Facilitate development of corporate bond market – Part 3: Investors should understand their positions

VCN – A series of key legal documents have been revised and issued in a unified and complete manner, promoting the transparency and sustainability of Vietnam's corporate bond market.
Opening the door to developing the corporate bond market – Part 1: An important capital channel for the economy Opening the door to developing the corporate bond market – Part 1: An important capital channel for the economy
Potential of the corporate bond market is huge Potential of the corporate bond market is huge
Corporate bond market cools for second month Corporate bond market cools for second month
Facilitate development of corporate bond market – Part 3: Investors should understand their positions
The restrictions of investment of individual investors will help the corporate bond market to be more transparent and professional. Photo: Internet.

Completing legal framework

At the end of 2020, the size of the corporate bond market accounted for 15.1% of GDP and 10.3% of the outstanding credit of the whole system. However, the market had many potential risks. There was ease in corporate bond issuance and there were no binding conditions. Investors bought the bonds with confidence as interest rates offered by issuers were more attractive than banks’ rates. Therefore, cash flow poured into the corporate bond market despite the risks. Some issuers have only a few billion VND of charter capital but they sold bonds worth trillions of VND.

Experts and representatives of the Ministry of Finance have noted the risks of illiquidity in both principal and interest, but investors have not paid attention to the recommendation.

There is an urgent need to amend and supplement regulations to strictly control this operation.

The Ministry of Finance has submitted to the Government for promulgation three decrees, including Decree 153/2020, Decree 155/2020 and Decree 156/2020. These decrees have created a legal framework to promote the market’s operation in a professional and transparent manner.

These decrees specify between the private placement and public offering of corporate bonds. Decree 155/2020 and the Law on Securities stipulate that the corporate bond issuer must be approved and given a credit rating by the State Securities Commission; the issuer must make a profit in the year preceding the offering year and not have accumulated loss in the offering year; does not have any debt that is overdue for over a year. These strict conditions aim to limit the risk to the lowest level for all investors.

For private placement bonds, Decree 153/2020 provides conditions for professional securities investors, so the criteria given are also more simple.

The issuer must meet adequacy ratios and prudential ratios in operations in accordance with regulations of specialized laws; they must have a bond issuance plan approved and accepted as per regulations; their financial statements of the year preceding the year of issuance have been duly audited by an accredited audit organization; they must have a commitment to fulfill the obligations of the issuer to investors in terms of conditions for issuance and payment, and ensuring the legitimate rights and interests of investors.

Based on the parameters provided by the issuer, professional investors will self-assess, take responsibility for their own investment decisions and bear all risks arising in bond investment and trading.

The legal system has provided the two different methods of management and supervision. The public offering must be approved and controlled by the State Securities Commission, while the private placement does not need a license by the State authority.

The issuer only meets the issuance conditions, comply with the regulations on bond issuance, and provide transparent and complete information to investors. The private placement of bonds will be managed by intermediary service providers in the market, including issuance consulting organizations, underwriters, bond auctions and depository organizations. Thereby, the State management agency will have information about this bond.

To increase the liquidity of private placement bonds, and provide information on bond transactions after issuance, Decree 153 stipulates the organization of a secondary trading market for this bond.

Currently, the Ministry of Finance assigns the Hanoi Stock Exchange to build a model meeting Vietnam's market conditions to report to the State Securities Commission.

The Ministry also considers issuing legal documents for transactions in the secondary market.

Protecting the interests of participants in the market

Ketut Ariadi Kusuma, World Bank Senior Financial Sector Specialist, highly appreciated the new legal framework of Vietnam’s corporate bond market and said that this is the significant improvement compared to the former legal framework.

These new decrees help Vietnam to follow best practices of the international market, making the market more transparent, reducing systemic risks and contributing to sustainable development.

The corporate bond market still shows great potential, but there needs to be a balance between supply and demand. Currently, the supply has developed rapidly. However, the number of investors is still limited. There is only one group of investors, mainly banks. Therefore, professional investors should be expanded such as insurance companies, mutual funds, investment funds, pension funds, etc.

"The diversification of investors will bring different strategies and views on the market, thereby boosting trade and creating a competitive secondary market," Mr. Ketut Ariadi Kusuma said.

