Rethinking of drafting terms and conditions of private corporate bonds in Vietnam

Amidst the turmoil in Vietnamese bond market, which has not showed any sight of improvement, the Government continues to change the legal framework around Vietnamese corporate bonds. The latest regulations are the regulations by the Vietnam Security Depository Corporation (VSDC) on registration, depository, settlement and implement of rights for private corporate bond (VSD Private Bond Regulations). In light of the new VSD Private Bond Regulations and the difficulties for current bond holders to enforce their rights under the terms and conditions of bonds issued earlier (standard terms), it is high time that the terms and conditions of private corporate bonds to be drafted differently to give better protection to bond holders. We discuss below some of the improvements which could be included in the terms and conditions of a new private corporate bond:

·         Individual vs collective rights: under standard terms, most of the rights of bondholders are exercised collectively through the meeting of bondholders and/or the various agents (e.g., bondholders representative, security agents, or registration agents). While collective exercise of rights may be convenient for the issuer, collective exercise of rights could make it difficult for individual or small bondholders to protect their rights since they depend on decision of the meeting of bondholders and actions of the relevant agents. Therefore, we think that except for some mandatory rights, the terms of private corporate bond should allow a bondholder to exercise its right individually as much as possible. Under Decree 153/2020, change to the bond terms, approval of remedial plan regarding a breach by the bond issuer, or change to the bondholders’ representative require approval by the bondholders holding at least 65% of the outstanding bonds.

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Written by Nguyen Quang Vu On In ,

Enterprise code (instead of names and addresses) of a manufacturer or importer should be mandatory labelling content for goods circulated in Vietnamese market

Under the Enterprise Law 2020, each company in Vietnam has an unique enterprise code (mã số doanh nghiệp) which distinguishes such company from another company. If one has the enterprise code of a company, it can easily obtain information about its latest names and addresses from the National Enterprise Information Portal. Accordingly, the goods labelling regulations should require the enterprise code of entity responsible for goods circulated in Vietnamese market (generally, “responsible entity”) to be a compulsory content of a goods label.

However, currently the goods labelling regulations do not require the enterprise code of the responsible entity to be included in the label of goods circulated in Vietnam. Instead, under Decree 43/2017 on goods labelling, the labels of goods circulated in Vietnamese market must contain the name and addresses of the responsible entity. This requirement could cause significant inconvenience for the responsible entity especially those in FMCG sector, when it changes its name or address.

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Written by Nguyen Quang Vu On In

Stricter conditions for foreign loans by Vietnamese companies being non-credit institutions

Please download the pdf version of this post here.

In June 2023, the State Bank of Vietnam (SBV) issued Circular 8/2023 to replace Circular 12/2014 which prescribes conditions for Vietnamese borrowers to borrow foreign loans (i.e., loans provided by an offshore lender) without a Government guarantee. Similar to Circular 12/2014, Circular 8/2023 has separate borrowing conditions for borrowers being credit institutions and borrowers being companies incorporated in Vietnam which are not credit institutions (Vietnamese Companies). In this post, we discuss the borrowing conditions for a Vietnamese Company. This post in written by Nguyen Hoang Duy and Nguyen Quang Vu.

The key highlights of Circular 8/2023 include:

  • offshore short-term loan borrowing will likely be more difficult since short-term loans are now only permitted for limited purposes (see 3.6) and (1) a Short-term Borrowing List needs to be prepared (see 5.1.2);

  • it is important to determine the purpose of an offshore loan to be for an investment project, a business and production plan, other projects, or for refinancing existing offshore loans; and

  • significant more paperwork is required for a medium- and long-term loans (see 5.1.1). The paperwork is mostly to evidence the purpose of the offshore loans.

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Written by Nguyen Quang Vu On In