A new decree from the Vietnamese government on corporate bond private placements allows issuers to extend their bond maturities by up to two years and pay principal and interest with assets other than cash.
Decree 08, effective from Sunday March 5, specifies many new points about responsibilities of bond issuers.
It allows extending the term of bonds by up to two years, while issuers cannot do so at all under the old Decree 65.
In case bondholders do not agree to such a change, issuers "must negotiate with the bondholders to ensure the latter's interests".
If negotiations do not reach expected results, issuers must fulfill their obligations to bondholders according to their previously announced bond issuance plan.
For bonds offered domestically, if issuers cannot fully and timely pay principal and interest in Vietnamese dong according to the previously announced plan, they can negotiate with bondholders to pay with other assets.
This must ensure that the bondholders must approve and the issuers must disclose unusual information and be responsible for the legal status of the assets used for payment.
The newly-issued decree also suspends the Decree 65 regulation on defining individuals' status as "professional securities investors".
According to the old rule, in order to buy private placement corporate bonds, individual investors need to hold a securities portfolio, excluding margin loan value, worth at least VND2 billion ($84,300) in 180 days.
The old rule that required bond distribution time to not exceed 30 days since the announcement of the offering is no longer in effect, until December 31, 2023. This allows issuers to have more time to find investors, increasing the likelihood of success for the offering.
Decree 65, issued in mid-September 2022, is an amended and supplemented version of Decree 153, which was released at the end of 2020 with an aim to tighten the market after a period of hot growth and many disturbances.
Decree 65 has more constraints in terms of investor status, issuance purposes, and principles for using bond proceeds. For example, companies can only issue bonds to carry out investment projects and restructure their own debts, and must clearly state the purposes to investors when issuing.
The local corporate bond market experienced a hot growth period in 2020 and 2021, with issuance values of nearly VND462 trillion ($19.47 billion) and VND658 trillion ($27.73 billion), respectively, according to Vietnam Bond Market Association (VBMA) data.
The growth of this fundraising channel was driven by the surging demand of companies for capital, especially real estate developers and banks, and the demand of people for yields higher than bank deposit rates.
However, after the arrests related to violations in bond issuance and improper use of proceeds by several major real estate developers in the middle of last year, the bond market came to a sudden halt.
The issuance volume in 2022 was only VND255 trillion ($10.75 billion). In January this year, the market only had one successful issuance with value of VND110 billion ($4.64 million).
Meanwhile, bond maturity pressure is rising because issuing companies have liquidity problems and cannot issue new bonds to restructure their debts.
Top securities broker VNDirect estimated the maturity value of corporate bonds this year is nearly VND273 trillion ($11.51 billion), mainly in the second and third quarters.
A series of corporate issuers, especially real estate developers, have reported their failures to fulfil their obligations to pay principal and interest. Many individual investors are looking to sell bonds at a 14-17% discount to get cash back.