In brief 5 min read
A new Decree, coming into effect on 1 February 2019, introduces more relaxed conditions for bond issuance but, on the other hand, bond issuers will be subject to a more stringent disclosure regime in relation to the bonds they issue. Partners Robert Fish and Linh Bui and Associate Dang Vu explain the likely impact of the new Decree for foreign investors looking to invest in Vietnamese corporate bonds.
Background
On 4 December 2018, the Government of Vietnam issued a new Decree Regulating Issuance of Enterprise [ie Corporate] Bonds No.163/2018/ND-CP (Decree 163). Decree 163 replaces the existing Decree No. 90/2011/ND-CP (Decree 90).
Removal of condition on profitability for bond issuance
Under Decree 163, the requirement for the issuer to have one year of profitability (for domestic bonds) and three years of profitability (for international bonds) prior to the issuance has been removed.
However, in order to issue domestic bonds, an issuer must have made full payment of any bond principal and interest falling due in the past three years before the issuance. This new condition has been added for consistency with a similar condition in the Law on Enterprises.
Direct issuance of bonds
From 1 February 2019, an issuer is permitted to directly issue bonds to investors (ie effectively a private placement). The existing Decree 90 only allows bond issuers that are credit institutions to make direct sale of bonds to investors. Therefore, issuers (other than credit institutions) have to appoint a private placement agent (eg a securities company) to place their bonds for sale, and pay service fees to the agent, even where only one entity or a limited number of entities are subscribing for the bonds.
No minimum paid-up capital
The requirement under Decree 90 to maintain a minimum equity ratio of 20 per cent of the total investment capital of the issuer for a bond issue to implement an issuer's investment projects has been removed by Decree 163.
Restriction on secondary sale of bonds
Decree 163 sets out a new restriction on bond transfers that, within the period of one year from completion of the bond issuance, secondary transfers of bonds are limited, so that those transfers would not result in the issued bonds being held by more than 100 investors (excluding professional investors). However, this has no impact on convertible bonds, as the one-year lock-up on their transfer remains unchanged under Decree 163.
Disclosure requirements
Below is a comparison between the new disclosure requirements under Decree 163 and the existing requirements under Decree 90. Generally, the key changes in Decree 163 require stricter (and, potentially, more public) disclosure of bond transactions by the issuer, which the issuer or foreign investors may not welcome. There remains a fair degree of uncertainty around how to make disclosures (particularly for unlisted issuers) and the required level of detail that needs to be disclosed. This is expected to be clarified in the implementing regulations for Decree 163, which will be issued later.
| No. | Disclosure requirements | Decree 163 (effective from 1 February 2019) | Decree 90 |
|---|---|---|---|
| 1 | To whom disclosure is made | The stock exchange (ie Ho Chi Minh City or Hanoi Stock Exchange – the stock exchanges will issue further guidance on this). | Ministry of Finance |
| 2 | Disclosure of the issuance plan | 10 business days before the issuance | 3 business days before the issuance |
| 3 | Required contents of the issuance plan |
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| 4 | Disclosure of the completion of the bond issuance | 5 business days after completion of the issuance | 15 business days after completion of the issuance |
| 5 | Periodic disclosure |
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| 6 | Report on the bonds coming due | Not required | No later than 15 days after the maturity date of the bond |
| 7 | Extraordinary disclosure | Within 24 hours after the occurrence of (i) suspension, revocation of licence, restructuring or conversion of the issuer; (ii) changes to announced information leading to the issuer's failure to meet the issuance conditions or affecting its ability to repay the bond principal and interest; and (iii) changes to the plan for the use of bond proceeds | Not required |
| 8 | Disclosure of early redemption, conversion and swap of bonds |
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Requirement for deposit of the bonds
Within 10 business days after completion of a bond issuance, the issuer must register and deposit the issued bonds with a licensed depository member (eg a securities company). As such, issuers may incur additional fees, though there is not yet any detailed guidance on the deposit and relevant fees.
No transition period
An issuer who has issued bonds under Decree 90 must comply with the disclosure requirements in items 5, 7 and 8 above, and deposit any issued bonds from the date Decree 163 becomes effective (ie 1 February 2019).