Bond issuance horizon brightens

Accordingly, joint stock companies, limited liability companies and state-owned enterprises during the conversion into limited liability companies or joint stock companies will be allowed to issue corporate bonds on domestic and international capital markets.

“The draft decree provides clear governing scope on which limited liability companies are allowed to issue bonds, helping the enterprises have more options in raising finance and capital structuring,” said Dang Duong Anh, executive partner of Vilaf Hong Duc law firm.

Anh said the new decree would make conditions for the MoF to supervise the private placement of the enterprises and provide an international bond issuance legal framework to enterprises. Currently, Decree 52 offers little clarity to whether limited liability companies are permitted to issue bonds.

“The draft decree on issuing corporate bonds via private placement if approved by the government will make clear this issue by allowing limited liability companies to issue bonds,” Anh said.

Meanwhile, Hoang Gia Hiep, executive board member of Vietnam Bond Market Association, said Decree 25/2010/ND-CP dated March 19, 2010 detailed the transformation of state companies into one-member limited liability companies and management of state-owned one-member limited liability companies. However, from July 1, 2010, all state companies that failed to be equitised by that day will have to be converted into limited liability companies or even state economic groups.

Hiep said it was a breakthrough to allow enterprises issue short-term debt instruments. “Under the draft decree, the definition of bonds includes short-term debt instruments. Currently, bonds are considered long-term debts and related to investment projects. This has curbed the bond market’s development and transfer instruments,” Hiep told VIR.

Hiep said bond issuances would allow for financial restructuring and enterprises’ capital scale increases. However, Anh said it was questionable as to whether or not foreign-invested companies had to register the issuance of the bonds under the draft decree with the Department of Planning and Investment as part of their respective investment certificates.

“It will be difficult for state management to allow foreign-invested companies to issue bonds to raise capital because it will exceed the total investment capital limitation under enterprises’ investment certificates.

Anh said one of the conditions for the companies to issue international bonds via private placements was that the total value of such bond issuance must be within the total foreign commercial loan limit approved by the prime minister annually.

“It is not easy for the companies to determine whether their bond issuance falls within that limit. On the other hand, a bond is a kind of loan and enterprises can have foreign loans without this condition. Therefore, this condition should apply to state-owned companies only.

“The draft decree requires the issuers to comply with regulations on foreign loans. The question given is whether international bond issuance must be registered with State Bank if its term is from 12 months,” he said.

In additional, Anh said, until now, the conditions and requirements for financial institutions such as commercial banks to act as the underwriter of a bond private placement had not been provided by the MoF which might lead to difficulties for financial institutions who wanted to act as an underwriter of a bond private placement.