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Developing a safe, healthy and transparent corporate bond market

13:07 | 20/11/2022

VCN - The Ministry of Finance continues to recommend to investors and market members about risks in the corporate bond market.

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Developing a safe, healthy and transparent corporate bond market

The corporate bond is still a key channel of capital mobilization for the economy. Photo: Internet

Investors are responsible for self-assessing risk levels in investment

The Corporate bond is a type of security product that confirms the payment of principal and interest by enterprises to investors who own bonds. The bond investors will enjoy interest and receive interest and principal payment from the company when the due date is reached, the Ministry of Finance said.

International practice and Vietnamese laws stipulate that corporate bonds are issued by enterprises on the principle of self-borrowing, self-paying and self-responsibility. Therefore, corporate bonds are not bank savings products .

Bonds are riskier than bank savings products but have higher interest rates than those that make investors accept the risk when buying corporate bonds.

Therefore, investors should make risk assessments by themselves, limit transactions of investment bonds and take responsibility for their own investments.

According to the Ministry of Finance, the domestic corporate bond market has gradually developed into a key medium and long-term capital mobilization channel for businesses and the economy, thereby reducing pressure on the bank credit channel.

During the development, the market has incurred potential risks. Therefore, the management agencies and the Ministry of Finance have followed market developments to perfect policies.

Accordingly, the legal framework for the offering and trading corporate bonds has been fully promulgated by the National Assembly and the Government in Laws, Decrees and guiding circulars of the Ministry of Finance. The Law on Securities and the Law on Enterprises stipulate two types of bonds: publicly placed and privately placed.

In 2021, the two bond issuance methods were specifically distinguished. The publicly placed bond is offered to all investors only after the State Securities Commission approves. The privately placed bond is only offered and traded among professional securities investors with knowledge, experience and assets to invest in products with a higher risk than the publicly placed bond.

The Ministry of Finance regularly disseminates corporate bonds and clarifies the characteristics of this product different from financial products of commercial banks such as savings deposits and certificates of deposit.

However, the strong development of the corporate bond market has some shortcomings. For example, some enterprises issue large volumes and high-interest rates while the financial situation is limited; some service providers do not meet service quality; some individual investors focus on interest rates and fail to assess the characteristics and nature of corporate bonds fully; some investors intentionally violate to become professional stock investors.

From 2019 to now, the Ministry of Finance has regularly informed about the corporate bond market and issued 17 press releases, including warnings to issuers, participants, and individual investors about the risks when investing in corporate bonds.

Corporate bond issuers must implement commitments with investors

According to the Ministry of Finance, in the corporate bond market, there are situations that some corporate bond issuers increase repurchasing the corporate bond, and individual investors resell the bond before the maturity date due to concerns that enterprises could not pay debts.

For this situation, the Ministry of Finance suggested that market participants should comply with the law's provisions.

The Ministry of Finance also suggests that the issuers must pay in full and on time the interest and principal of bonds in full and on time and implement commitments with investors. Therefore, the issuers are responsible for balancing their cash flows to ensure their commitments to investors when issuing bonds.

If the issuers face financial difficulties, they must actively develop a specific debt repayment plan and agree with investors to protect the interests of investors and the reputation of the issuers. If the two sides do not agree, it will be handled by the court's decision.

The service providers, consulting firms, issuance agents, depository agents, bond transferors and other service providers must coordinate with the issuer and the investors to ensure the signed obligations and the reputation when providing services in the market.

When the issuer faces payment difficulties, the investors should actively work with the issuer and the service providers to agree on an appropriate solution to protect the interests of both investors and issuers. In addition, investors must carefully analyze and classify their bonds to make appropriate decisions and should not listen to false rumours.

When individual investors are offered to buy privately placed bonds or intend to invest in corporate bonds, the investors need to request the distributors to provide accurate information about the issuer and the bond. In addition, the investors should understand the regulations in bond documents and information disclosures of the issuers.

Investors should also pay close attention to the responsibilities and commitments of service providers. The distribution of corporate bonds by commercial banks and securities companies does not mean that these organizations guarantee the purchase of bonds. These organizations are only service providers and enjoy service fees from the issuer. Therefore, the risk of the bond is still the risk of the issuer.

The Ministry said that the corporate bond market is still a potential market when the capital demand of the issuers for production and business development shortly is high. The Government's view is to continue to develop a safe, healthy and transparent market. Therefore, the corporate bond market participants should comply with the law.

On September 16, the Government issued Decree 65/2022/ND-CP supplementing regulations on determining professional securities investors to limit small and retail individual investors who are eligible for market participation. These are also the regulations to restrict individual investors from facing the risks of corporate bonds without the ability to analyze, evaluate, and protect individual investors.

The Decree also strengthens the responsibilities and obligations of the issuer in complying with the plan and offering documents requirements of the information disclosure regime, clarifies the responsibilities of service providers, and perfects the management mechanism and the inspection responsibilities of the management agency.

The Ministry of Finance said that the management agency would continue to study and perfect the legal framework and enhance the effectiveness of inspection and supervision. The implementation of Decree 65 and solutions to strictly handle violations of the corporate bond market recently will help the market adjust towards a more efficient market.

By Hoai Anh/Ngoc Loan