The rapidly growing corporate bond market has exposed many risks of this capital raising method. The consequences of these risks are extremely serious, evident from several incidents. The severity of those cases has rendered this market almost freezing.

In that context, on September 16, 2022, the Government issued Decree 65/2022/ND-CP (“Decree 65”) amending and supplementing a number of articles of Decree 153/2020/ND-CP regulates the private offering and trading of private corporate bonds in the domestic market and the offering of corporate bonds to the international market (“Decree 153”). Notably, Decree 65 has added various stricter regulations for private corporate bond issuance, including the following key contents:

1. Restrictions on the eligible bond buyers

Numerous provisions in Decree 65 represent this restrictive policy and restricted subjects are small and retail investors. Specifically:

• The bond face value was raised 1,000 times. Accordingly, the current minimum bond face value is VND 100 million, instead of 100,000 VND as previously. Given such increase, investors with unstable financial capacity will be minimized and the situation of rampant bond trading in the secondary market will be limited.
• Tightening of the professional individual investor conditions. Accordingly, the value of the securities portfolio held by professional investors must reach a minimum value of VND 2 billion, which is determined according to the average price within the preceding 180 days at least, excluding the margin value and the value of securities for resale. At the same time, the professional securities investor identification for individuals is only valid within 3 months from the date of confirmation.

Professional investors who have previously been identified under Decree 155/2020/ND-CP, must be re-determined pursuant to Decree 65 when buying corporate bonds.

• Investors is not allowed to sell or contribute capital to invest in bonds with non-professional securities investors in any form.
• When buying bonds, investors must sign a document certifying that they are adequately eligible, knowledgeable and commit to take full responsibility for their decisions in the investment.

2. Tightening the purpose of bond issuance

The bond issuance purpose is narrowed: enterprises can only issue individual bonds for the following purposes:

• Implementing investment programs and projects;
• Restructuring the enterprise’s own debt portfolio; or
• Other purposes in accordance with specialized laws.

Cases of issuing bonds for the purpose of capital increase or capital restructuring as prescribed in Decree 153 are no longer be approved.

3. Various documents and contents are required to be provided or clarified in the bond issuance plan and offering dossiers:

• The confirmation of the bank account receiving bond purchase money;
• 6-month and annual reports on the use of proceeds from the bond issuance for outstanding bonds audited by a qualified auditing organization;
• In case of secured bonds: documents on the legal status of the security assets, documents on valuation of the secured assets provided by an eligible valuation organization and documents on registration of security measure, documents and information on the payment order of bond investors when realizing security assets for debt payment;
• The financial statements proving the enterprise financial capacity must be reviewed or audited, including the financial statements of the fourth quarter or the report of the most recent month of the issuance year in case the enterprise offers bonds within 90 days from the end of the annual accounting period without an audited annual financial statement.

In addition to those aforementioned information and documents, the bond issuance plan must clarify the following contents:

• The issuance purpose. In case of investment project implementation, the legal status and investment risks of the project must be specified. In case of debt restructuring, the value and term of the debt must be specified;
• Instead of just stating and listing documents proving the satisfaction of the issuance conditions, the Plan must clearly and specifically explain the satisfaction of such conditions;
• Commitments related to bond premature redemption and bond swap are required (if any);
• Detailed explanation of financial ratios as the basis for investors to assess the enterprise’s debt repayment capacity;
• Besides the capital use plan, the plan to use the proceeds from the issuance of temporarily idle bonds in the case of disbursement according to the progress of collecting the proceeds from the bond issuance, is also required.

With the addition of contents in the issuance plan, especially the contents of the enterprise’s commitment could restrict the “discretion” of enterprises, especially in the use of proceeds from the issuance, limiting cases of intentional violation of enterprises, causing damage or increasing risks for bond investors.

4. Shortening the time limit for bond offering

All deadlines for distribution, bond offering or information disclosure of bond offering completion are shortened under Decree 65.

