What is the face value of government bonds in Vietnam? How are government bonds in Vietnam issued?
What is the face value of government bonds in Vietnam?
Pursuant to the provisions of Clause 1, Article 2 of Decree No. 01/2011/ND-CP, "Government bonds" are bonds issued by the Ministry of Finance to raise funds for the state budget or for specific investment projects and programs within the scope of the state's investment.
Pursuant to the provisions of Clause 2, Article 14 of Decree No. 95/2018/ND-CP, the face value of Government bonds is specified as follows:
- The face value of government bonds shall be VND 100,000 or its multiple.
What is the face value of government bonds in Vietnam? How are government bonds in Vietnam issued?
What are the forms of Government bonds?
According to the provisions of Clause 4, Article 14 of Decree No. 95/2018/ND-CP on the forms of Government bond issuance as follows:
Forms of Government bond
a) Government bonds are issued in the forms of certificates, book entries or electronic data depending on each method of issuance.
b) The issuer shall decide the form of government bonds in each issue.
Thus, Government bonds can be issued in the forms of certificates, book entries or electronic data.
In addition, according to the provisions of Clause 1, Clause 3, Clause 5, Clause 6, Article 14 of Decree No. 95/2018/ND-CP on Government bonds:
- Term:
+ Standard terms of government bonds are 3 years, 5 years, 7 years, 10 years, 15 years, 20 years, 30 years and 50 years.
+ Other terms of government bonds shall be subject to the Minister of Finance’s decision made in each period.
- Currency used in issuance and payment for government bonds is VND. In case government bonds are issued in the domestic market in foreign currencies, the currency used in issuance and payment of government bonds must be freely convertible currencies as regulated.
- Methods for payment of government bonds:
+ Interest shall be paid for every 06 months or 12 months or in a lump sum on the maturity date in which the principal payment is also made. The issuer shall notify the method for payment of bond interest for each issue.
+ The bond principal shall be paid in a lump sum on or before the maturity date according to the issuer’s notification in each issue.
How are government bonds in Vietnam issued?
According to the provisions of Clause 7 Article 14 of Decree No. 95/2018/ND-CP on the method of issuing Government bonds as follows:
Terms and conditions of government bonds
…
7. Issuance methods: Government bonds are issued through bidding, underwriting and private placement as prescribed in Article 15, Article 16 and Article 17 herein.
According to the above regulations, the methods of issuance of government bonds include:
Issuance of government bonds through bidding is prescribed in Article 15 of Decree No. 95/2018/ND-CP as follows:
- Bidding is a method of offering government bonds whereby potential investors bid on the government bonds by offering their interest rates.
- Bidding principles:
+ A bidder’s bid information must be kept secret.
+ Bidders shall have their rights and obligations ensured openly and impartially.
- Bidders:
+ Market makers as prescribed.
+ Other entities that are listed below and purchase government debt instruments through bidding via market makers.
Domestic and foreign organizations and individuals are allowed to purchase government debt instruments with unlimited quantity, unless otherwise prescribed by law;
Securities investment funds and voluntary pension funds are allowed to entrust the purchase of government debt instruments to fund management companies;
Off-budget financial funds are allowed to purchase government debt instruments in accordance with applicable relevant laws.
- Bidding forms:
Bidding for government bonds is conducted in either of the following forms:
+ Competitive bid; or
+ Combination of competitive bid and non-competitive bid. If a bid session is conducted in this form, total amount of bonds offered to non-competitive bidders shall not exceed 30% of total amount of bonds offered in that bid session.
- Bidding results shall be determined by adopting either the fixed-rate tender method or the variable-rate tender method. Based on the market developments, the Ministry of Finance shall decide adoption of the fixed-rate tender method or the variable-rate tender method in each period.
- The issuer shall directly organize bidding for government bonds or organize bidding via the Stock Exchange in accordance with regulations of the Ministry of Finance.
Issuance of government bonds through underwriting is specified in Article 16 of Decree No. 95/2018/ND-CP as follows:
- Underwriting is a method of offering government bonds through an underwriter syndicate, which is comprised of:
+ A lead underwriter and/or co-lead underwriters; and
+ Syndicate participant(s).
- Eligibility requirements to be satisfied by a lead underwriter:
+ It must be a financial institution that is duly established and operating in Vietnam, and licensed to provide securities underwriting as regulated by laws.
+ It must have experience in providing securities underwriting;
+ It must have a feasible underwriting plan which meets the needs of the issuer in each issue.
- Process of issuing bonds through underwriting:
+ Based on underwriting requirements for each bond issue and requirements applicable to lead underwriters, the State Treasury shall select qualified organization(s) to act as the lead underwriter or co-lead underwriters for a bond issue.
The lead underwriter (or co-lead underwriters) shall select qualified entities to participate in the underwriting syndicate, and submit the list of selected syndicate participants to the State Treasury for consideration.
+ The State Treasury shall provide necessary information concerning the bond issue for the lead underwriter (or co-lead underwriters) and the syndicate participants who will take charge of seeking potential investors.
Information to be provided includes: planned quantity and term of bonds to be issued, interest rate for each bond term, and issuance date.
+ The lead underwriter (or co-lead underwriters) and the syndicate participants shall prepare a consolidated report on the needs of investors, including the planned quantity of bonds to be purchased, the quantity of bonds firmly purchased and expected interest rate for each bond term, and then submit it to the State Treasury.
+ The State Treasury shall carry out a negotiation with the lead underwriter (or co-lead underwriters) on the quantity, terms and conditions of bonds (including bond term, interest rate, date of issuance, date of bond settlement, and bond prices), underwriting fee and relevant contents.
+ Based on results of the negotiation with the lead underwriter (or co-lead underwriters), the State Treasury shall enter into an underwriting agreement with the lead underwriter (or co-lead underwriters) for offering of bonds.
The signed underwriting agreement shall be the legal ground for determining rights and obligations of the lead underwriter (or co-lead underwriters) and those of the State Treasury.
+ The lead underwriter (or co-lead underwriters) and syndicate participants shall sell bonds as committed in the signed underwriting agreement. In case of failure to sell all of bonds of an issue, the lead underwriter (or co-lead underwriters) and syndicate participants shall purchase the remaining quantity of bonds.
+ Upon the end of an underwritten bond issue, the State Treasury shall offer government bonds to investors whose names appear in the list of bond buyers submitted by the lead underwriter (or co-lead underwriters).
Private placement of government bonds according to the provisions of Article 17 of Decree No. 95/2018/ND-CP:
- Private placement is a method of offering of government bonds directly to each buyer.
- The State Treasury shall formulate the plan for private placement of government bonds, and submit it to the Ministry of Finance for approval. The plan for private placement of government bonds includes the following contents:
+ Bond buyers;
+ Planned quantity of bonds to be issued;
+ Bond term;
+ Planned interest rate;
+ Planned issuance date.
- Based on the plan for private placement approved by the Ministry of Finance, the State Treasury shall issue a decision on issuance of bonds, and directly organize the issuance and make payment of bond principal and interest in each issue.
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