Nguyen Hoai Thu, Head of Investment, Public Equities and Fixed Income, at VinaCapital, said that new regulations will limit the individual investors' participation in the corporate bond market. However, this will help the market to become more transparent and professional. This not only helps protect retail investors, but also opens up opportunities for fund management companies because investors, who cannot directly access the market, can buy fund certificates of these companies.

Do Ngoc Quynh, General Secretary of the Vietnam Bond Market Association, also said that the distinguishing of the two forms of private placement and public offering in accordance with the risk nature of each method will help more strictly control the market.

Thereby, creating a foundation for the corporate bond market to operate more effectively while attracting capital for the economy in accordance with the Government's policy and protecting the interests of participants.

In the near future, the Ministry of Finance will develop a legal framework on corporate bonds of project enterprises and issue green bonds.

The PPP Law provides regulations on the issuance of bonds by PPP enterprises. The Environmental Law also provides provisions for the issuance of green bonds.

Currently, the Ministry of Finance is working with the Ministry of Natural Resources and Environment and the Ministry of Planning and Investment to develop a draft guiding these laws. It will also complete regulations on investment mechanisms of financial intermediaries such as Vietnam Social Security; complete regulations on voluntary pension funds; and build a legal basis for securitization product.

By Hoai Anh/ Ngoc Loan

Related News

Industrial real estate - "Magnet" attracting foreign capital

Industrial real estate - "Magnet" attracting foreign capital

VCN - Looking back at the development journey over the past 30 years, it can be affirmed that the model of industrial parks and economic zones has been playing an important role, as a driving force for growth and the process of industrialization and modernization of the country; a channel to attract investment resources, especially foreign direct investment (FDI), contributing to improving the business environment and enhancing competitiveness, ensuring sustainable development.
Crypto Assets should be managed rather than prohibited

Crypto Assets should be managed rather than prohibited

VCN – The issuance of legal regulations related to crypto asset management contributes to protecting investors, enhancing tax collection capabilities and improving the ability to control money laundering activities, according to experts.
Many positive signals in the corporate bond market

Many positive signals in the corporate bond market

VCN - The corporate bond market is expected to enter a new development phase, gradually improving quality, continuing to develop and deepen.
Transparent and stable legislation is needed to develop renewable energy

Transparent and stable legislation is needed to develop renewable energy

VCN - Achieving net zero emissions by 2050 is a development goal that Vietnam has committed. This is mainly achieved through a strong energy transition and low-emission development. However, the transition to clean energy is not easy for Vietnam because building a clean energy supply system requires large investments. In addition, technology in the production and storage of renewable energy is still limited, making it difficult to ensure a stable energy supply.

Latest News

M&A activities show signs of recovery

M&A activities show signs of recovery

Mergers and acquisitions (M&A) activities in Vietnam have been showing signs of recovery in recent months as several large companies announced finished deals, which may create a ripple effect in the M&A market.
Fiscal policy needs to return to normal state in new period

Fiscal policy needs to return to normal state in new period

VCN - To recover the economy during and after the Covid-19 pandemic, fiscal policy has been flexibly and promptly managed, becoming a solid foundation to help businesses and the economy gradually overcome difficulties. After nearly 5 years, although there are still difficulties, the economy is gradually returning to a high growth trajectory. In that context, it is necessary to let fiscal policy return to normal state.
Ensuring national public debt safety in 2024

Ensuring national public debt safety in 2024

VCN - Since the beginning of the year, public debt management has been conducted proactively and effectively, meeting the need of raising capital for development investment. At the same time, debt indicators by the end of 2024 are guaranteed within the ceiling and safety threshold approved by the National Assembly, ensuring national financial security, increasing proactive response to risks arising from external and internal causes of the economy.
Removing many bottlenecks in regular spending to purchase assets and equipment

Removing many bottlenecks in regular spending to purchase assets and equipment

VCN - Decree No. 138/2024/ND-CP, which has just been issued, is expected to contribute to resolving bottlenecks in allocating funds for purchasing assets and equipment; renovating, upgrading, expanding, and constructing new construction items in projects that have been invested in and constructed in the past.

