Dear Valued Clients and Readers,
Recently, the Government has issued Decree 08/2023/ND-CP adjusting and suspending a number of provisions in Decrees on offering and trading individual corporate bonds in the domestic market and offering corporate bonds to the international market ("Decree 08"). Decree 08 is considered to unwind difficulties for corporate bond capital flows and enhance possitive market psychology. However, bondholders, as "creditors" of bond issuers, are especially concerned about how Decree 08 affects on them, and additionally, what are the consequences of the suspension cases in Decree 08?
In just a few days after the issuance of Decree 08, we have received immesurable inquiries from clients related to the afore-mentioned issues. In order to assist clients and readers to have better understanding about those regulations, thereby assessing the impact of Decree 08 on bondholders, through this legal article, ATA Legal Services would like to give our responses on the aforementioned issues. We hope our observations will bring clients and readers a comprehensive ackowledgement of Decree 08, thereby enhancing their security in bond investment.
Question 1: Decree 08 has suspended the regulation on bond distribution duration for each issuance. What are the consequences of this suspension?
ATA’s response:
First of all, the suspension of Decree 08 relies on Article 153.1(b) of the Law on Promulgation of Legislative Documents. Accordingly, promulgation competent authorities shall have the right to decide on the suspension of the legal documents they have issued in part or in whole, in order to promptly protect the interests of the State, the legitimate rights and interests of organizations and individuals. In ATA’s opinion, in case where the bond market is almost "frozen", temporary reduction/removal of bond issuance conditions and procedures or extension of bond distribution duration shall be necessary to assists bond issuers in connecting more potential investors, thereby facilitating capital flows, supporting their projects and/or activities.
Regarding the concequences of this suspension, under general principles, if any regulation is suspended, such regulation shall not be put into force during the suspension period. Accordingly, the previous regulations will be applied, or new provisions shall be temporarily ignored as in advance of the suspension.
The below shall be the list of provisions that have been suspended and will be temporarily governed by the corresponding regulations for the period from March 5, 2023 to December 31, 2023 (the "Suspension Period") as follows:
STT |
Regulations to be suspended |
Provisional applicable regulations during the Lapse Period |
|
1 |
Regulations on the identification of individual professional securities investors on Article 8.1(d) of Decree No. 153/2020/ND-CP, amended by Article 1.6 of Decree No. 65/2022/ND-CP. The basis for identifying individual professional securities investors to buy individual corporate bonds: + The list of listed or registered securities held by investors with a minimum value of VND 02 billion, determined by the average daily market value of the securities portfolio for at least 180 consecutive days before the professional securities investor identification date, excluding the value of escrow and the value of securities in resale transactions. + The identification of professional securities investors is valid within 03 months from the date of confirmation. |
Individual professional securities investor is identified according to Article 11.1(d) of the Law on Securities and Article 4.3 of Decree 155/2020/ND-CP. The basis for identifying individual professional securities investors to buy individual corporate bonds: + Individuals holding a portfolio of listed and registered securities with a minimum value of VND 02 billion as confirmed by the securities company at the time that individual is determined as a professional securities investor. + Within 01 year from the time of being identified by a securities company as a professional securities investor, investors do not have to re-identify their professional securities investor status when trading individual securities and private fund certificates. |
|
2 |
Regulations on bond distribution duration for each issuance on Clause 7 and Clause 8 Article 1 of Decree No. 65/2022/ND-CP. + The bond distribution duration of each offering does not exceed 30 days from the date of information disclosure before the offering. The total time of offering bonds in multiple installments must not exceed 06 months from the issuance date of the first offering. + For non-convertible bond offerings without warrants of public companies and non-public companies; convertible bond offerings, bonds with warrants of non-public companies (excluding securities companies, securities investment fund management company): ... Enterprises must complete the distribution of bonds within 30 days from the date of information disclosure prior to the bond offering. |
Regulations on the duration for bond distribution of each issuance as prescribed in Article 10.2 and Article 11.1(c) of Decree 153/2020/ND-CP. + The bond distribution duration of each offering does not exceed 90 days from the date of information disclosure prior to the offering. The total time of offering bonds in multiple installments shall not exceed 12 months from the issuance date of the first offering. + For non-convertible bond offerings without warrants of public companies and non-public companies; convertible bond offerings, bonds with warrants of non-public companies (excluding securities companies, securities investment fund management company): ... Enterprises must complete the distribution of bonds within 90 days from the date of information disclosure prior to the bond offering. * In case bond issuer has already submitted information disclosure document about the bond offerings prior to the offerings to the Stock Exchange before March 5, 2023 but has not completed the bond distribution, it will continue to comply with the regulations on the bond distribution duration of each issuance in Decree No. 65/2022/ND-CP (distributed within 30 days). |
|
3 |
Regulations on credit rating results of bond issuers at Point e Clause 2 Article 12 of Decree No. 153/2020/ND-CP, amended by Clause 9 Article 1 of Decree No. 65/2022/ND-CP. The bond offering dossier includes the following fundamental documents: e) Credit rating results of bond issuer if the issuer falls into the cases that require credit rating; the time of application as prescribed in Clause 2, Article 19 and Clause 3, Article 310 of Decree No. 155/2020/ND-CP. |
Previously, in Decree 153/2020/ND-CP, the credit rating results generated by credit rating agencie for bond issuers; and types of issued bonds are not mandatory documents. According to ATA’s opinion, until the end of the Suspension Period, this document is temporarily not required to be provided in the bond offering filing. * However, since the regulations on those credit rating results are specified in Clause 2, Article 19 and Clause 3, Article 310 of Decree 155/2020/ND-CP, which are the original provisions referred as the basis for making regulations on credit rating results of bond issuers in Decree 65/2022/ND-CP, in ATA’s point of view, Decree 08 should also suspend the original provisions in Decree 155/2020/ND-CP above mentioned in order to ensure the uniformity of the legal system. |
Regarding the suspension, Decree 08 has not provided solutions for cases in which bonds have already put into registration for issuance but have yet completed information disclosure procedures; or cases where bonds have already fulfilled information disclosure procedures but have yet completed the distribution when the Suspension Period expires. These contents may cause difficulties for bond issuers and/or investors and will require further explanation and guidance from competent State authorities.
