Issuers can now use assets other than cash to pay principal and interest and extend maturities under a governmental new corporate bond rule.
|The new regulation is expected to address difficulties facing bond issuers. Photo: Cong Hung|
Under Decree No. 08, which contains several new provisions regarding the obligations of bond issuers, the Government allows bond issuers to extend the maturity of their bonds by up to two years, which was previously not allowed.
If bondholders do not agree to this change, issuers must negotiate with bondholders, a move is seen as protecting investors' yields. If negotiations do not produce the expected results, issuers must meet their obligations to bondholders according to the announced issuance plan.
For domestically offered bonds, if issuers are unable to fully and timely pay principal and interest in dong according to the previously announced plan, they may negotiate with bondholders to pay from assets other than cash, subject to the approval of bondholders. The issuer must disclose any unusual information and ensure the legal status of the assets used for payment.
The new decree temporarily suspends the individual status requirement for professional securities investors. Previously, individuals were required to hold a securities portfolio of at least VND2 billion ($84,548) for 180 days to purchase privately issued corporate bonds.
The requirement that the bond distribution period not exceed 30 days from the announcement of the offering is also no longer in effect. This gives companies more time to find investors, potentially increasing the success of the offering.
Prior to Decree 08, bond offering and trading regulations were based on Decree 65, issued in mid-September 2022, which aimed to tighten the market after a period of rapid growth and instability.
It also requires companies to issue bonds only for investment projects or debt restructuring and disclose these purposes to investors at issuance.
According to the Vietnam Bond Market Association (VBMA), the corporate bond market experienced a boom in 2020 and 2021, with issuances reaching nearly VND462 trillion ($19.53 billion) and VND658 trillion ($27.8 billion), respectively. This growth was driven by the high capital demand from real estate companies and banks on the supply side and the desire of investors to earn higher than interest rates offered by savings accounts on the demand side.
Last year, the bond market came to a sudden halt due to the arrest of major real estate developers for improper issuance and use of capital. As a result, issuance in 2022 was limited to VND255 billion ($10.7 billion), with only one successful issuance in January this year, mobilizing VND110 billion ($4.65 million).
In addition, there is increasing pressure on bond maturities as companies face liquidity problems and cannot issue new bonds by restructuring their debt.
VNDirect Securities Company has estimated that the maturity value of corporate bonds this year will be nearly VND273 trillion ($11.54 billion), with most maturing in the second and third quarters. Many companies, especially in the real estate sector, have reported defaulting on principal and interest payments. Some individual investors are willing to sell their bonds at a discount of 14-17% to get cash.
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