Proposal for Allowing Credit Institutions to Invest in Corporate Bonds to Supplement Working Capital
Proposal to Allow Credit Institutions to Invest in Corporate Bonds to Supplement Working Capital?
This content is proposed in point d, clause 1, Article 1 of the Draft Circular amending Circular 16/2021/TT-NHNN as follows:
Add clause 14 to Article 4 of Circular 16/2021/TT-NHNN which stipulates the principles of buying and selling corporate bonds as follows:
14. Credit institutions are only allowed to purchase corporate bonds issued with the purpose of supplementing working capital when they can manage the revenue from the issuing enterprises' business activities and fully collect documents proving the use of working capital corresponding to the bond value according to working capital turnovers during the period of holding corporate bonds. The proposal allows credit institutions to buy corporate bonds with the purpose of supplementing working capital when they can manage the revenue from business activities and fully collect documents proving the use of working capital.
This regulation aims to ensure that credit institutions purchase corporate bonds when they can fully control the purpose of using the bond issuance funds, as well as ensure that the investment amount in corporate bonds continues to be used for the correct purpose by the issuing organizations after the first working capital turnover, thereby overseeing the use of cash flow from the issuance of corporate bonds.
Proposal to Allow Credit Institutions to Invest in Corporate Bonds to Supplement Working Capital?
Proposal to Allow Credit Institutions to Repurchase Unlisted Corporate Bonds Before December 31, 2023?
Currently, clause 11 of Article 4 Circular 16/2021/TT-NHNN stipulates as follows:
Principle of buying, selling corporate bonds
...
11. Within 12 months after selling unlisted corporate bonds on the stock market or unregistered bonds on the Upcom trading system (hereinafter referred to as unlisted corporate bonds), credit institutions are not allowed to buy back unlisted corporate bonds that the credit institutions have sold and/or unlisted corporate bonds issued in the same batch/issuance with the unlisted corporate bonds that the credit institutions have sold. After 12 months from the sale of unlisted corporate bonds, credit institutions are only allowed to buy back unlisted corporate bonds that the credit institutions have sold and/or unlisted corporate bonds issued in the same batch/issuance with the unlisted corporate bonds that the credit institutions have sold when:
a) Complying with the other provisions of this Article;
b) The buyer of these corporate bonds from the credit institution fully pays for the purchase of corporate bonds at the time the credit institution signs the corporate bond sale contract with the bond purchaser;
c) The issuing enterprise of the bonds is rated at the highest level according to the internal credit rating regulations of the credit institution at the closest time before the credit institution purchases the corporate bonds.
The State Bank of Vietnam proposes to amend this regulation in Article 2 of the Draft Circular amending Circular 16/2021/TT-NHNN as follows:
Suspend the enforcement of the regulation in clause 11, Article 4 of Circular 16/2021/TT-NHNN until December 31, 2023.
During the period from the effective date of this Circular to the end of December 31, 2023, credit institutions are only allowed to repurchase unlisted corporate bonds on the stock market or unregistered bonds on the Upcom trading system (hereinafter referred to as unlisted corporate bonds) that the credit institutions have sold and/or unlisted corporate bonds issued in the same batch/issuance with the unlisted corporate bonds that the credit institutions have sold when:
1. Complying with the provisions at Article 4 of Circular 16/2021/TT-NHNN (amended and supplemented in clause 2 of Article 1 of this Circular).
2. The buyer of these corporate bonds from the credit institution fully pays for the purchase of corporate bonds at the time the credit institution signs the corporate bond sale contract with the bond purchaser.
3. The issuing enterprise of the bonds is rated at the highest level according to the internal credit rating regulations of the credit institution at the closest time before the credit institution purchases the corporate bonds.
The State Bank of Vietnam acknowledges that in the current context of many difficulties in the corporate bond market and the real estate market, it is necessary to have prompt solutions and regulations from multiple sides to support and alleviate difficulties for these markets, thereby contributing to macroeconomic stability.
At the same time, to align with the policy of the Government of Vietnam as stated in Resolution 33/NQ-CP of 2023 on several solutions for resolving issues and promoting the development of a safe, healthy, and sustainable real estate market, including the objective of addressing difficulties in credit, bonds, and investment fund sources ... to unlock capital flows for the real estate market, contributing to increasing market liquidity.
For now, the enforcement of the regulation in clause 11, Article 4 Circular 16/2021/TT-NHNN is suspended until the end of December 31, 2023, to increase liquidity and help support the corporate bond market.
Supplementary Regulations on Conditions for Credit Institutions to Purchase Bonds?
The State Bank of Vietnam proposes to amend the regulation at point b, clause 1, Article 1 of the Draft Circular amending Circular 16/2021/TT-NHNN in Article 4 of Circular 16/2021/TT-NHNN as follows:
b) Add point e, clause 6 as follows:
“e) The debt-to-equity ratio (including the projected volume of bonds to be issued) of the issuing enterprise does not exceed 5 times the owner's equity according to the nearest quarterly financial report at the time of issuance, which has been audited concerning the use of the owner's equity of the issuing enterprise.”
The Draft supplements that credit institutions can only purchase corporate bonds when the Debt/Equity ratio (including the projected volume of corporate bonds to be issued) does not exceed 5 times based on the nearest audited financial report.
See the full Draft Circular amending Circular 16/2021/TT-NHNN here.
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