WHETHER BONDHOLDERS CAN TRANSFER THEIR PRIVATE BONDS IN ADVANCE OF THE BOND OFFERING COMPLETION?

Question: Before the private bond offering completes (when the offering bonds have yet been fully sold to primary bondholders), can the purchased bonds be sub-sold to other secondary investors?

Advice from ATA Global Legal Limited Company:

Under Article 4.1 of Decree 153/2020/ND-CP: "Corporate bond means a type of debt security with a term to maturity of at least 01 year, issued by an enterprise to confirm the bondholder's legitimate rights and interests over a part of its debts".  It could be understood that a corporate bond is a debt certificate stipulating the obligation of the issuing enterprise (the borrower) to pay an amount of money to the bondholder (the lender). Bond purchase transactions between the issuer and the investor will be carried out through a bond purchase contract. Accordingly, the investors are considered to have bought bonds when they have signed a private bond purchase contract with the issuer. Bonds will be distributed to the investors in accordance with the quantity, value and conditions and terms stated in such contract.

According to Decree 65/2022/ND-CP amending Decree 153/202/ND-CP, bonds are distributed within a maximum of 30 days from the information disclosure date before the offering. Therefore, bonds may be bought by multiple investors, and each investor will sign a bond purchase contract and pay for bonds at different times. Accordingly, depending on the conditions and terms of the bond and the bond purchase contract, the investor's bond ownership will be determined at different times and by different conditions. However, there are normally different times to determine the investor's bond ownership: (i) the signature time of the bond purchase contract; (ii) the time when the investor completes the payment for bonds; or (iii) the bond offering completion time. Thus, in case the private bond offering has yet been completed, according to the terms and conditions of the bond, the investor's ownership determination time is the time of (i) and/or (ii), then the investor is determined to have completed the purchase and becomes a bondholder. In terms of interests, a bondholder will have full rights including the right to sell bonds to other investors.

However, neither Decree 153/2020/ND-CP, Decree 65/2022/ND-CP nor current securities laws clearly specify the purchase, sale and change of bond ownership during the offering period, but only specify the purchase after disclosuring information on the offering completion and when the bonds have been deposited and registered for public transactions on the Stock Exchange. Therefore, during bond offering period, in principle, bondholders shall not be able to sell bonds in accordance with the Law on Securities but can transfer bond ownership on the basis of the bond purchase contract with the issuer and current civil law provisions. At this time, the parties – bondholder, the issuer and secondary investor – can make an agreement of the transfer of the rights and obligations over the bonds under the bond purchase contract from the bondholder to the secondary investor. Accordingly, this transfer transaction must not only be approved by the issuer, but also comply contents of the bond issuance plan, and at the same time, the secondary investor must also fully meet the conditions to buy bonds pursuant to the law and the issuance plan.

Regarding the transfer form of rights and obligations under the bond purchase contract: Since the law is silent on the specific amount of money received from the private bond offering that must be put into blockade (except for the case of convertible bond offering, warrant-linked bonds of public companies, securities companies, or fund management companies), it could be understood that the issuer will be entitled to withdraw the amount of money previously paid by the bondholder to refund to the bondholder. This will allow the issuer and the bondholder to select and implement the following forms of transfer:

1. The issuer signs a Liquidation Minutes specifying the termination or cancellation of the current bond purchase contract with the bondholder and signs a secondary bond purchase contract with the secondary investor. In this form, the parties will confirm the liquidation of the current bond purchase contract and the issuer will refund the bond purchase amount to the bondholder (after deducting valid fees and expenses), and at the same time, the secondary investor will sign a bond purchase contract and pay for the bond to the issuer;
2. The issuer, bondholder and secondary investor sign a Minutes of transfer of rights and obligations of the bond purchase contract. Accordingly, the secondary investor will be obliged to pay to the bondholder to obtain full benefits related to the bond. The amount of the bond purchase on the account of the issuer shall remain. Such Minutes will be considered as a basis for determining the bond ownership of the secondary investor.

At the bond offering completion, the secondary investor will be recognized as a bondholder in the list of bondholders. The transfer of bonds after the information disclosure on the offering results will comply with current laws.