ISSUE OF NOVEMBER 2022 – THE LATEST CHANGES TO THE PROVISIONS ON PRIVATELY PLACED CORPORATE BONDS

Dear Valued Clients,

On September 16^th 2022, The Government has issued Decree 65/2022/ND-CP (“Decree 65”), amending and supplementing a number of provisions of Decree 153/2022/ND-CP (“Decree 153”) prescribing the offering and trading of privately placed corporate bonds in the domestic market and offering of corporate bonds in the international market. Decree 65 is effective on September 16^th 2022 and it has amended several noteworthy contents on privately placed corporate bonds.

In this Legal Update, we would like to summarize and clarify the notable amendments and supplements on privately placed corporate bonds stipulated in Decree 65.

1. Purpose of issuing privately placed corporate bonds

As previously stipulated in Decree 153, “increasing working capital” is considered one of the purposes of issuing bonds[1]. However, this provision has currently been amended by Article 1.2 of Decree 65 specifically as follows[2]:

“Bonds are issued for: (i) executing investment projects/programs, (ii) restructuring the issuer’s debts or (iii) serving other purposes as prescribed in specialized laws…”

2. Principle of issuing privately placed corporate bonds

Apart from amending the purposes of issuing bonds mentioned in Section 1 above, Decree 65 has supplemented two (02) clauses on the principles of issuing corporate bonds as follows[3]:

(i) With regard to bonds issued in the domestic market, their terms and conditions as prescribed in Article 6 of Decree 153 may be changed if the change is approved by:

• The issuer’s competent authority; and
• A number of bondholders that represents at least 65% of the total outstanding bonds of the same type.

(ii) Information about any changes in terms and conditions of bonds must be disclosed by the issuer as ad hoc information as prescribed in Article 22 of Decree 153.

3. Face value of bonds

This is considered one of the notable amendments as in Decree 153, the face value of bonds, specifically bonds offered in the domestic market are prescribed to be VND 100,000 (one hundred thousand) or a multiple of VND 100,000 (one hundred thousand)[4].

However, Decree 65 has adjusted the face value of this bond in Article 1.4 as follows: “Face value of a bond offered in the domestic market is VND 100.000.000 (one hundred million) or a multiple of VND 100.000.000 (one hundred million)”.

It can be seen that Decree 65 has stipulated the face value of bonds offered for sale in the domestic market to increase by one thousand (1,000) times compared to the previous stipulation. This adjustment is due to the recent situation when the market for issuing corporate bonds grew tremendously, leading many disturbances and errors to arise, thus adversely affecting the investors. As a result, this provision is to restrict retail investors, promote the activities of professional investors, and contribute to reducing speculative activities as well as to preserve a transparent investment environment.

4. Redemption of bonds before maturity and bond swaps

Decree 153 only prescribes the right to redeem bonds before maturity, bond swaps and entities competent to approve the plan for redemption of bonds before maturity or bond swap of the corporate[5].

However, Decree 65 has amended and supplemented provisions on cases in which bonds are redeemed before maturity as follows[6]:

First of all, the redemption is made under an agreement between the issuer and the bondholder. This clause technically is not new as it has been mentioned in Article 7.1 of Decree 153. Decree 65 has taken the content and stipulated it in a separate clause in Article 7.

Second of all, bonds shall be compulsorily redeemed at the request of investors in the following cases:

(i) The issuer commits violations against regulations of the law on offering and trading of corporate bonds according to the decision issued by a competent authority, and such violations cannot be rectified or the number of bondholders representing at least 65% of the total outstanding bonds of the same type refuses to give approval for remedial measures for such violations;

(ii) The issuer fails to comply with the bond issuance plan, and such violation cannot be rectified or the number of bondholders representing at least 65% of the total outstanding bonds of the same type refuses to give approval for remedial measures for such violation;

(iii) Other cases defined in the bond issuance plan which is prepared in accordance with Article 13 of Decree 153 (if any).

It should be noted that the cases of compulsory redemption of bonds at the request of investors shall not apply to bonds which are withdrawn according to decision of a competent authority.

5. Time for distribution, offering, period for information disclosure

Decree 65 has also amended several provisions on the period for information disclosure as well as time for the distribution, offering of bonds in the direction of shortening the time period specifically as follows:

Regarding the time for the bond distribution in each offering wave[7], the time period has been shortened to not exceeding 30 days from the date of disclosing information before the offering wave. Moreover, the total duration for a multiple-wave offering shall not exceed 06 months from the issue date of the first offering wave[8].