Question 2: Decree 08 allows to pay the principal and interest of mature bonds by other assets. What should bondholders pay attention in case of asset-based payment of principal and interest of bond?
ATA’s response:
First of all, we would like to emphasize that: bonds, as contracts or transactions, must comply with the terms and conditions as agreed between the parties. Any changes related to the previous terms and conditions shall only take effect after the approval of the parties. Therefore, regarding the aforementioned matter, there are three notes as follows:
+ First: Decree 08 only allows bond issuers and bondholders to negotiate to pay mature bond principal and interest by other assets. Thus, bondholders must be well-awared of their rights to put themselves in an equal position with the bond issuer during the negotiation.
+ Second: The "negotiation" for asset-based payment must comply with the civil law and other relevant laws. Futhermore, the bond issuer must be responsible for the legal status of the assets used for the payment of bond principal and interest. Currently, although the law is silent on criteria for reviewing and determining the legal status of assets used for the payment of bond principal and interest, in ATA’s opinion, these assets must satisfy the following criteria: (i) are legally originated; (ii) are the assets of which the bond issuer has full ownership or is entitled to transfer the ownership to bondholders legally; (iii) are not in dispute or are the collateral of any third party; and (iv) are assets of which ownership are fully and legally transferable to bondholders.
In this account, in case of paying bond principal and interest by assets instead of money, bondholders should request the bond issuer to provide evidence indicating the assets’ legitimacy pursuant to the above mentioned criteria (information/documents about the origin of assets, the current owner of the assets, the ownership transfer history of the assets (if any), the mortgage situation of the assets, etc.).
+ Third: Although Decree 08 requires bond issuers to take responsiblity for the legal status of the assets used for payment of bond principal and interest, regulation on legal risk transfer time for such assests is still absent. Whether the bond issuer is liable for legal risks related to the assets after the bondholder has accepts the asset-based payment? In the view of ATA Legal Services, under current regulations, there are still grounds to request the bond issuer to take responsibility til the end for the such risks if it is proved that the legal risks do not stem from the fault of the bondholder; or the bondholder cannot be awared of the latent risks related to that asset.
Another concern is that Decree 08 does not provide a basis and method for calculating interest, fines, late payment interest imposed on bond issuers in case of legal risks related to the assets used for the bond principal and interest payment. In case of this absence, the settlement of those issues shall entirely depend on the negotiation between bond issuers and bondholders.
In summary, in order to limit risks in case of asset-based payment, bondholders should carefully assess the legality as well as identify the responsibility of the bond issuer.
Question 3: Decree 08 allows bond issuers to change the bond terms and conditions. What do bondholders need to do when receiving a notice about the change of bond terms and conditions from the bond issuers?
ATA’s response:
Pursuant to the previous regulations, in case of corporate bonds issued before September 16, 2022 and left unpaid until September 16, 2022, the terms and conditions of bonds are unchangable. However, Decree 08 allows bond issuers to change the terms and conditions of bonds, upon certain requirements:
+ Approved by the competent authority;
+ Approved by the number of bondholders representing 65% or more of the total number of same type bonds which are in circulation;
+ In case of extending the maturity of bonds, the maximum duration shall not exceed 02 years compared to the maturity stated in the bond issuance plan which has been announced to bondholders publicly.
+ For bondholders who do not approve changes in terms and conditions of bonds, the bond issuer is responsible for negotiating to ensure the interests of bondholders. In case the bondholder does not agree the negotiation plan, even if the change of terms and conditions of the bonds has been approved by the bondholders representing 65% or more of the total number of bonds, the bond issuers still must fulfill its obligations to the bondholders who disareed based on the announced bond issuance plan.
As a result, when receiving a notice about the change of terms and conditions of a bond from the issuer, the bondholders need to perform some of the following tasks:
+ Request bond issuers to provide complete, accurate and truthful information about the changes of terms and conditions of bonds. Pay attention to clarify and require bond issuers to fully and clearly explain the changes in their "close" interests, changes that directly affect the capital recovery of bondholders and profitability of the bonds. The issues that should be of primary concern are (i) bond nominal interest rates; (ii) payment methods of interest and principal of bonds; (iii) the right to transfer or convert bonds (if any); (iv) the payment of principal and interest of bonds with other assets (if any).
+ Always be awared that accepting changes is the right of the bondholder. Therefore, bondholders should assess the risks and benefits when accepting changes in the terms and conditions of bonds. In case of disapproving the changes in terms and conditions of bonds, the bondholder needs to negotiate with the bond issuer to keep or adjust the terms and conditions in their favor.
+ It is necessary to acknowledge about other people who own the same type of bonds, thereby forming relationships and exchanging information to agree on a negotiation plan and create a stronger position when negotiating with bond issuers.
Comment: