Advancing the mechanism for developing corporate bond market

December 02, 2023 - 09:42

According to assessments from regulatory authorities, firms have recently suffered liquidity issues, potentially resulting in delays in principle and interest payments for corporate bonds. 

A banker performs a transaction at an office in Vĩnh Phúc Province. — VNA/VNS Photo 

HÀ NỘI  — To build a healthy and sustainable bond market, the Ministry of Finance (MoF) recently met with relevant agencies to discuss measures for enhancing the policy framework for  long-term development.

At the event, which was chaired by Deputy Minister of Finance Nguyễn Đức Chi, ministries, central agencies, associations, and businesses provided their opinions and evaluated the implementation of Decree 08/2023/NĐ-CP while also discussing policy directions for the future.

The Ministry of Finance has submitted Decree 08 to the Government for issuance, aiming to provide businesses with additional time to address immediate challenges related to the private placement of corporate bonds.

According to assessments from regulatory authorities, firms have recently suffered liquidity issues, potentially resulting in delays in principle and interest payments for corporate bonds. 

As a proactive measure, these businesses have engaged in negotiations with investors to settle the principal and interest of the bonds using alternative assets (primarily real estate assets), extend the bond maturity period, or modify other terms and conditions of the bonds, such as changes to the timing, method, and frequency of principal and interest payments. 

Many businesses with delayed payments have reached negotiation agreements with investors.

This policy, outlined in Decree 08, is a legal basis for companies to talk with investors about restructuring their bond debts and easing repayment pressures. 

As a result, businesses have time to adjust their operations, restore production and business activities, and generate cash flows for debt repayment.

The MoF received 13 opinions from ministries, central agencies and participating associations during the meeting. The discussions centred on various topics, including identifying professional securities investors, mandatory credit rating requirements and regulations on reducing bond distribution time.

Among these topics, most delegates agreed there is no need to prolong the suspension period for implementing the provision that categorises individual bond investors as professional securities investors.

The MoF explained that Decree 65/2022/NĐ-CP, which amends Decree 153/2020/NĐ-CP, introduces a requirement that retail investors must have a minimum average portfolio value of VNĐ2 billion (US$82.4 million), based on their assets (excluding borrowed funds), for at least 180 days to be considered professional securities investors.

Decree 153 regulates the issuance and trading of private placements of corporate bonds in the domestic market and the offering of corporate bonds to the international market.

To cater to the demand from retail investors who have the financial capability but have not fulfilled the 180-day requirement specified in Decree 65, and to allow for additional adjustment time in the market, Decree 08 suspends the implementation of that provision until December 31, 2023.

As of now, after more than eight months of implementing Decree 08 (since March 2023), individual professional securities investors have accumulated the required 180-day period to meet the provisions of Decree 65.

So, there is no need to wait for the suspension period to enforce this regulation.

The Deputy Minister of Finance said that the MoF is determined to foster the sustainable development of both the bond market and the private placement of corporate bonds.

To ensure the stability and growth of the corporate bond market, the ministry has devised a range of short-term and long-term measures, including mechanisms and policies. The MoF has already reported to the government leadership to make necessary amendments to regulations governing the private placement of corporate bonds and related parties. This involves examining the Securities Law, Enterprise Law and other pertinent legislation.

According to Chi, if needed, the ministry will propose to the relevant authorities to promptly introduce amended and supplementary laws to address any legal challenges encountered in the corporate bond market. 

Furthermore, it is conducting a comprehensive review to refine and enhance the effectiveness of implementing bankruptcy regulations for enterprises, ensuring a well-organised process for handling bankruptcies.

During the meeting, economic experts highlighted the turbulent situation in the corporate bond market following the recent cases involving Sài Gòn Joint Stock Commercial Bank (SCB) and Vạn Thịnh Phát Group. These incidents have caused significant fluctuations, leading to a loss of investor confidence. As a result, investors are now demanding early bond buybacks from companies, posing difficulties for businesses in issuing new bonds.

Adding to the challenges, the overall economic and financial landscape, both domestically and internationally, has been experiencing complex developments, with increasing interest rates and difficulties in monetary liquidity.

Nguyễn Hoàng Dương, Deputy Director General of the Department of Banking and Financial Institutions, under the MoF, said that the ministry has proactively implemented measures to stabilise the market.

According to Dương, the corporate bond market has gradually stabilised, especially since the implementation of Decree 08. 

As of November 3, there have been 68 private placements of corporate bonds, totalling VNĐ189.7 trillion. — VNS