The Government of Vietnam has promulgated Decree 65/2022/ND-CP (“Decree 65”) to amend and supplement certain articles of Decree 153/2020/ND-CP on corporate bonds (“Decree 153”). Decree 65 took effect on 16 September 2022.
Taking a slightly different approach from an earlier draft version, Decree 65 does not increase the statutory conditions for issuing bonds. Instead, Decree 65 focuses on tightening the eligibility for natural persons to be treated as “professional securities investors” to mitigate market risks and adds more detailed requirements on the offering dossier, offering plan and public disclosure to strengthen the transparency of information in the bond market.
According to FiinRatings, during the first seven months of 2022, only 10.11% of the bonds by value were purchased by natural person investors in the onshore primary market but as high as 32.6% of the bonds by value were purchased by natural person investors in the onshore secondary market. The tightening of the rules relating to natural person investors and public disclosure requirements are intended to protect investors and the stability of the capital market. FiinRatings predicts that the onshore bond market will unlikely bounce back until the second half of 2023 while issuers, agents and investors are working to fit with the new rules.
Permissible funding purposes
Decree 65 removes “increasing the operating capital scale” from the permissible funding purposes of a bond offering plan. The following funding purposes are retained:
- funding investment projects or investment plans;
- restructuring existing debts of the issuer; or
- other purposes permitted under the laws governing the business sector of the issuer.
Decree 65 is ambiguous as to whether a bond offering may fund investment projects or investment plans of the bond issuer’s subsidiaries or only investment projects or investment plans of the bond issuer. This should be further clarified with the Ministry of Finance.
This section applies to both VND bonds and foreign currency bonds, but foreign currency bonds may be additionally subject to funding purpose conditions under the regulations on foreign borrowings of the State Bank of Vietnam.
Professional securities investors (“PSIs”)
As a background, under the laws, only “PSIs” may purchase and trade in VND corporate bonds (except investors who qualify as “strategic investors” with respect to convertible bonds and bonds with warrants).
Decree 65 does not change the definition of “PSIs.” However, it supplements the identification of natural person PSIs. A natural person must hold listed securities with the minimum value of VND2 billion as determined by the daily average market value of the securities portfolio (excluding the value of margin trading payables and repo transactions) for a period of at least 180 consecutive days immediately prior to the date of determining the PSI status. Additionally, the PSI status of a natural person once determined is valid for only 3 months. The above new rule is more stringent than the prior rule which followed the standard PSI rules of the securities laws. Under the prior rule, the 180 consecutive days criteria were not required, and the PSI status once determined is valid for one year. Note that the above new rule does not apply to institutional investors.
Decree 65 restricts the sale of bonds to a non-PSI investor or the contribution of capital to make a joint investment in bonds with a non-PSI investor in any form. When selling bonds in the secondary market, the seller must disclose in full to the buyer all the disclosures previously provided by the issuer in accordance with this Decree 65.
Mandatory early redemption
This section applies to both VND bonds and foreign currency bonds. Decree 65 adds circumstances in which redemption of the bonds is mandatory (in addition to mandatory redemption cases commercially agreed in the bond documents):
- the issuer violates (A) the regulations on bond offering or trading according to a decision of a competent authority or (B) the bond offering plan, and the violation cannot be remedied, or the remedy plan is not approved by bondholders holding 65% or more of the total outstanding bonds; or
- there is a decision from a competent authority that the issuer must redeem the bonds.
Amending the terms and conditions of the bonds
Decree 65 requires that amendments to the terms and conditions of a VND bond be subject to the followings:
- approval by the competent corporate body of the issuer pursuant to its constitutional documents; and
- approval by bondholders holding 65% or more of the total outstanding bonds.
Any amendments of the terms and conditions of the VND bonds must be disclosed by the issuer to the bondholders. VND bonds issued before the effective date of Decree 65 may be amended but the tenor of the bonds must not be amended.
Additional requirements on the contents of the bond offering plan
Decree 65 imposes additional requirements on the bond offering plan. It is however unclear whether these requirements would apply only to VND bonds or also foreign currency bonds. This may be subject to the discretionary interpretation of the State Securities Commission.
The followings are notable additional contents required to be disclosed in the bond offering plan:
Relevant existing section in the Bond Offering Plan
Additional information / additional section required in Decree 65
Information on the issuer
Information on the bank account for receipt of the bond proceeds
Terms and conditions of the bond
For secured bonds, information must be provided regarding each type of secured assets, their value as determined by a professional valuation entity, legal conditions of the secured assets, registration of the security and ranking of the bondholders
· Information on after-tax reserves, retained profits, differences for re-evaluation of assets and foreign exchange differences
· Total indebtedness including bank debts, bond debts and other payables, with breakdown of each debt
· Short-term liabilities ratio, current liabilities ratio
· Prudential ratios pursuant to the regulations governing financial matters of the subject business sector where applicable
Report on the status of issue and use of capital with respect to outstanding bonds including: total offer size, interest and principal that have been repaid, outstanding balance, status of use of the bond proceeds and repayment plan, and any bond violation penalty decisions issued by relevant state authorities for the 3 years preceding the bond placement
Assessment of the financial capability and the ability to repay the bonds offered in the subject offering plan and other due debts
Other notable changes
Decree 65 also introduce the following important changes with respect to VND bonds:
- it increases the par value from VND100,000 to VND100,000,000 or multiples of VND100,000,000; and
- it reduces the bond distribution period from 90 days to 30 days from the disclosure date, and the aggregate bond offering period for a multiple tranche offering from 12 months to 6 months.