|A banker holding a pile of VNĐ500,000 banknotes. Photo vietnamplus.vn|
HÀ NỘI — The corporate bond market has gradually developed to be an important medium and long-term capital mobilisation channel for the economy, according to the Party and State guidelines.
However, the market has recently expanded quickly, posing potential risks that may affect the sustainable development of the capital and bond markets if not effectively controlled.
The Ministry of Finance (MoF) has recommended individual investors participating in the private corporate bond market be cautious, learn legal regulations and the capacity and efficiency of production and business activities of the issuing enterprise, and understand the risks of corporate bonds before deciding to invest.
Corporate bonds are not bank deposits, according to the ministry. Enterprises issue corporate bonds based on the principles of self-borrowing, self-paying, and self-responsibility for the ability to repay debt.
Therefore, investors must know and accept the risks when buying bonds if the enterprise cannot guarantee the obligation to pay the bond principal and interest.
According to the provisions of current law, private corporate bonds are investment products only for professional investors with sufficient financial resources, investment experience, and the ability to assess risks and accept them when they occur.
Unlike corporate bonds for public offering, which are granted certificates of registration by the State Securities Commission (SSC) to be offered to unlimited investors, individual corporate bonds are not licenced by the regulator.
Due to the recent rapid growth of the corporate bond market, several retail investors have purchased private corporate bonds, especially high-yield bonds, through distribution institutions such as securities companies and commercial banks.
Therefore, the MoF emphasised that it is prohibited for investors who are not professional investors to purchase this form of bond. Investors and the organisation providing professional securities investor certification services shall be subject to heavy fines in accordance with the law if an investor uses methods to become a professional investor illegally.
Investors should also note that credit institutions and securities companies distributing corporate bonds do not guarantee the safety of bond purchases.
These organisations are only service providers, enjoying service fees from the issuer, but are not responsible for assessing the issuer's financial situation and debt repayment ability. Thereby, they are not responsible for whether the enterprise will repay the principal and interest of the bond at the maturity date or not. The bonds' risk is still the risk of the issuer.
In addition, an underwriting bond is not a payment guarantee. If corporate bonds are introduced as guaranteed, investors must note whether such bonds are guaranteed for payment or underwritten.
According to the MoF, underwriting is an underwriting organisation's commitment to the issuing enterprise to distribute bonds. They don't have any obligation to investors.
For payment guarantee, investors also need to carefully understand the scope of the guarantee, meaning that they guarantee for payment of principal, interest or only part of principal and interest, and investors will have to bear the risk for the rest.
In particular, the ministry stressed that collateral assets of corporate bonds or credit loans have many types, such as housing, shares, stocks, investment programmes and projects.
Currently, most of the collateral assets are real estate and programmes, projects, securities or a combination of assets (real estate and securities).
Information about collateral assets issued by enterprises are mentioned in the information disclosure, and investors need to learn carefully about the collateral conditions and the collateral assets' quality and value.
For collateral assets that are projects, assets formed in the future or stocks, investors should note that when the stock market and the real estate market fluctuate, the value of the assets would reduce and not be enough to pay for the principal and interest of the bonds.
Therefore, before buying private corporate bonds, the MoF said that investors need to understand the legal regulations on professional securities investors and study the rules on conditions, evidence and regulations on penalties for violations of professional securities investors to ensure that they are eligible to be certified as professional investors.
Investors also need to request issuers and the distribution organisations to provide complete and accurate information on the financial situation of the issuers, including the bond capital mobilisation (number of issuances, issued volume, loan balance, payment ability of issued bonds) and criteria for assessing the debt repayment capacity of the enterprise; the purpose of issuing bonds; collateral assets; characteristics of bonds, rights and obligations of bondholders, commitments to bonds, obligations of the issuing enterprise, and obligations of the distribution organisations.
After buying bonds, investors need to regularly update the issuer's financial situation, debt repayment capacity, and whether the use of capital raised from bonds is suitable for issuing bonds.
The ministry emphasised that only after learning about bonds, thoroughly evaluating and carefully considering the potential risks, should investors decide to buy bonds.
Investors should be careful when participating in investment and cooperation contracts to buy corporate bonds under civil law with other individuals and organisations because they will be the ones who bear the risks.
To further strengthen the inspection, examination and correction of the corporate bond market, on July 20, the MoF issued Official Letter No 4078/BTC-VP directing the SSC and other units to continue to step up inspection, examination and correction of the corporate bond market and carry out inspection teams on the issuance and provision of services related to corporate bonds at several issuing companies, securities companies, and independent auditing companies.
In detecting violations, the SSC will publish the information on the mass media to warn the market. VNS