In response to the recent scandals of private issuance of corporate bonds, the Government has introduced several major changes to Decree 153/2020 on private issuance of corporate bonds in Vietnam. In particular, Decree 65/2022 amending Decree 153/2020 was issued in September 2022 and took effect immediately. We discuss below the key changes introduced by Decree 65/2022 which apply mostly to private domestic issuance of corporate bonds.

· Use of proceeds. Issuance of bonds to finance working capital or internal capital restructuring is no longer permitted. Issuance of bonds to refinance existing debt is still permitted. A bond issuer must now report how it uses the proceeds from bond issuance every six months. And the report must be verified by a qualified auditing company. When issuing a new bond, the bond issuer must also disclose how it uses the proceeds from earlier issuance in the issuance documents or the bond issuance plan.

· Voting of bond holders. Decree 65/2022 expressly allows bond holders holding 65% or more of the outstanding bond to have the right to (1) approve changes to bond terms and conditions; (2) approve the issuer’s remedial plan if the issuer breaches the bond issuance plan or the law; and (3) change of the bond holders’ representative. Decree 65/2022 requires the minimum voting threshold of a bondholder meeting is 65% of the outstanding bond.

· Bond par value is increased from VND 100,000 to VND 100 million.

· Mandatory Redemption. A bond issuer must redeem the bond if (1) it violates regulations on bond issuance and trading which cannot remedied, or (2) it violates the bond issuance plan which cannot be remedied.

· Secured bonds. Decree 65/2022 now clarifies that only onshore credit institutions or offshore financial institutions could act as the guarantor of a corporate bond issued in Vietnam. If a corporate bond is secured then the issuance documents must include documents concerning the legal status of the secured assets, valuation of secured assets and registration of the security interests with the relevant registration agencies.

· Higher requirements for professional investors. In order to qualify as a professional investor who could buy and hold privately issued bonds, an individual must have a securities portfolio of VND 2 billion (about US$ 45,000) for at least six months. The qualification is only valid for three months. Before Decree 65/2022, there is no minimum holding period and the qualification is valid for 12 months. A bond investor must sign an acknowledgement that he/she accepts the risks associated with the relevant bonds.

· Bond holders’ representatives. If a bond is to be issued to individual investors then the issuer must sign a contract with a bond holders’ representative who is a depository member of the Vietnam Securities Depository Corporation (VSD) or a fund management company. The bond holders’ representative must monitor the performance of the bond issuer and must report to the authorities if there is any breach by the bond issuer.

· Issuance of bond. The time available for distributing an privately-issued bond is reduced to 30 days from 90 days. For bond issued in tranches, the time for issuance of all the tranches is reduced to 6 months from 12 months.

· A bond issuer must sign a contract with a bond issuance consultant which is securities company in all cases. Before Decree 65/2022, a bond issuer being a securities company is exempted from engaging a bond issuance consultant.

· A private bond issuer must obtain a credit rating from a rating agency (1) if the total par value of issued bonds of such issuer in each 12-month period prior to the issuance date is greater than VND500 billion and 50% equity recorded on its latest financial statements; or (2) the total par value of outstanding bonds of such issuer as at the time of registration for issuance is greater than 100% equity recorded on its latest financial statement. Before Decree 65/2022, this requirement only applies to public issuance of corporate bonds.

· Decree 65/2022 now requires the bond issuance agent (or the underwriter) to certify that the bond issuer has received the bond proceeds into its account.

· More liabilities for bond issuance service providers. Decree 65/2022 imposes a whole host of liabilities to the relevant companies which involve in issuing private corporate bonds. A bond issuance agent must ensure that it has supplied full and accurate information to bond investors and must not provide untrue or misleading information regarding the bond to investors. A bond issuance agent must distribute the bond to investors who are certified by the bond issuer or an authorized securities company to be a qualified investor. A bond issuance agent must not offer or support unqualified investors to invest in corporate bonds.

· The auditing company, valuation company, and any person providing certification to the bond issuance file will be subject to legal responsibility to the extent of their certification. This requirement is similar to the requirement applicable to public offering of securities.

· Bond issuance service providers must not be related persons of the bond issuer.

· Decree 65/2022 expressly refers to criminal liability in case of breaches of the bond issuance regulations.

· Bond registration. Decree 65/2022 now requires all privately issued bonds to be registered with the VSD. Before Decree 65/2022, private issued bonds could be registered with a depository member of the VSD.

· Bond trading. Decree 65/2022 requires privately-issued bonds to be traded on a bond exchange managed by the stock exchange. The bond exchange will need to be set up within nine months after issuance of Decree 65/2022. Pending the setting up of the bond exchange, privately-issued bonds could continued to be traded in accordance with Decree 153/2020.

· More disclosure by bond issuer. A bond issuer must now disclose (1) the legal status and the risks factors of the investment projects funded by the relevant bonds, (2) legal status and valuation of secured assets, (3) detailed composition of its equity capital, (4) detailed composition of its debt (i.e., bank loans, bond outstanding and other loans), (5) debt/total assets ratio, (6) short term liquidity ratio, (7) status on use proceeds, (8) violation of law regarding bond issuance in the last three years, (9) cancellation of a bond issuance, (10) report on compliance with commitments to bond holders, (11) changes to bond terms and conditions, (12) changes to bond holders’ representative, (13) mandatory redemption of bonds, and (14) being imposed an administrative penalty for violation of securities regulations or violation of the law.

· More disclosure by the authority. Decree 65/2022 requires the bond information portal managed by the stock exchange to publish more information about privately issued bonds. The additional disclosure include (1) certain financial ratios of the bond issuer, (2) targeted investors, (3) report on repayment of bonds, (4) credit rating reports, and (5) information regarding defaults and violation by the bond issuer.

This post is written by Nguyen Quang Vu.

Vietnam Business Law