Local firms to run into bigger bond barrier

Decree 90/2011/ND-CP on issuance of corporate bonds via private offering by limited liability firms and joint stock companies in Vietnam will create a stronger legal framework for domestic private companies selling corporate bonds via private offerings.

The new decree, which replaces Decree 52/2006/ND-CP on the issuance of corporate bonds and Decree 53/2009/ND-CP on issuance of corporate bonds to international markets, will take effect on December 1, this year.

“In order to raise enterprises’ responsibility when mobilising capital via bond issuances and ensure investors’ benefits, Decree 90 provides tighter regulations on issuance conditions than is the case at present,” said Pham Tien Sy, from the State Bank’s Legislation Department.
Do Ngoc Quynh, Vietnam Bond Market Association’s general secretary, said only strong enterprises could meet such high requirements.

Enterprises in the first stage of development would find it tough to raise capital via this channel, Quynh said. “Bonds themselves are a kind of debt, the price of which is determined by borrowers’ risks [and] the issuer’s prestige will decide how high or low the price is. Many enterprises with lower prestige are willing to bear a higher cost to participate in the bond market,” Quynh said.
He said it was understandable that the decree had set such stringent conditions in a bid to ensure investor safety. However, it would likely lead a worse situation where enterprises that did not meet issuance conditions would cooperate with auditors to provide murky information for investors to be allowed to issue bonds.

“I think enterprises’ transparency is the key factor when it comes to issuing bonds. The decree’s regulations should aim to ensure enterprises will always have to increase their transparency to be allowed to mobilise capital via bond issuances,” said Quynh.

A company domestically issuing non-convertible bonds must have operated for at least one year from the date of establishment, and operations for the year preceding that of issuance must have been profitable according to audited financial statements.

When a company issues bonds before April 1 and cannot yet provide financial statements for the year before, they can be replaced by financial statements of two years earlier, with profitable results certified by the company’s board of management or chairman.

According to the new decree, enterprises’ audited financial statements must be done by state audit offices or independent auditing firms legally operating in Vietnam in case of bond issuances in domestic and international markets.