Amendments to the Regulations on Private Placement of Corporate Bonds (Vietnam)

Eligible bondholders

As required under the Law on Enterprises, holders of corporate bonds issued under the private placement regime (even the purchasers in the secondary market), depending on the types of bonds, must be institutional securities investors and/or strategic investors. These investors (as defined under the Law on Securities) are generally either corporate or individual investors having financial capacity and knowledge on investment in securities, including bonds. Decree 65 does not change the definitions of strategic investor※5 and institutional securities investors but provides new criteria to determine institutional securities investors. With respect to institutional securities investors, the definition continues to include entities having huge amounts of capital and/or experience in financial and securities sectors (i.e. commercial banks, securities companies, securities investment fund management companies, companies with charter capital of 100 billion dong (approx. USD4 million), persons having securities business practising certificates and individual securities investor having portfolio of at least 2 billion dong (approx. USD80,000), however, “individual securities investor having portfolio of at least 2 billion dong” is determined differently under Decree 65. Previously, the threshold of 2 billion was decided on the date of certification. Therefore, an individual could easily satisfy this requirement by having high value securities transactions in one day. Decree 65 tries to remedy this loophole by stipulating that the 2 billion threshold must be decided according to average daily transaction value of the period of at least 180 consecutive days preceding the certification date; and loan for conducting margin transactions and securities of repurchase transactions will not be counted. This change is expected to narrow the individual investors who actually have financial capacity and experience in trading securities. This certification shall be valid for only 3 months.

Purpose of Issuance

Under Decree 65, bonds can only be issued for attracting capital for investment projects, restructuring the issuer’s debts or serving other purposes as prescribed in specialized laws. The purpose of bond issuance for “increasing the scale of operating capital” under Decree 153 was removed. Similar to Decree 153, the issuer is required to clearly indicate the purposes of the bond issuance in its issuing plan (the mandatory contents of such plan are set out in Decree 65) and disclose information to investors. However, when the bonds are issued to attract capital for investment projects, Decree 65 requires the issuer to provide more details of the project than Decree 153 did. Accordingly, other than the general information regarding the project as required under Decree 153, the issuer is now required to additionally disclose the legal basis and risks of the project. This requirement seems to aim to provide the investors more information before they decide to purchase the bonds.

More protections to investors

Representative of bondholders

One of new regulations aiming to protect the bondholders under Decree 65 is the requirement that the bond issuer must sign a contract with a representative of bondholders. Such representative needs to be a depository member of Vietnam Securities Depository and Clearing Corporation (“VSDC”) (i.e. a securities company or a registered commercial bank) or securities investment fund management company. Under Decree 153, such representative of bondholders was required in public offering process only. Under Decree 65, this representative is to (i) supervise the adherence to commitments of the issuer in the bond offering application; (ii) act as the intermediary between the bondholders, the issuer and other relevant organizations; (iii) request the guarantor to fulfill the guarantor’s obligations when the issuer fails to pay or properly pay the principal and interest on the bonds; and (iv) implement the notification regime.

Information Disclosure

Decree 65 provides some amendments to the requirements on information disclosure regarding the issuance. Accordingly, more information is required to be publicly disclosed (i.e. under Decree 65, reports on status of performance of commitments of the issuer, change of issuance conditions or redemption of bonds must be disclosed while Decree 153 did not require this) and the timeframe for disclosure of certain information is shortened (i.e. the issuer must provide information regarding the issuance result within 5 working days instead of 10 days as required under Decree 153).

In addition, Decree 65 requires further information to be posted in the corporate bond information webpage of the Stock Exchange※6 than Decree 153 did. Accordingly, from the effective date of Decree 65, the following information must be additionally posted:

1. information regarding outstanding bond debts (including all types of bonds), debt to equity ratio (outstanding bond debts (including all types of bonds)/equity), interest coverage ratio (earnings before interest and taxes/interest expense); and
2. information about cases in which the issuer fails to make full payment of principal and/or interest amounts, or fails to use funds raised from bond issuance for the prescribed purposes, or fails to fulfill commitments to bondholders, and cases in which the issuer is required to redeem bonds.

Another new right of the bondholders is that they have the right to require the issuer to redeem the bonds in certain circumstances set out in Decree 65.

Depository and Transfer

Under Decree 153, corporate bonds issued under the private placement regime were deposited at a depository entity (e.g. securities companies or certain commercial banks) and traded among institutional securities investors except for implementation of court judgements or arbitral awards or inheritance.

Under Decree 65, corporate bonds are required to be centrally deposited at the VSDC and then these corporate bonds are expected to be traded in a central specialized system operated by the Stock Exchange among institutional securities investors. It is noted that this system would be different from the one for trading public offer corporate bonds. However, until now, this system has not been established. The VSDC and the Stock Exchange have 9 months from effective date of Decree 65 to establish the necessary system for depositing and trading corporate bonds issued under the private placement regime and then the bonds must be deposited and traded in such system within 3 months.

Other than the above, there are amendments regarding par value of bonds, conditions for changing bonds conditions and redemption of bonds. Responsibilities of entities involving in the issuance and trading of corporate bonds such as advisors, agents, guarantors, VSDC and governmental authorities have also been amended.