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INSIGHT
On 16 September 2022, the Vietnamese Government issued Decree 65/2022/ND-CP (Decree 65) to amend the existing Decree 153/2020/ND-CP (Decree 153) on offering and trading of privately issued corporate bonds.
The issuance of Decree 65 is the latest effort in the Government’s action plan to develop a more transparent and sustainable bond market. Generally, Decree 65 imposes more stringent conditions and requirements on the private placement of bonds, and seeks to increase transparency on the bond markets by tightening disclosure requirements. Decree 65 also introduces the concept of a centralized bond exchange system for registration and trading of bonds, which aims to be in operation by June 2023.
While Decree 153 applies to both domestic and international bonds, Decree 65 largely revolves around changes to domestic bonds. Unless otherwise noted, the key highlights of Decree 65 below apply to privately issued domestic bonds only.
Issuers of both domestic and international bonds are no longer permitted to use bond proceeds for an increase of working capital or restructuring of their capital resources. Under new Decree 65, domestic bonds can only be issued to (1) restructure debts of the issuer itself; (2) implement investment project(s); or (3) other permitted purposes provided for under applicable laws.
Comparing to the most recent draft, Decree 65 has removed the specific restrictions on use of bond proceeds to contribute capital into other enterprises (through debt or equity), or to purchase secondary shares in other enterprises. It remains unclear as to whether bond proceeds can be used to contribute capital into a project company under the issuer to implement an investment project (or proceeds can only be used for investment projects of the issuer itself). We understand that the State Securities Commission is clarifying this point with the Ministry of Finance.
From 1 January 2023, a credit rating of the issuer (by a credit rating agency licensed by the Ministry of Finance) is required for bond issuance if:
The new requirement of a credit rating is expected to capture a wide range of enterprises, thereby potentially promoting the growth of a credit rating market. Further, it is expected that a credit rating agency will work as a third party’s oversight of the issuer, which is a more reliable source for investors to assess their bond investment.
Decree 65 introduces new requirements on the bond issuance process:
The changes in this section are to respond to recent market incidents where non-professional investors were negatively impacted by making high-risk bond investments without proper assessment. In particular:
Issued bonds are now required to be centrally registered with the VSD, deposited with a securities custodian and registered for trading on a ‘bond exchange system’ operated by a stock exchange before it can be traded. By comparison, Decree 153 only required deposit of the bonds with a securities custodian before trading.
The system for registration/deposit of bonds at the VSD and the bond exchange system are expected to commence operation by 16 June 2023. During the transitional period, transfer of bonds will still be conducted in accordance with Decree 153.
In addition to tightened conditions on the issuance process, issuers are now subject to generally more enhanced disclosure requirements:
International bonds are subject to changes similar to those applicable to issuers of domestic bonds, except the extraordinary disclosure requirement above.
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The Draft Circular replacing the current circular No. 12/2014/TT-NHNN on conditions for non-government guaranteed cross-border foreign loans (the Current Circular) was released on 11 May 2022 for public consultation.
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