In our assessment, such duration shortening will ensure the conditions and terms in the issuance plan to be suitable to the business practice, avoiding adverse events during the distribution process, rendering the enterprise unsatisfied or unable to fulfill the conditions and/or commitments stated in the issuance plan.

5. Bonds are required to be registered and traded centrally

Like shares of public companies, privately bonds are required to be registered and deposited at the Vietnam Securities Depository and Clearing Corporation (VSD) and traded on the Stock Exchange. Accordingly, the entire transaction process of bonds shall be supervised and managed by competent agencies and units to avoid violations or errors, and also to ensure transparency and objectivity, creating comfortability for bond investors.

The bond registration and depository system at VSD and the trading system of private corporate bonds at the Stock Exchange will officially operate within 09 months from the effective date of Decree 65. Within 03 months since such systems are officially put into operation, the issued bonds with outstanding debt must be registered, deposited and registered for transactions in accordance with this Decree.

6. More information on bonds is required to be disclosed on the corporate bond information webpage of the Stock Exchange

• The corporate bond information webpage of the Hanoi Stock Exchange has established and been officially operating since 2021. The page has integrated basic information related to corporate bonds such as:
• Name, type of business and contact address of the issuer;
• The situation of corporate bond issuance in the domestic market, including: Bond code (if any); some main terms and conditions of the issued bonds (issue date, quantity, face value, maturity date, form of interest payment, terms of redemption and swap, if any); conversion of bonds into shares, right to buy shares for warrant-linked bonds, premature redemption of bonds, swap of bonds (if any);
• The situation of corporate bond issuance to the international market, including: Quantity of successfully issued bonds; main terms and conditions of issued bonds; issuing market;
• Periodic information disclosure and extraordinary information disclosure of the issuer; Bond depository organization (according to regulations of the issuing market).

However, pursuant to Decree 65, the information webpage will need to add more content to assist investors to evaluate the financial capacity, debt repayment capacity of the issuer as well as the risks of holding bonds, specifically:

• Some financial indicators (outstanding bond debt (including all forms of bond borrowing), debt/equity ratio, total bond loan outstanding (including all form of bond borrowing)/equity, interest payment coefficient (profit before tax and interest/interest));
• Rating results for bond issuers in the cases subject to credit rating as per regulations;
• Information on cases where the issuer violates its commitments: fails to fully pay bond principals and interests, uses bond proceeds for improper purposes or fails to fulfill commitments with investors;
• Information on cases of bond premature redemption.

Decree 65 requires the corporate bond information webpage to completely update those aforementioned additional information within 45 days from the latest periodical information disclosure after this Decree takes effect.

7. Criminal prosecution mechanism for violations of bond-related service providers

Under Article 14.9 of Decree 65, all bond-related service providers to corporate bonds, including: bidding organizations, guarantee organizations, issuance agents; organizations consulting on offering dossiers; the representatives of bondholders and the organization auditing the financial statements of the issuer, are not related to the issuer. In case of violation, administrative sanctions or criminal prosecution shall be imposed depending on the nature and seriousness of the violation.

In addition to the sanctions for issuers, this is the first time the law attributed criminal liability to violations arising from activities of providing consulting, verification, support and guarantee services. This will render service providers more cautious and strictly abide by the law in their operation, thereby ensuring the accuracy and objectivity of the information and data related to bonds provided and/or endorsed by these organizations.

It could be said that, the issuance of Decree 65 will limit or even tighten corporate bond issuance activities, but at the same time, it will also contribute to improving professionalism and ensure the effectiveness of issuance activities. bonds. With new strict regulations, specific and meticulous issuance plans, complex and demanding issuance dossiers, complete and transparent disclosure information, the bond issuance will become more difficult and certainly no longer a routine capital raising manner for all businesses. Instead, only businesses with strong financial capacity, transparent information systems, and high accountability for their commitments will be able to participate in this market.

Decree 65 took effect from its promulgation date.