Completing the legal framework for private corporate bond issuance

DNHN - According to the Ministry of Finance, recently, the corporate bond market has shown signs of hot growth. The Ministry of Finance has assessed the market situation to develop a draft decree amending and supplementing several articles of Decree No. 153/2020/ND-CP on the private placement of corporate bonds.

Mobilized capital must be utilised for the correct purposes  

Towards the safe and sustainable development of the corporate bond market, many new contents have been amended and supplemented by the drafting agency in the draft amending Decree 153/ND-CP. 

Accordingly, the proposal alters regulations governing the purpose of bond issuance to increase the issuer's responsibilities and obligations regarding the proper use of bond proceeds.

Specifically, Clause 1, Article 5 of Decree No. 153/2020/ND-CP is amended and supplemented in the direction: “The purpose of the bond issuance includes: to implement investment programs and projects; increase the scale of working capital; restructuring the capital source of the enterprise or the purpose of issuing bonds by specialized laws. Enterprises may not issue bonds to contribute capital in any form, buy shares, buy bonds of other enterprises or lend capital to other enterprises. 

Enterprises must specify the issuance purpose in the issuance plan as prescribed in Article 13 of this draft Decree and disclose information to investors registering to buy bonds. The use of capital raised from the issue of bonds by the enterprise must ensure that it is only used for the issuing enterprise itself, for the right purposes according to the issuance plan and the content disclosed to investors”.

The draft also adds regulations on credit ratings for some types of issued bonds, to increase publicity and transparency, and contribute to improving the quality of issued bonds; at the same time, helping the market get into the habit of using credit rating results to assess the risks of bonds, approaching international practices, and limiting risks for investors.

Accordingly, if Article 12 of Decree 153 only stipulates that the bond offering dossier includes the credit rating results of the credit rating agency for the bond issuer and the type of bond to be issued (if any), in the draft amendment decree, the drafting agency amends in the direction of requiring credit rating results of credit rating organizations for bond issuers and bonds issued in In case of issuing bonds to professional securities investors who are individuals, issuing bonds without collateral, without payment guarantee, the issuing enterprise has business results of the year immediately preceding the year of issuance. operating at a loss or having an accumulated loss as of the year of issue.

Individual bonds are only traded among professional securities investors

Additionally, this draft specifies how professional securities investors may invest in and trade privately issued company bonds. Specifically, the following is the text of the draft revising and supplementing Article 16 of Decree 153:

Corporate bonds offered for private placement may only be traded between professional securities investors, except in cases of compliance with legally effective court judgments or decisions, arbitration decisions or according to the provisions of the law. Professional securities investors being individuals are only allowed to buy privately offered corporate bonds with credit ratings, except in the case of complying with legally effective court judgments or decisions, decisions of the Arbitrator or inheritance as prescribed by law.

Along with that, convertible bonds and warrant-linked bonds are restricted from being transferred according to the provisions of Point c, Clause 1, Article 31 of the Law on Securities No. 54/2019/QH14. After the transfer restriction period, convertible bonds and warrant-linked bonds are only allowed to be traded between investors according to the provisions of Point b, Clause 1, Article 8 of this draft Decree, unless according to the legally effective judgment or decision of the Court, the decision of the Arbitrator or the inheritance according to the provisions of law. 

Also according to this draft decree, for transactions on the trading system of corporate bonds offered for private placement at the Stock Exchange, non-convertible bonds, without warrants for a private placement of the company. A company that is not a public company must satisfy the following conditions: the bond issuer has a contributed charter capital of VND 30 billion or more at the time of the transaction on the system according to the latest annual financial statement approved by the company. audit; Enterprises having business activities of the year immediately preceding the year of transactions on the system must be profitable and have no accumulated losses based on the audited financial statements of the latest year.

In case the issuing enterprise is the parent company, charter capital and business results are determined in the consolidated financial statements. In case the issuing enterprise is a superior accounting unit with affiliated units organizing r own accounting apparatus, charter capital and business results are determined on the general financial statements; bonds have collateral or guarantee payment of all principal and interest upon maturity.

In light of recent instances of wrongdoing in the private sale of corporate bonds, experts believe that amending Decree 153 will assist reinforce the issuer's responsibilities and obligations in the use of corporate bonds, capital gains, and disclosure to investors and authorities. Newly added and updated points in the direction of tightening may restrict corporate bond issuance, but they will assist improve the quality of issued bonds and the bond market's publicity and transparency. 

Lan Trinh