion), accounting for 96% of the total issuance value. The value of bond private placement decreased by about 40% compared to the same period last year.

The development potential of this market remains very large. If compared with countries in the region, the ratio of corporate bonds to GDP of Vietnam is currently at a low level of 15%, while that of Thailand is about 97% and Malaysia, 58%.

Decree 65 is expected to enhance the standards of professional investors, boost information transparency, and protect investor interests. In addition to having a portfolio of at least VND2 billion ($83,700), professional investors need to maintain this figure on a 180-day moving average basis.

These requirements will significantly affect the current structure of corporate bond investors. The new regulatios do relieve the market’s concern given that businesses are allowed to issue bonds for debt restructuring.

We believe this is the right direction and in line with international practice. As the new decree requires compulsory credit rating for issuers, we believe this is an appropriate and suitable regulation given the context of the Vietnamese market, as well as for effective and efficient market operations.

Decree 65 will make it easier for companies to issue bonds and raise funds. Although many commercial banks’ credit limit has been expanded, it is still insufficient to meet capital requirements, especially those in the real estate and energy sectors, which have medium and long-term capital needs. There is a lack of corporate bond issuances in these sectors, with some months seeing only one or two issuances across the industry.

Decree 65 will provide a spur for qualified issuers to swiftly develop a bond offering strategy. Furthermore, the new decree could turn disjointed corporate bond trading into an organised and systematic trading market, from which the bond issuance process can be regulated from beginning to end.

Centralising the depository at Vietnam Securities Depository and Clearing Corporation may also help better manage bonds, especially in defining professional investors and protecting their interests.

Establishing a separate bond trading market will strengthen the distribution of corporate bonds, limit acts of rampant offering, and violate regulations. This is a viable option to improve liquidity of the current market.