Corporate bonds look for light at tunnel’s end

The move has been criticised in some quarters as providing an uneven playing field for enterprises

Conditions for issuing corporate bonds are thought to be too tight for enterprises to use this capital mobilisation channel.

The Ministry of Finance (MoF) is drafting a new decree to replace Decree 52/2006/ND-CP dated May 19, 2006 on the issuance of corporate bonds.

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

Truong Thanh Duc, chairman of Basico Law Firm, said it was unnecessary to closely regulate bond issuance conditions.

“The draft decree on private placement is applied for under 100 member joint stock or limited liability companies, whose influence on investors and the market is not remarkable. Therefore, conditions need to be easy for enterprises to issue bonds and guarantee their feasibility,” said Duc.

Under the draft decree, to issue bonds via private placement, the draft decree requires a company generate profits in the 12 months preceding the year of the bonds’ issuance.

“This condition will restrict companies from expanding their investment projects by mobilising capital through bonds’ issuance,” said Hoang Gia Hiep, Vietnam Bond Market Association executive board member.

Hiep said this condition was not suitable for new enterprises operating in infrastructure or production, which required long payback periods.

Hiep said the regulation that bonds issuance organisations must have operated for at least one year should be removed.

“Many enterprises previously established were reorganised through mergers and acquisitions or separation into new legal entities under the Enterprise Law. Besides,  bond market investors are professional or financial institutions so it is possible for investors to value the credit standard and the refund ability of issuance organisations. Therefore, it will be reasonable to remove this condition,” Hiep told VIR.

Regarding conditions for companies to issue international bonds via private placement and the value being within limit approved by the prime minister annually, many experts said it would be difficult for companies to determine whether their bond issuance fell within the limit.

Lawyer Vu Xuan Tien, president of the VFAM consulting company, said this regulation would lack fairness because enterprises could not know when the bond issuance would exceed the limit of the foreign commercial loan.

“This will lead to some enterprises being allowed to issue many bonds while others can not, despite the fact that this does not completely depend on their demand and ability,” Tien added.