Evaluation authority should be given to brokerages, experts say

July 17, 2020 - 10:35

Financial-banking companies should be empowered to recognise professional investors instead of bond issuers when they come to purchase corporate bonds, regulatory experts have urged.


The head office of Bảo Việt Securities Co in Hà Nội. Experts have called for policy-making changes, which empower securities firms to evaluate and recognise professional investors. — VNA/VNS Photo Trần Việt

HÀ NỘI — Intermediary financial institutions instead of bond issuers should be empowered to recognise professional investors when they come to purchase corporate bonds in the secondary market, regulatory experts have urged.

The policymakers should think thoroughly about giving bond issuers the right to decide whether the buyer is professional or not, Nguyễn Kim Long, legal and internal supervisory director at SSI Securities Corporation, told a seminar on Thursday.

“The bond issuer can only evaluate its buyers on the primary bond market. When transactions are done on the secondary market, they will need a third-party body, such as a brokerage, to assess the buyers,” Long said.

“At this stage (secondary market trading), the bond issuer is no longer capable of assessing the buyers to support them with the deal.”

“Therefore, securities companies and fund managers must be the one to do the job,” he said.

In case the bondholder is no longer professional, he or she may be allowed to keep the bonds and sell them, but he/she is not legible to buy more, Long added.

A bondholder can become unprofessional when his/her licence is revoked, or the value of his/her portfolio is less than VNĐ2 billion (nearly US$86,000), or the bond issuer cuts its charter capital to below VNĐ100 billion, he said.

Sharing the same opinion, Lê Thị Hồng Thái of VinaCapital Fund Management said it is unreasonable that only brokerage firms are given the key to consider a bondholder professional or not.

“Many investors with highly-worthy portfolios are contracted to fund management firms,” so she suggested the law include fund managers among the units that can assess investors.

Bondholder agent

Under the amended Law on Securities, unprofessional investors who are not certificated by financial firms and regulators are illegible to buy corporate bonds on both primary and secondary markets starting January 1. They are recommended to invest in the corporate bond market through financial firms or agents.

The Ministry of Finance has recently warned buying in corporate bonds would be highly risky for unprofessional investors, most of whom do not understand the financial status and the performance of the bond issuers.

But according to securities firms, individual demand of corporate bonds is increasing rapidly as issuers offer higher interest rates compared to banks’ savings.

As lending for some sectors would be tightened soon, local firms are expected to explore the idle money held by the people. But there should be a way to help protect the investors and benefit the issuers as well.

Under the new law, the bond issuer will select the agent for the bondholder and the agent will manage the portfolio for his client.

But if the bondholder wants to have someone represent and manage his corporate bonds, he should be able to change the agent, Long of SSI Securities said.

In the case of the issuer declaring bankruptcy, it would be difficult for the agent to settle the collateral and the relationship between the agent and the bondholder must be tied by the Civil Law, he said.

There should be regulations and contracts between bondholders and agents, which are normally brokerage firms, to allow the agents to settle the collateral, Bùi Thanh Tuấn of Maybank Kim Eng said.

The creditability of bond issuers should also be rated but the term should be six months instead of 12 months as suggested, he said, adding long term credit rating and settlement would cause damage to investors’ investment.

Director of SSC’s Securities Public Offering Management Department Bùi Hoàng Hải said that at the moment, there is no rule to rate the creditability of corporate bond issuers.

Only those that plan to sell bonds with values exceeding their total assets are assessed before the issuances are carried out, he said.

The feedback on Thursday will be reported to and discussed in the group of writers and changes could be made quickly to serve the amended Law on Securities, Hải said.

The seminar was co-chaired by the State Securities Commission (SSC), the Vietnam Association of Securities Businesses (VASB), and the Vietnam Chamber of Commerce and Industry (VCCI) to discuss a draft decree instructing the implementation of the amended Law on Securities, which was approved by the National Assembly deputies in November 2019 and will come into effect on January 1, 2021. — VNS