Differences between Bonds and Stocks? What are the Requirements for a Corporate Bond Offering Dossier?
What are shares and bonds according to legal regulations?
Based on Clause 1, Article 121 of the Law on Enterprises 2020, shares are certificates issued by a joint-stock company, accounting entries, or electronic data that confirm the ownership of one or more shares of that company.
At the same time, according to Clause 2, Article 4 of the Law on Securities 2019, shares are a type of securities that confirm the lawful rights and interests of the owner concerning a portion of the share capital of the issuing organization.
Based on Clause 3, Article 4 of the Law on Securities 2019, bonds are a type of securities that confirm the lawful rights and interests of the owner concerning a portion of the debt of the issuing organization.
How do bonds and stocks differ? What does a corporate bond issuance dossier include?
How do bonds and stocks differ?
In general, in the current stock market, shares, and bonds have many similarities.
First, both shares and bonds are issued to mobilize capital.
Second, both shares and bonds can be represented in the form of electronic data, accounting entries, or certificates (valuable papers).
Third, both are types of securities that confirm the lawful rights and interests of the owner concerning the assets or capital of the issuing organization.
Fourth, both types can be exchanged, transferred, bought and sold, mortgaged, inherited, and pawned.
The clear distinction between the two types can be based on the following criteria:
| Criteria | Bonds | Shares || --- | --- | --- || Concept | Bonds are a type of securities that confirm the rights and lawful interests of the owner concerning a portion of the debt capital of the bond-issuing organization
(Clause 3, Article 4 of the Law on Securities 2019) | Shares are a type of securities that confirm the rights and lawful interests of the owner concerning a portion of the share capital of the share-issuing organization.
(Clause 2, Article 4 of the Law on Securities 2019) || Nature | It is a debt security, a record of the issuing organization's debt, and the owner's rights over a portion of the borrowed capital. | It recognizes ownership concerning a portion of the company's charter capital. || Issuing entity | Joint-stock companies, limited liability companies, the Government of Vietnam.
(Clause 3, Article 111 of the Law on Enterprises 2020; Article 2 of Decree 153/2020/ND-CP; Clause 1, Article 2 of Decree 01/2011/ND-CP) | Only joint-stock companies have the right to issue shares
(Clause 3, Article 111 of the Law on Enterprises 2020) || Ownership status | Creditor | Shareholder of the joint-stock company || Owner's rights | Bondholders (creditors) are paid interest periodically at a stable interest rate, regardless of the performance of the issuing organization or business. | Shareholders receive dividends. Dividends depend on the business performance of the joint-stock company, thus not stable.
Shareholders have the right to participate in the management and operation of the company and engage in company matters (except for preferred dividend shareholders, redeemable preferred shareholders)
(Article 115 of the Law on Enterprises 2020) || Maturity period | Has a specific period stated in the bond. | No maturity period. || Result of issuance | Increases borrowed capital and debt obligations but does not change the shareholding structure. | Increases the charter capital of the joint-stock company, changing the shareholding structure of shareholders. || Profit | Low risk. The business must pay fixed debts, regardless of whether the company is profitable or not. | High risk. Dividends depend on business performance. If the business is profitable, dividends are distributed. || Payment priority | In case of dissolution or bankruptcy, bonds are prioritized for principal and interest payment. | In case of dissolution or bankruptcy, shareholders are only refunded their capital contribution after all obligations and debts of the company are paid. || Responsibility in case of dissolution/bankruptcy | Bondholders are not responsible for the company's debts. | Shareholders are responsible for the company's debts corresponding to their capital contribution ratio. |
What does a corporate bond issuance dossier include?
