36 Money September 21-27, 2020 l www.vir.com.vn Shaking up corporate bond issuance

Vietnam has issued new rules on corporate bonds which are by the issuing company of the bonds expected to make positive changes in the market. Tran Thai issues before and the result thereof Binh and Duong Thi Minh Han from LNT & Partners analyse after the issues. into how important the improvements are to the offer for sale Prior to the date of issue, the issuing company has to announce and issuance of bonds in form of private placement to the issu- the information thereof to the inves- ing companies and investors in the months to come. tors registered for the bonds pur- chase and specifically to the Hanoi orporate bonds function as the final date of offer for sale. Stock Exchange (HNX). This effec- a loan, in which the issuing If bonds purchased by the inves- tively means that issuing companies company is the borrower tors and issued by the JSC are con- in Ho Chi Minh City will also have and investors or bond buy- verted into shares, the company to send their announcement docu- Cers are the lenders. The issuing com- needs to conduct the registration for ments to Hanoi, either in physical or pany issues bonds and pays interest the amendment in charter capital placement (including the anticipated The response of the government digital form. thereon on the principle similar to within 10 days from the day on which number of bonds to be issued) must by adopting additional regulatory Significantly, the minimum time the loan. The issuing companies bear the conversion is completed. not by five times exceed the equity of requirements have explicitly taken for the announcement to be made the payment liability to bond buyers. owners at the time of the issuance in a restrictive approach to reduce the before the bond issue is reduced Corporate bonds are issued to raise Requirements on issuance accordance with most recent quarter- frequency and the density of issuing from 10 to three working days. At funds, facilitate investment projects, As corporate bonds function as ly financial report; corporate bonds in private placement least three working days before the manage debts, and debt payment loans, Decree 163 requires the issu- The restriction could possibly by the issuing companies. The effect contemplated issue of the bonds, the capacity, or to monitor the effective- ing company to ensure and comply purport partly to restrict the leverage of this could be to reduce the heating issuing company has to announce ness in using capital. with several requirements before ratio and the level of credit down- issuance of bonds. the information of the bonds issu- Laws of Vietnam allow limited bonds issue. Firstly, the issuing com- grades of the issuing company. The ance to the investors, who register liability companies (LLC) and joint- pany must have been operated for at maximum debt-equity ratio allowed Bond issuance dossier for the purchase of the bonds, and stock companies (JSC) to issue bonds least one year since its establishment. by the issuing company would be 1:5, In addition to what is required send the announcement details to in the form of private placement. Second, the financial statement must meaning five units of debt for every under Decree 163, Decree 81 requires the HNX. Any issuances of the fol- While JSCs are allowed to issue be of the one immediate preceding unit of equity. dossier of bond issue to include one lowing bond tranches must also be either convertible or non-convert- year of the year of bonds issue and Each issuance must be complet- additional document of the bond announced at least three working ible, with or without warrant corpo- audited by a qualified audit organi- ed within 90 days from the day of purchase agreement under which days before the issue. rate bonds, LLCs are only allowed sation. Next, the number of investors announcement made of the bond the investors commit that they have Besides that, if the issue of the to issue non-convertible and without engaged in the bonds issues or bond issuance before such issue; any issu- accessed to full public information, following tranche is six months apart warrant bonds. transactions must not exceed the limit ance of the following tranches must prior to the issuance of the bonds and from the previous one, the issuing The Vietnamese government of 100 investors. be made at least six months after the hence thoroughly aware of the risks company sends announcement infor- and ministries have made changes Fourthly, the bond issue pro- previous one, each of which must sat- bearing in purchasing the bonds. mation and documents updating in regulatory structures and issued gramme is approved and accepted isfy the same terms and conditions. Although what agreed between the financial situation of the issuing expressly sets of regulations govern- by competent authority. Fifth, the In addition to the above require- the issuing company and the buyer