Retail investors allowed to purchase Vietnam corporate bonds via private placements

Retail professional investors are now permitted to purchase corporate bonds in Vietnam via private placements, provided that issuers have credit ratings, collateral, or payment guarantees.

Under the amended Securities Law, passed on Friday by the National Assembly - the country's legislature, individual investors can participate in the purchase, trading, and transfer of private placement corporate bonds.

However, only "professional investors" - defined as individuals with financial capability or professional expertise in securities - will be eligible to engage in this market segment.

Specifically, these individuals must either hold a portfolio with a minimum value of VND2 billion ($79,020) in listed or registered securities or have taxable income of at least VND1 billion in the most recent year.

The new law tightens the criteria regarding the period of being an investor and the frequency of trading. Notably, the law stipulates that foreign individuals and institutions are also considered "professional investors".

Previously, the government had proposed restricting private placement bond market participation to only institutional investors, with individual investors gaining access through investment funds. The rationale behind this proposal was the high-risk nature of privately placed bonds, particularly those issued by unlisted companies.

While some countries do not ban individual professional investors from entering this market, transactions are generally conducted between professional institutions such as securities firms, investment funds, and banks. Retail investors typically refrain from direct involvement in this market due to limitations in risk management and resources.

At that time, several organizations voiced concerns that limiting individual investors' participation could hinder the development of the private placement corporate bond market, potentially leading to market stagnation or disruption.

In response, the Ministry of Finance stated that the revised Securities Law would respect the investment rights of retail investors, and as such, would not propose amendments to their right to participate in this market.

The corporate bond market experienced rapid growth from 2017 to 2021 but has slowed significantly since late 2022, following a scandal related to the Saigon Commercial Bank (SCB) and real estate developer Van Thinh Phat Group.

This event led to a loss of investor confidence, with bondholders demanding early redemption of their bonds. As a result, many companies have faced challenges in issuing new bonds, delayed repayments, and negotiated on extending bond repayment deadlines with bondholders.

There have been signs of recovery in bond issuance by companies since late 2023. According to FiinRatings, a credit rating agency under Vietnamese firm Fiingroup, the total value of corporate bonds issued in the first 10 months of 2023 reached nearly VND348 trillion ($13.73 billion), a 60% increase year-on-year.

However, FiinRatings said there is a great pressure regarding corporate bonds maturing by the end of 2024, amounting to VND54.4 trillion ($2.15 billion), with over VND43 trillion in December alone. The real estate and manufacturing sectors are expected to be the hardest hit, it noted.

FiinRatings estimated that around VND10 trillion ($394.5 million) in bond principal may be at risk of delayed repayment in the final months of 2024, particularly from a few real estate companies with poor financial standing.