Pursuant to Clause 2, Article 12 of Decree 153/2020/ND-CP, Clause 3, Article 12 of Decree 153/2020/ND-CP amended by Clause 9, Article 1 of Decree 65/2022/ND-CP, the bond issuance dossier includes the following documents:
Bond issuance dossier
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2. The bond issuance dossier includes the following basic documents:
a) The bond issuance plan as prescribed in Clause 1, Article 13 of this Decree;
b) Documents proving the full satisfaction of bond issuance conditions as prescribed in Articles 9 and 10 of this Decree;
c) Information disclosure documents about the bond issuance according to this Decree and the guidelines of the Ministry of Finance;
d) Contracts signed between the issuing enterprise and service providers related to the bond issuance, including:
- Contracts signed with consulting organizations on the bond issuance dossier;
- Contracts signed with auction, underwriting, or issuing agent organizations in accordance with the bond issuance method prescribed in Article 14 of this Decree, except for cases where credit institutions sell directly to bond investors;
- Contracts signed with the bondholder representatives as prescribed by securities law (if any) to supervise the fulfillment of issuer commitments. In case of issuing bonds to individual professional securities investors, the bond issuance dossier must include a contract with the representative of bondholders as prescribed in Clause 7, Article 14 of this Decree and securities law;
- Contracts signed with asset management agents for secured bonds (if any);
- Contracts signed with other organizations related to the bond issuance (if any).
e) Periodic reports on the use of proceeds from bond issuance for outstanding bonds as prescribed in Point c, Clause 2, Article 21 of this Decree.
f) Credit rating results for the issuing enterprise if the enterprise is required to undergo a credit rating and the application time as prescribed in Clause 2, Article 19, and Clause 3, Article 310 of Decree 155/2020/ND-CP.
g) Decisions approving and accepting the bond issuance plan;
h) Approval documents from competent state management agencies as prescribed by specialized law (if any);
i) Confirmation documents from commercial banks, foreign bank branches on the opening of the account to receive proceeds from the sale of non-convertible, warrantless bonds or the opening of escrow accounts to receive proceeds from the sale of convertible bonds, bonds with warrants of the bond issuance. In case the issuing enterprise is a commercial bank, there must be a self-confirmation document from that bank on receiving the full proceeds from the bond issuance;
j) For the issuance of convertible bonds, bonds with warrants of public companies, securities companies, and fund management companies, in addition to documents prescribed in Points a, b, c, d, e, g, h, and i of this Clause, the bond issuance dossier also includes:
- The bond issuance registration form according to the template in Appendix I issued with this Decree.
- Copies of the resolutions of the General Meeting of Shareholders/Board of Directors approving the bond issuance dossier.
- The issuer's commitment not to violate regulations on cross-ownership as prescribed by the Law on Enterprises at the time of bond conversion into shares and the exercise of warrant rights.
l) For secured bonds, in addition to documents prescribed in Points a, b, c, d, e, g, h, i, and j of this Clause, the bond issuance dossier also includes documents on the legal status of the secured assets, documents on asset valuation by organizations with valuation functions, and documents on securing measures registration according to the security measures registration law, documents and information on the payment priority of bond investors when dealing with secured assets for debt payment.
m) Documents confirming investors purchasing bonds as prescribed in Point d, Clause 2, Article 8 of this Decree.
n) Documents from auction, underwriting, issuing agent organizations confirming the proceeds from bond issuance have been transferred to the issuer's account. If the issuing enterprise is a commercial bank, there must be a self-confirmation document from that bank on receiving the full proceeds from bond issuance.
o) Other documents related to the bond issuance (if any).
3. The bond issuance dossier for multiple tranches, besides the documents prescribed in Clause 2 of this Article, also includes:
a) Documents about the project or capital use plan for multiple tranches;
b) Updates on the situation of bond issuance and the use of bond proceeds from previous tranches according to the bond issuance plan;
c) Updates on the financial situation of the issuing enterprise in cases where the issuance tranche is 3 months or more after the previous tranche and in cases where the issuance tranche is in a different fiscal year from the previous tranche.
Thus, to issue corporate bonds, the dossier must include documents as regulated above.
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