company and the regime of using the ing the particular matter of issuing principals of and interest on corpo- ments, JSC issuing convertible and may have been already covered in proceeds from bonds issued to the corporate bonds in the form of pri- rate bonds issued within three con- warrant bonds are subject further the bond programme approved by investors who register for the bond vate placement by issuing companies secutive years prior to this bond issue to requirements. Firstly, the foreign competent authority and there has purchase and HNX. By this means, in Vietnam. must be fully paid to bond buyers (if shareholding ownership ratio must be been no regulatory requirement to JSCs issuing convertible and warrant For the first time, the Law on any). And lastly, financial safety ratio confirmed if the bonds are to be con- register this agreement, Decree 81 bonds are bound by this regulation. Enterprises 2020 expressly sets sep- and prudential ratio are conformed in verted into shares or if the investors seems to emphasise the importance The legal representative or autho- arate articles to regulate the offer for accordance with specialised laws. exercise the right to purchase of the of the binding effect of the bond rised person will be the signatory of sale, and the transfer of corporate Decree 81 imposes on the issu- warrant as if prescribed by the laws. purchase agreement, and knowledge the announcement documents. bonds in form or private placement, ing company additional conditions Next, each issue of each tranche of and awareness of investors of the risk After the issue of the bonds, the which govern LLCs in the same way before corporate bond issues, includ- the bonds issue programme must be involved when they conduct invest- result of which must be notified to the they do to JSCs. Further, Decree ing: The consultancy agreement at least six months apart. ment activities. investors purchasing the bonds of the No.81/2020/ND-CP, which took must be signed with the organisation Lastly, convertible and warrant This is based on the principle company and the HNX, no later than effective on September 1, has been to consult the bonds issuance dos- bonds must not be transferred with- that the investors are self-responsi- five days after the issuance date. enacted to amend some articles of the sier in pursuant with Article 15.3 of in a time frame of at least one year, ble for their investment decision and Decree No.163/2018/ND-CP regulat- Decree 163, unless the issuing com- from the date the issuance is com- risks undertaken in the market that is Period report on bond issues ing the issuance of corporate bonds pany is also licensed to provide the pleted, unless the transfer is made vulnerable. Any periodic reports of the pay- in the form of private placement in same services; for or between professional securities ment schedule for the principals and Vietnam. The outstanding amount of cor- investors or as to enforce the judg- Bond issue announcement interest thereon of the bonds are made Following Circular No.77/2020/ porate bonds in form of private ment of the court or as inheritance. Announcement must be made every six months and annually of the TT-BTC recently issued by the financial year until when the bonds Ministry of Finance provides guid- are matured. Enclosed with the report ance on some articles of the decrees is the financial statement for the peri- above with regard to announcement od. Circular 77 sets the deadline by of bonds issue. The regulations soon when the issuing company has to will be read in line with the Law on submit their period report: no later Enterprises 2020 upon its effective- than 60 days from the last day of the ness, as the case may be. These only first six months of the financial year. govern the bond issues of private In conclusion, the new regula- companies. Bond issues activities in tions provide a clearer regulatory any form of public company are gov- framework regarding the corpo- erned by the Law on Securities 2019, rate bond issues in form of private effective on January 1, 2021. placement by private LLCs or JSCs, particularly on (i) offer for sale; (ii) Offer for sale requirements on the bond issues; Prior to each offer for sale of (iii) announcement before and after the bond, the issuing company is the issue; and (iv) periodic report on required to make an announcement the payment schedule status of the to the investors who register to pur- issuing company until the bonds are chase the bonds, and inform the stock matured. Although the issuing com- exchange at least one working day pany will be subject to more regula- before the date designated to be the tions and formalities, the regulations

offer date. The result of which must Photo: Le Toan have invisibly placed issuing compa- be announced within 10 days from Vietnam allows limited liability and joint-stock companies to issue bonds in the form of private placement nies in a safer condition.n