Dear Valued Clients,

On September 16, 2022, the Government issued Decree No. 65/2022/ND-CP amending and supplementing a number of articles of Decree No. 153/2020/ND-CP dated December 31, 2020 on offerings and trading of corporate bonds individually in the domestic market and offering of corporate bonds to the international market (“Decree 65”). However, after being put into practice, Decree 65 clearly reveals inadequacies in the current context of the domestic and international bond market. Therefore, on March 12, 2023, the Ministry of Finance submitted to the Government a Draft Decree to amend and supplement a number of articles of Decree 65 regulating the offering and trading of individual corporate bonds on the domestic market and offering of bonds to the international market (“Draft Decree”).

In this Legal Update, we would like to summarize and clarify new policies that deems to be beneficial to the investors and bond issuers when this Draft Decree is officially approved.

1. The regulation on determination of professional securities investor status as an individual shall cease to be effective until January 1, 2024

Decree 65 stipulates that professional securities investors must ensure their holding portfolio to have an average value of VND 2 billion for at least 180 days, excluding borrowed money^[1].

Nevertheless, in the report to the Government for the Draft Decree, the Ministry of Finance reported that the market is facing difficulties in liquidity and payment of bonds due in 2023-2024. Therefore, in Article 1.1 of the Draft Decree, it is proposed to extend the implementation time by one year for the regulations on identification of professional securities investors in Decree 65, from January 1, 2023 to January 1, 2024.

This proposal is completely in consistent with Article 3.1 of the Decree 08/2023/ND-CP amending, supplementing and suspending the implementation of a number of articles in Decrees regulating the offering and trading of private corporate bonds retail in the domestic market and offering of corporate bonds to the international market (“Decree 08”), which takes effect from March 5, 2023 providing the suspension of effect for the identification of professional securities investors under Decree 65 will end until the end of December 31, 2023.

The extension of the implementation time of the regulation on professional securities investors within 01 year will help the market have more time to adjust and can maintain the bond investment demand of professional securities investors, especially in the current difficulty in market liquidity.

2. Postponing the implementation of regulations on bond distribution time of each issuance and mandatory credit rating requirement within 01 year

Also in Article 1.1 of the Draft Decree, the Ministry of Finance proposed to postpone the implementation of regulations on bond distribution time of each issuance and required compulsory credit rating within 1 year, instead of applying Credit rating application from January 1, 2023 as stipulated in Decree 65 which will start from January 1, 2024. This proposal is also completely consistent with Article 3.3 of Decree 08.

This regulation helps to reduce the issuance conditions, especially for enterprises that have a lot of bond debts, especially in the real estate sector. In addition, the market also has time to meet the criteria on bond outstanding balance and develop the credit rating market.

3.The term of bond is now allowed to change up to 02 years

In addition to the new policies mentioned above, another notable point in this Draft Decree is to allow enterprises to change the term or swap issued bonds in accordance with the law on bond and promissory note issuance. The extension of the bond’s term must not exceed 2 years compared with the term in the bond issuance plan announced to investors^[2].

However, in case the bondholder does not accept to change the terms and conditions of the bond, the issuing enterprise is responsible for negotiating to ensure the interests of investors. If the bondholder still does not accept the negotiated plan, the enterprise must pay the bond principal and interest in full upon maturity and exercise the attached rights (if any) to the bondholder in accordance with the announced issuance plan.

4. Supplement payment methods for bond principal and interests

According to provisions of Article 1.3 of the Draft Decree, in case the enterprise cannot pay the principal and interest of the bond in cash, it can negotiate with the investor to pay with other assets.

This conversion must comply with the provisions of civil law, specialized law and relevant law and be approved by the bondholder. Enterprises must also disclose information and take responsibility for the legal status of assets used to pay bond principals and interests.

As usual, we hope you find this Legal Update helpful and look forward to working with you in the upcoming time.

Kind regards,

ENT Law LLC

The full version of this Legal Update can be found here.

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[1] Article 1.6 of the Decree 65.

[2] Article 1.2 of the Draft Decree.