Articles
Stricter conditions set for bond issues

09 - 11 - 2011
By Tran Thi Cam Giang*

The value of the nation's bond market is meagre relative to those in other countries in the region, representing just 17 per cent of the GDP in Viet Nam compared to 74 per cent in Singapore, 53 per cent in China, and 82 per cent in Malaysia.

To boost the bond market, the Government issued Decree No 90/2011/ND-CP on October 14. The new decree supersedes Decree No 52/2006//ND-CP of May 2006 governing corporate bond issues, and Decree No 53/2009/ND-CP of June 2009 on the issuance of international bonds.

To control risks inherent in bond issues, Decree No 90 provides two additional principles governing bond issues: (i) if bonds are issued to finance programmes or projects, the issuer must maintain a minimum equity ratio of 20 per cent of the total investment capital of the programme or project; and (ii) for international bond issues, the issuer must comply with the law on foreign loans and their repayment. These conditions help ensure that enterprises have sufficient financial resources and credit-worthiness before issuing bonds. 

In addition, audited financial statements of the issuing enterprises must contain an unqualified auditor opinion, a strict requirement that effectively bars up to a quarter of all Vietnamese enterprises - the proportion currently unable to satisfy such a condition.

Article 23.1(dd) of Decree No 90 sets conditions for a bond issue on the international market, providing that "the enterprise must satisfy international market requirements on credit ratings in order to conduct the issue, and a State enterprise must have a credit rating at least equal to the national credit rating."

There is not yet any professional credit rating companies for the Vietnamese market, however, making this another potentially limiting condition. In Viet Nam, credit ratings for enterprises are conducted by the Credit Information Centre attached to the State Bank of Viet Nam, and the result of such rating is temporary and does not meet international standards.

Notably, Decree No 90 introduces a note of confusion by changing or eliminating terminology from Decrees 52 and 53. The legal terms "types of enterprise bonds" and "bond issuance modes" in Decree No 52, as well as "enterprise bonds with government guarantee" in Decree No 53 are not included in Decree No 90. Implementing Decree No 90 will therefore require an additional guiding circular from the Ministry of Finance, an additional step that is contrary to the current general spirit of administrative reform.

(*) Please contact the author at giang.tran@indochinecounsel.com or our partners if you wish to have more information or specific advice for the topic of this article.

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