More News

Continue to handle cross-ownership in banks

Continue to handle cross-ownership in banks

VCN - The situation of excess share ownership, cross-ownership between credit institutions (CIs), CIs and enterprises, although has decreased significantly compared to previous periods, is still complicated and requires continued inspection and control.
Striving for average CPI not to exceed 4%

Striving for average CPI not to exceed 4%

VCN - According to the report of the Ministry of Finance, there are still some factors that put pressure on price levels in the remaining months of 2024, so the Ministry has updated 2 scenarios of average inflation in 2024 increasing in the range of 3.7-3.92%.
Delegating the power to the government to waive, lower, or manage late tax penalties is suitable

Delegating the power to the government to waive, lower, or manage late tax penalties is suitable

VCN - Discussing in groups about the project "1 law amending 7 laws" in the financial sector according to the program of the 8th Session on October 29, 2024, National Assembly delegates proposed that the Government should be assigned to make specific regulations on decentralization, granting the right to exempt and reduce taxes, and handling penalties for late payment of taxes...
Removing difficulties in public investment disbursement

Removing difficulties in public investment disbursement

VCN - According to the report of the Investment Department (Ministry of Finance), the estimated disbursement from the beginning of the year to October 31, 2024 is VND 355,616.1 billion, reaching 47.43% of the 2024 plan, reaching 52.29% of the plan assigned by the Prime Minister.
State-owned commercial banking sector performs optimistic growth, but more capital in need

State-owned commercial banking sector performs optimistic growth, but more capital in need

VCN - According to the report sent to the National Assembly before the 8th Session of the Government on investment, management and use of state capital in enterprises nationwide in 2023, the business performance of the state-owned commercial banking sector achieved positive growth.
Stipulate implementation of centralized bilateral payments of the State Treasury at banks

Stipulate implementation of centralized bilateral payments of the State Treasury at banks

VCN - The Ministry of Finance (MOF) gathers feedback on the draft Circular regulating the management and use of accounts of the State Treasury opened at the State Bank of Vietnam (SBV) and commercial banks.
Rush to finalize draft decree on public asset restructuring

Rush to finalize draft decree on public asset restructuring

VCN - According to the Ministry of Finance, the draft Decree regulating the rearrangement and handling of public assets is being urgently completed by the Ministry of Finance to submit to the Government for promulgation.
Inspection report on gold trading activities being complied: SBV

Inspection report on gold trading activities being complied: SBV

The State Bank of Vietnam (SBV) has announced that inspections on compliance with legal policies in gold trading activities of credit institutions and gold trading businesses have been completed and an inspection report is being compiled.
Budget revenue in 2024 is estimated to exceed the estimate by 10.1%

Budget revenue in 2024 is estimated to exceed the estimate by 10.1%

VCN -The Government estimates that state budget revenue in 2024 will exceed VND 172.3 trillion, up 10.1% over the estimate, of which tax and fee revenue will reach 13.1% of GDP.
Read More

Your care

Latest Most read
M&A activities show signs of recovery

M&A activities show signs of recovery

Mergers and acquisitions (M&A) activities in Vietnam have been showing signs of recovery in recent months as several large companies announced finished deals, which may create a ripple effect in the M&A market.
Fiscal policy needs to return to normal state in new period

Fiscal policy needs to return to normal state in new period

VCN - To recover the economy during and after the Covid-19 pandemic, fiscal policy has been flexibly and promptly managed, becoming a solid foundation to help businesses and the economy gradually overcome difficulties. After nearly 5 years, although there
Ensuring national public debt safety in 2024

Ensuring national public debt safety in 2024

VCN - Since the beginning of the year, public debt management has been conducted proactively and effectively, meeting the need of raising capital for development investment. At the same time, debt indicators by the end of 2024 are guaranteed within the ce
Removing many bottlenecks in regular spending to purchase assets and equipment

Removing many bottlenecks in regular spending to purchase assets and equipment

Decree No. 138/2024/ND-CP, which has just been issued, is expected to contribute to resolving bottlenecks in allocating funds for purchasing assets and equipment
Continue to handle cross-ownership in banks

Continue to handle cross-ownership in banks

VCN - The situation of excess share ownership, cross-ownership between credit institutions (CIs), CIs and enterprises, although has decreased significantly compared to previous periods, is still complicated and requires continued inspection and control.
Mobile Version