Loosening bond issuance to reduce the burden of capital mobilization for businesses

	Increasing attractiveness for government bonds
	State Treasury has mobilized more than 122,000 billion VND of government bonds
	Change the habit to promote the corporate bond market

The size of corporate bond market has grown but it is still small compared to the size of bank lending channel. Illustrative photo

Inconsistent with potential

At the end of 2017, the outstanding debts of corporate bond market was 6.19% GDP, increasing compared to the size in 2011 (3.31% GDP). The average issuance volume for 2011-2017 was VND 49,000 billion/ year, of which the volume in 2017 was over 10 times higher than that in 2011. Although the size of corporate bond market has grown in the recent time, it is still small compared to the size of the bank lending channel (equivalent to 130% GDP). The outstanding debt of Vietnam’s corporate bond market is much lower than the average level of about 20%-50% GDP of other countries in the region, and is inconsistent with the potential of the economy. The causes include both objective and subjective factors.

Analyzing the causes, Ms. Phan Thi Thu Hien- Director of Department of Banking and Financial Institutions under the Ministry of Finance said that the causes stem from historical factors, the banking system has developed over 70 years, meanwhile the corporate bond market was really established from 2000 up to now. Most businesses are not aware of the capital market, so when they have demand on capital for their business production, they will immediately think of the bank lending channel.

In addition, the policy and mechanism have not really balanced between the policy on capital mobilization through bond issuance and the bank lending channel. For the policy on corporate bond issuance, businesses must meet strict conditions and comply with procedures under the market standards to ensure the safety of investors.

Businesses are cautious in mobilizing bond capital, especially small and medium size businesses. The reasons are their habits and awareness, because the processes and procedures for the lending of capital from banks is simpler and the cost is lower, and especially, they must not publicize information to investors.

According to Ms. Hien, another cause is that the investor base in the corporate bond market is not diversified and lacks long-term investors, institutional investors, target-date funds and pension funds, therefore the investment demand in the market is unstable.

In particular, there is no centralized information system on the corporate bond market for investors to easily approach, and the secondary market has not yet established the increase of liquidity for corporate bonds. In addition, the lack of roles and operations of credit rating agencies has limited access to the rating channel for making investment decisions for investors.

In order to develop a new legal framework for facilitation for businesses in mobilizing capital through bond issuance, the Ministry of Finance has submitted to the Government for promulgation Decree 163/2018/ND-CP, regulating the corporate bond issuance to replace Decree 90/2011/ND-CP. This move is expected to contribute to the development of the corporate bond market towards transparency, publicity and protection of the interests of investors; step by step expanding the size of the corporate bond market and reducing the burden of capital mobilization for bank credit channel.

Enhance publicity and transparency

Decree 163 stipulates towards the loosening of issuing conditions to facilitate businesses in mobilizing capital through bond issuances. Accordingly, the condition for a business issuing bonds that it must be profitable in the previous year of the issuing year as prescribed in Decree 90, shall be abolished. In addition, the condition on allowing bond issuers to issue bonds many times for capital mobilization in accordance to the progress of investment project shall be specified.

Regarding the scope of private offerings of corporate bonds, the actual implementation of Decree 90 over the past seven years has shown that almost all corporate bond issuances were implemented by private method. Businesses have not implemented public offerings to mobilize capital. Some businesses implemented private offerings and then listed and transacted bonds on the Stock Exchange to avoid issuance to the public. Therefore, Decree 163 amends that with corporate bonds issued privately to less than 100 investors, excluding professional securities investors, to guide investors to buy bonds that are from professional securities investors and specify between the private offering channel and public offering channel in accordance with the Law on Securities.

For the transaction of corporate bonds by private offering, the Decree stipulates that bonds shall be restricted on transaction to 100 investors within 1 year from the issue date, and after 1 year, the bond is to be freely transacted and is not restricted on the number of investors. In order to manage the number of investors, the Decree stipulates that after being issued, private corporate bonds shall be deposited at the legal deposit organization. This regulation has contributed to enhancing the publicity and transparency and boosting corporate bond transaction.

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Notably, a new point in Decree 163 is specifying the information disclosure, including responsibility and disclosed information of the issuers to investors and Stock Exchanges; the Development of specialized information pages on the corporate bond managed and operated by the Stock Exchanges is on the basis of taking advantage of the existing infrastructure to centrally manage all information about private offerings in the corporate bond market. This regulation aims to improve the transparency and publicity of the mobilization of bond capital, creating favorable conditions for businesses and investors to participate in capital mobilization. By developing the specialized information pages on the corporate bond at the Stock Exchanges, the information and database on the corporate bond issuance and financial situation of the issuing business shall be collected synchronously and professionally by the Stock Exchange for provision to investors, bond issuers and management agencies.