Vietnam tightens rules on private placement bond issuance

Vietnamese businesses will only be permitted to issue private placement bonds if their total liabilities do not exceed five times their equity, according to a newly adopted law.

The Law amending and supplementing a number of articles of the Law on Enterprises was passed by the National Assembly - Vietnam's legislature - on Tuesday morning, with over 95% of lawmakers present voting in favor. It will take effect on July 1, 2025.

Accordingly, organizations that are state-owned enterprises; entities issuing bonds to implement real estate projects; credit institutions; and insurance, reinsurance and insurance brokerage companies will be subject to this condition; along with securities firms and securities investment fund management companies.

Explaining this content before the vote, Minister of Finance Nguyen Van Thang stated that adding regulations on the debt-to-equity ratio for issuers aims to limit bond payment risks for businesses and investors.

The government recognizes that private placement corporate bonds are risky financial products, and investors must assess and bear responsibility when purchasing bonds based on transparent information about the "health" of the business, he stated.

However, recently, when violations regarding private placement bonds occurred, issuers failed to fully and timely repay bond principal and interest. As a result, investors filed complaints, and the government had to intervene, he noted.

Thang said that the limit was based on feedback from ministries, agencies, and market participants. At the same time, the Law on Real Estate Business and related decrees already have regulations on the limit of outstanding loans and corporate bond mobilization for entities in this sphere.

Vietnam's private placement bond market was largely subdued throughout 2023 due to regulatory tightening. However, the market rebounded last year with VND444 trillion ($17.05 billion) worth of bonds issued, a 27% increase year-on-year.

In the first five months of this year, real estate companies reported VND31.8 trillion ($1.22 billion) in overdue bonds, accounting for nearly 60% of the market, according to Viet Dragon Securities (VDSC), highlighting continued repayment pressures.

More than VND200 trillion ($7.7 billion) in privately-placed corporate bonds will mature in the final three quarters of this year, with the real estate sector accounting for half, according to independent credit rating provider S&I Ratings.

Specifically, bonds worth VND33.6 trillion ($1.29 billion) are set to come due in Q2, VND91.2 trillion ($3.51 billion) in Q3, and VND77.6 trillion ($2.99 billion) in Q4.

Of the total, VND26.5 trillion ($1.02 billion) had previously been granted maturity extensions.