1. Background

On 31 December 2020, the Government issued Decree No. 153/2020/ND-CP regulating private placement and trading of corporate bonds in domestic and foreign markets (“Decree 153”). Decree 153 took effect from 1 January 2021 and has replaced previous regulations on corporate bonds, Decree No. 163/2018/ND-CP dated 4 December 2018 (“Decree 163”) and Decree No. 81/2020/ND-CP dated 9 July 2020 (“Decree 81”).

In general, Decree 153 removes some unnecessary conditions for the issuance of bonds, but does not loosen the regulations. Decree 153 hopes to facilitate the mobilization of capital, improve market transparency and strengthen investor protection.

2. Highlights of Decree 153

i. Bond issuers and investors

Decree 153 officially recognizes Public-Private Partnership project enterprises (“PPP PEs”) as bond issuers and narrows the types of investors allowed to purchase privately placed bonds.

Issuers 

Decree 153 allows PPP PEs to issue bonds, in line with the Law on Public-Private Partnership Investment (“PPP Investment Law”), which came into effect on 1 January 2021. Since budget financing for PPP projects predominantly has its limits, by allowing PPP PEs to issue bonds, such enterprises may have an additional way to attract financial resources.

Besides Decree 153, PPP PEs must comply with conditions stipulated in the PPP Investment Law. Specifically, PPP PEs must meet the following conditions (1) amount of capital raised by bond issuance shall not exceed the value of the loan amount determined in the PPP contract; (2) capital raised by bond issuance cannot be used for any purpose other than the project’s implementation under PPP project contracts or for restructuring of corporate debts; and (3) PPP PEs must open an escrow account at a licensed bank or foreign bank branch to receive capital from bond purchases.

Investors

The previous Decree 163 allowed all organizations and individuals to purchase privately placed bonds,3 which led to rapid growth of the market. Consequently, the potential risks for the investors, especially small and retail investors have also increased. Therefore, Decree 153 diminishes the type of investors corresponding with the type of bonds. Particularly, for non-convertible bonds without warrants only professional investors are allowed to purchase; and for convertible bonds and warrant-linked bonds, professional investors and less than 100 strategic investors are allowed.

Concurrently, the investors are required to have a thorough understanding of the terms and conditions of bonds and issuers’ commitments, self-analysis, and responsible for all risks that occurred when participating in the market. This is one of the government’s efforts in protecting the investors and minimizing the risks of the market.

 ii. Conditions forbonds issuance  

Decree 153 removes some conditions for bond issuance and sets the different conditions for securities companies and non-public funds management companies as well as the different conditions for each type of bond.

Decree 153 removes some conditions in Decrees 163 and 81 for bonds issuance. Now the companies are allowed to issue bonds without fulfilling the former requirements such as (1) operating at least 01 years; (2) signing contract with consultants; (3) balance debt limit after issuance does not exceed 05 times of owner equity; (3) completing each issuance batch within 90 days; (4) the interval between two placements must be at least 06 months.

However, under Decree 153, the companies must meet some conditions for bond issuance (a) full payment of due debts in the preceding three consecutive years; (b) meet the adequacy financial ratios; (c) issuance plans are approved by the General Meeting of Shareholders or Board Members, President, or Owner; (d) financial statements of the year preceding have been duly audited. In addition, the conditions for the securities companies and non-public funds management companies are less tightened. Securities companies and non-public fund management companies are not required to comply with condition  (a) mentioned above.

However, the conditions for the bonds issuance are different depending on type. For non-convertible bonds without warrants, limited liability companies and joint-stock companies are allowed to issue. On the other hand, for convertible bonds or warrant-linked bonds, only joint-stock companies are allowed. Apart from those, the issuer of convertible bonds or warrant-linked bonds are required to comply with some more conditions such as (1) an interval of at least 06 months between two private placements; (2) the foreign investors’ ratio of holding must comply with the laws after the conversion of bonds into shares or execution of warrants.

iii. Secondary market 

The new law also prescribes the mechanism of the secondary market. Accordingly, the privately placed bonds are allowed to be traded between the professional investors in order to increase the liquidity of the private placement market. However, there are period limitations for trading convertible bonds and warrant-linked bonds. Accordingly, the strategic investors are not allowed to trade convertible bonds and warrant-linked bonds with 03 years and 01 year for professional investors.

The Ha Noi Stock Exchange (HNX) is studying to build a trading market model to report to the Ministry of Finance for consideration and to issue guidance legislation.

 iv. Offshore private placement

Compared with Decrees 163 and 81, Decree 153 now requires public companies, securities companies, or fund management companies to apply for the approval from the State Securities Commission (“SSC”) prior to the offshore private placement. These companies need to submit the offering dossier to the SSC. Within 10 days from the receipt of valid dossier, the SSC shall give its written approval. If a dossier is refused, the SSC shall give a written response specifying reasons for such refusal.

v. Procedure deadlines

Decree 153 also alters the period for enforcing some procedures for the private placement of corporate bonds. In particular, companies must pay heed to the period for

(1) the registration and deposit of bonds is only 05 working days after the fulfillment of the private placement (instead of the previous 10 working days);

(2) disclosure of information before the offering is 01 working day (instead of the previous 03 working days);

(3) disclosure of information on bond offering results is 10 days (instead of the previous 05 working days);

3. Conclusion 

Decree 163 may help companies to increasingly adopt the private route for funds mobilization with qualified investors during the COVID-19 pandemic. At the same time, the potential risks in the private placement market are supposed to be reduced and liquidity may improve with its implementation.