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Ministry warns investors to be cautious when buying corporate bonds

Update: July, 17/2021 - 08:28
When issuing corporate bonds, enterprises must comply with the provisions of law, disclose information to investors about their financial situation, production and business plans and financial statements. Photo vov.vn

HÀ NỘI — To ensure transparency and reduce risks in the bond market, the Ministry of Finance (MoF) has asked corporate bond issuers to consider the feasibility of production and business plans, financial capacity and settlement of interest and principal before issuing bonds.

At the end of last year, the Government issued three decrees regulating the offering and trading of corporate bonds to develop the corporate bond market towards openness and transparency to create favourable conditions for capital mobilisation.

In a recent announcement, the Ministry of Finance recommended market participants fully comply with the provisions of the new regulations and pay attention to a number of highlights.

When issuing corporate bonds, enterprises must comply with the provisions of law, disclose information to investors about their financial situation, production and business plans and financial statements.

As for investors buying bonds, the MoF recommended they clearly distinguish between the two methods of issuing corporate bonds, public issuance and private issuance.

Investors must request bond issuers provide full information including purpose of issuance, commitment of the issuer to the bond, issuing term and method of repayment of principal and interest, the financial capacity of the issuer, procedures and dossiers on the identification of professional securities investors, the MoF said.

Bond investors should also note that service providers - security companies, commercial banks – are just the distributors of bonds and do not guarantee the safety of investment in corporate bonds. They enjoy service fees from issuers without being responsible for the repayment capacity of the issuers, the MoF said.

These service providers must sign service provision contracts on corporate bonds with investors, clearly stating the rights and responsibilities of each party. They need to identify professional investors to buy bonds for each issuance, providing sufficient information to investors about the financial capacity and production and business situation of the issuing enterprise, the conditions and terms of the bond, the attached commitments of the issuing enterprise.

“When distributing corporate bonds, they need to provide sufficient information about the risks of bonds and the interests of bondholders, so that investors do not misunderstand that the issuers guarantee all the risks,” noted the Ministry of Finance.

Private corporate bond issuance volume reached VNĐ168.7 trillion (US$7.3 billion) in the first six months this year, up 3.2 per cent year-on-year, while the volume bond issued to the public totalled VNĐ15.37 trillion, equivalent to 50.3 per cent of the public issuance volume of 2020.

Credit institutions were the largest issuers, accounting for 40.2 per cent of total issuance volume. Bond issuance volume of real estate enterprises decreased by 55.5 per cent over the same period in 2020, accounting for 13.2 per cent of total issuance volume.

The average issuance interest rate in the first six months of 2021 was 7.9 per cent per year, down 1.6 per cent compared to the same period in 2020.

Besides these positive results, there are still risks for businesses and investors in the corporate bond market, the MoF said, noting that enterprises raising capital through issuing bonds must ensure debt repayment ability.

However, in some cases they issue a large amount of bonds with high interest rates, but due to inefficient use of capital or difficulties in business and production, they may fail to repay principal and interest. This would destabilise the bond market, the MoF said. — VNS

 

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