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Ministry of Finance continues to warn about five risks of privately-placed corporate bonds

15:47 | 28/07/2022

VCN - The Ministry of Finance continues to recommend that individual investors should be cautious about participating in the private placement bond market, learn about legal regulations and the production and business capacity and efficiency of issuers and understand the risks of privately-placed corporate bonds.

Bad debt has increased sharply, but the reserve buffer is Bad debt has increased sharply, but the reserve buffer is "thin"
Complying with the regulations relating to corporate bond issuance Complying with the regulations relating to corporate bond issuance
Strongly adjusting credit flow Strongly adjusting credit flow
The Ministry of Finance noted that the bond issuance guarantee is not a payment guarantee. Photo: internet.
The Ministry of Finance noted that the bond issuance guarantee is not a payment guarantee. Photo: internet.

The Ministry of Finance has issued many press releases on the situation of the private placement bond market and given advice to individual investors.

Through market inspection and supervision, the Ministry of Finance continues to recommend that individual investors should be cautious about participating in the private placement bond market, learn about legal regulations and production and business capacity and efficiency of issuers, and understand the risks of corporate bonds before making investment decisions.

Accordingly, the Ministry of Finance has notified investors of five contents related to privately-placed corporate bonds.

First, corporate bonds are not bank deposits. Corporate bonds are issued by enterprises on the principle of self-borrowing, self-repayment and self-responsibility for debt repayment ability. Accordingly, investors buying corporate bonds should be aware of and accept the risks if the enterprise cannot guarantee the obligation to repay the bond principal and interest.

Second, privately placed corporate bonds are investment products only for professional investors who have the financial capacity and investment experience, and are able to analyze and accept risks. Unlike corporate bonds of public offering, which are issued with certificates of registration by the State Securities Commission for offering to unlimited investors, privately-placed bonds are not licensed by regulatory authorities.

Given the rapid development of the corporate bond market recently, a number of individual investors have participated in buying privately-placed bonds, especially high-yield bonds through institutional distributors (securities companies and commercial banks).

Investors must pay close attention to the provisions of the law that only allow professional investors to buy privately-placed corporate bonds. If an investor tries to become a professional not in accordance with the law, both the investor and the provider of a professional investor certificate will be handled strictly according to regulations.

Third, the credit institutions and securities companies offering corporate bonds do not mean that they guarantee the safety of bond purchasing. They are only service providers, enjoying service fees from the issuer rather than taking responsibility for the appraisal/assessment of the issuer's financial situation and debt repayment ability, Therefore, they are not responsible for whether the issuer will repay the bond principal and interest at maturity. The risk of bonds still comes from the risk of the issuer.

Fourth, the bond guarantee is not a bond payment guarantee. In case corporate bonds are introduced as guaranteed, investors must understand whether such a guarantee is for payment or issuance.

Accordingly, an issuance guarantee is when the guarantee organization makes a commitment with the issuer to distribute bonds. The guarantee organization does not have any obligations to investors. For payment guarantee, investors also need to carefully understand the scope of the guarantee (guarantee for payment of principal, interest or only part of principal and interest and investors will have to bear the risk for the rest).

Fifth, the collateral assets of corporate bonds or credit loans have many types such as real estate, shares, stocks, investment programs and projects, etc. In the current private placement bond market, most of the collateral is real estate and programs, projects, securities or combined assets (real estate, securities).

For information about collateral issued by issuers in the information disclosure, investors need to learn carefully about the conditions of the collateral, the quality and value of the collateral and the commitments made by the issuer.

Investors should note that, for collateral assets such as projects, assets to be formed in the future or stocks, when the stock market or real estate market has many fluctuations, the value of the collateral may reduce and be not enough to pay the principal and interest of the bond.

Thus, before buying privately-placed bonds, investors should understand the legal regulations, conditions, supporting documents and regulations on penalties for professional securities investors to ensure eligibility for professional investors.

At the same time, investors need to request the issuer and the distributor to provide complete and accurate information about the financial situation of the issuer.

After buying bonds, investors need to regularly update on the financial situation, debt repayment capacity of the issuer and consider whether the use of capital raised from bonds is suitable for the purpose of issuing bonds or not.

Complete legal framework for private placement of corporate bonds Complete legal framework for private placement of corporate bonds

VCN – According to the Ministry of Finance, the corporate bond market has shown signs of overheated ...

Only when knowing the information about bonds, and carefully assessing risks that may be encountered, investors should decide to buy bonds. Individual investors should not buy privately-placed bonds if they do not have the ability and resources to assess the risks of bonds, closely follow the disbursement progress and understand the purpose of capital use, and the financial situation of the issuer.

By Hoai Anh/ Huyen Trang