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Transparency and fairness of corporate bond market enhanced with new law

Update: February, 04/2021 - 09:34

 

Nguyễn Hoàng Dương, Deputy Director of Ministry of Finance’s Department of Banking and Financial Institutions.

The market regulator has introduced many circulars and decrees including Decree 153/2020/NĐ-CP dated December 31, 2020, to govern the corporate bond market and improve market transparency and investor protection.

Deputy Director of the Ministry of Finance’s Department of Banking and Financial Institutions Nguyễn Hoàng Dương speaks with the Vietnam News Agency about new regulations on the issuance and trading of privately placed corporate bonds in Decree 153.

How has the Vietnamese corporate bond market developed in recent years?

Alongside the country’s economic development, since 2017 the corporate bond market has been growing rapidly, meeting the need for capital mobilisation for production and business development of all types of businesses.

The legal framework for corporate bond issuance has also been reformed and perfected to suit each development stage of the market, aiming to develop an open and transparent market with better protection for investors.

In the context of credit expansion tending to decrease following the cautious regulation on credit growth of the State Bank of Việt Nam, especially for some sensitive industries to minimise risks for credit institutions, businesses are inclined to issue bonds in private placements to raise capital for production and business expansion.

The growth rate of the corporate bond market averaged 48 per cent annually during 2017-20. Last year, the volume of corporate bond issuance climbed 29 per cent compared to 2019 to hit about VNĐ430 trillion (US$18.5 billion), of which private placement accounted for 93.4 per cent of total volume, up 30.4 per cent year-on-year, while public offering increased by 33 per cent.

Developing the capital market including the corporate bond market is the Government's policy aimed at reducing the pressure on the credit institution system by providing capital for the economy, ensuring a more balanced development between these two markets.

What has the market regulator done to develop a healthy and sustainable market and better protect investors?

Given the rapidly growing corporate bond market while the 2010 Securities Law still allows individual investors to buy and trade corporate bonds privately issued by businesses, to avoid risks which may destabilise the market, the Ministry of Finance has submitted to the Government to promulgate Decree No. 81/2020/NĐ-CP which amends and supplements a number of articles of Decree No 163 issued in 2018 on the issuance of corporate bonds towards tightening issuance conditions, limiting issuance frequency and volume and strengthening information disclosure and reporting regime.

At the same time, the Ministry of Finance is seeking the National Assembly’s approval of new laws to unify regulations on the issuance of privately placed corporate bonds which are currently regulated in both Securities Law 2019 for public companies and Enterprise Law 2020 for private companies towards distinguishing between issuing corporate bonds in private placements and through public offerings in terms of buyers and transaction.

Only professional securities investors are allowed to buy and trade privately placed corporate bonds while publicly issued bonds can be traded by all types of investors.

Implementing the Securities Law and Enterprise Law, the ministry has submitted to the Government to issue three decrees last year regulating the private offering and trading of corporate bonds, the offering of corporate bonds to the public and administrative sanctions for violations in the securities sector to create a unified legal framework on corporate bonds.

New regulations have improved the publicity and transparency in the process of issuing bonds of enterprises, facilitating capital mobilisation.

What are the new highlights of Decree 153?

Decree No. 153 regulates the private offering and trading of corporate bonds in the domestic market and the offering of corporate bonds in the international market. This decree comes into force from January 1, 2021, replacing Decree No. 163/2018/NĐ-CP and Decree No. 81/2020/NĐ-CP.

Regarding investors entitled to buy and trade privately placed corporate bonds, the Law on Securities 2019 (Article 31), the Enterprise Law 2020 (Article 128) and Decree No. 153 (Article 8) stipulate for non-convertible bonds and not accompanied by warrants, investors must be professional securities investors; for convertible bonds, warrant-linked bonds, investors who buy and trade bonds are professional securities investors and less than 100 investors who are not professional securities investors.

The new law also stipulates the responsibilities and rights of investors in privately issued corporate bonds, meaning professional securities investors, when investing in these bonds, need to understand the regulations and take responsibility for investment decisions. The State does not guarantee the bond issuer will pay the interest and principal on the due date.

This regulation aims to protect individual investors, improve the autonomy and responsibility of professional securities investors when participating in private placements of corporate bonds.

The decree also specifies the responsibilities of organisations providing services related to corporate bond issuance to strengthen management and supervision of the corporate bond market.

It adds several regulations regarding information disclosure and reporting regime to tackle shortcomings and limitations in the previous time like shortening the required time for disclosing information prior to the issuance from at least 10 working days to at least one working day per the recommendations of enterprises and the provisions of the Enterprise Law.

The new law also prescribes the organisation of the secondary market to increase the liquidity of privately placed corporate bonds, and at the same time provide information about the bonds after the issuance.

The Hà Nội Stock Exchange (HNX) is studying to build a trading market model to report to the Ministry of Finance for consideration and issuing the guidance documents.

In Decree No. 153, the management and supervision mechanism for this type of bond is strengthened. Unlike corporate bonds issued to the public for all types of investors, which must be licensed by the State Securities Commission, privately issued corporate bonds do not have to be licensed. Issuers, consulting and distribution organisations and other service providers must make full and transparent disclosures of information and comply with the law on reporting regime. —  VNS

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