Regarding the time to complete the distribution of bonds from the date of disclosing information before offering[9], the issuer shall complete the distribution of bonds within 30 days from the date of information disclosure before offering[10].

Bear in mind that this term only applies to the offering of non-convertible bonds without warrant by public companies and companies other than public companies, and the offering of convertible bonds and warrant-linked bonds by companies other than public companies (excluding securities companies and fund management companies).

Regarding the term for disclosing information before the offering wave of the issuer (before the issuance date of bonds)[11], Decree 65 has amended the term to be 01 working day at the latest before the official issue date, the issuer shall disclose information before offering to investors for their subscription, and send the disclosed information to the Stock Exchange[12].

Regarding the term for disclosing information on the result of offering bonds[13] (from the date of the offering wave of bonds), the term has been shortened to be 05 days at the latest from the completion date of the bond offering, the issuer shall disclose information on offering results to bondholders, and send the disclosed information to the Stock Exchange. The information to be disclosed shall comply with guidelines given by the Ministry of Finance of Vietnam.

In addition, Decree 65 has supplemented the term of information disclosure in case the offering is unsuccessful or an offering wave is cancelled to be 05 working days at the latest from the completion of bond distribution, the issuer shall disclose information and send the disclosed information to the Stock Exchange[14].

Regarding the ad hoc information disclosure of the issuer, Decree 65 does not amend the period for information disclosure but instead supplements certain cases in which the issuer shall disclose ad hoc information to investors as follows[15]:

(i) The terms and conditions of issued bonds are changed, or bondholders’ representative is replaced;

(ii) Bonds must be compulsorily redeemed before maturity;

(iii) There is a competent authority’s decision to impose penalties for administrative violations against regulations on securities and securities market, or relevant laws.

6. Responsibilities of bond issuers

Apart from five (05) clauses stipulated in Article 34 of Decree 153 on the responsibilities of bond issuers, Decree 65 has supplemented the following two clauses[16]:

(i) Provide explanations for investors about the issuance plan, legal risks, investment risks, risks associated with use of funds, rights, benefits and legal liabilities of the issuer and of the investor;

(ii) Compulsorily redeem bonds before maturity as prescribed in cases of compulsory redemption of bonds before maturity.

7. Representatives of bondholders

In order to strengthen the supervision of the purpose of capital use and other commitments of the issuer, Decree 65 has added provisions on the representative of bondholders in Article 1.11.

The representative of bondholder is a new terminology stipulated in Decree 155/2020/ND-CP detailing the implementation of the Law on Securities (“Decree 155”) and is defined as depository members of the Vietnam Securities Depository and Clearing Corporation or securities investment fund management companies that are appointed or selected to represent rights and interests of bondholders[17].

The representative of bondholders is stipulated to have the following rights and obligations[18]:

(i) The bondholders’ representative must enter into a service contract with the relevant issuer in which the rights and responsibilities of each party must be specified;

(ii) When rendering services, the bondholders’ representative shall comply with the provisions of the representative of bondholders stated in Decree 155;

(iii) The bondholders’ representative may be replaced if approved by the number of bondholders representing at least 65% of the total outstanding bonds of the same type. Changes to other terms and conditions of the representation contract are subject to approval by the issuer’s competent authority.

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 5.2 of Decree 153.

[2] Article 1.2 of Decree 65.

[3] Article 1.3 of Decree 65.

[4] Article 6.4(a) of Decree 153.

[5] Article 7 of Decree 153.

[6] Article 1.5 of Decree 65.

[7] Pursuant to Article 10.2 of Decree 153, the previous distribution time is not exceeding 90 days.

[8] Article 1.7 of Decree 65.

[9] Pursuant to Article 11.1(c) of Decree 153, the period for completing the distribution of bonds is within 90 days from the date of disclosing information before the offering wave of bonds.

[10] Article 1.8 of Decree 65.

[11] The term was previously prescribed to be within 01 working day before the date of bonds issuance pursuant to Article 19.1 of Decree 153.

[12] Article 1.14 of Decree 65.

[13] The term was previously prescribed in Article 20.1 of Decree 153 to be within 10 days from the date of completing the offering wave of bonds.

[14] Article 1.15 of Decree 65.

[15] Article 1.17 of Decree 65.

[16] Article 1.23 of Decree 65.

[17] Article 3.13 of Decree 155.

[18] Article 1.11 of Decree 65.