Official: Permission for credit institutions to buy unlisted corporate bonds from April 24, 2023 to the end of December 31, 2023 in Vietnam?

Official: Permission for credit institutions to buy unlisted corporate bonds from April 24, 2023 to the end of December 31, 2023 in Vietnam?

On April 23, 2023, the Governor of the State Bank of Vietnam issued Circular 03/2023/TT-NHNN regulating the purchase and sale of corporate bonds by credit institutions and foreign bank branches.

In Clause 11, Article 4 of Circular 16/2021/TT-NHNN, there are regulations on corporate bond trading principles as follows:

11. Within 12 months from the date on which a credit institution sells corporate bonds that are unlisted on securities market or unregistered on Upcom trading system (hereinafter collectively referred to as “unlisted corporate bonds”), the credit institution is not allowed to purchase sold unlisted corporate bonds and/or purchase unlisted corporate bonds issued in the same batch/period as the sold unlisted corporate bonds. After 12 months from the date on which a credit institution sells unlisted corporate bond, the credit institution is only allowed to purchase sold unlisted corporate bonds and/or unlisted corporate bonds issued in the same batch/period as the sold unlisted corporate bonds when:

a) All other requirements under this Article are satisfied;

b) The buyer of the corporate bonds from the credit institution must settle all corporate bond purchase expenses when the credit institution signs contract for selling corporate bonds to the buyer;

c) The issuer is at the highest rating according to the latest internal credit rating system prior to the date on which the credit institution purchases their corporate bonds.

In Article 1 of Circular 03/2023/TT-NHNN, there are provisions on bond trading by credit institutions, foreign bank branches as follows:

Cessation of effect from April 24, 2023 to the end of December 31, 2023 for the provisions of Clause 11 Article 4 of Circular No. 16/2021/TT-NHNN.

During the suspension period of Clause 11 Article 4 of Circular No. 16/2021/TT-NHNN as prescribed in this Article, credit institutions, foreign bank branches (hereinafter referred to as credit institutions) may redeem corporate bonds that have not been listed on the stock market or have not been registered for trading on the Upcom trading system (hereinafter referred to as unlisted corporate bonds) that have been sold by a credit institution and/or Unlisted corporate bonds may be issued in the same lot/series as unlisted corporate bonds sold by a credit institution when:

a) Satisfy the provisions of Article 4 of Circular No. 16/2021/TT-NHNN;

b) The buyer of this corporate bond from a credit institution shall pay the entire amount of the purchase of corporate bonds at the time the credit institution signs a contract to sell corporate bonds to the bond buyer;

c) The bond issuer is rated at the highest level according to the credit institution's internal credit rating regulations at the latest time before the credit institution purchases corporate bonds.

Thus, credit institutions are allowed to buy back corporate bonds that have not been listed on the stock market in Vietnam

Or have not yet registered for trading on Upcom but sold by a credit institution and/or unlisted corporate bonds are issued in the same lot/same issue as unlisted corporate bonds that the credit institution has issued until the end of 2023 when the following conditions are met:

- Meeting the principles of buying and selling corporate bonds;

- The buyer of this corporate bond from a credit institution shall pay the entire amount of the purchase of corporate bonds at the time the credit institution signs a contract to sell corporate bonds to the bond buyer;

- Bond issuers are rated at the highest level according to the credit institution's internal credit rating regulations at the latest time before the credit institution buys corporate bonds.

What is corporate bond eligible for trading in Vietnam?

In Article 5 of Circular 16/2021/TT-NHNN, there are regulations on corporate bonds that can be traded as follows:

A corporate bond is eligible for trading when all requirements below are satisfied:

1. The corporate bond is issued in accordance with regulations and law.

2. The corporate bond is issued in VND.

3. The corporate bond is under legal ownership of the seller, has not reached maturity which requires payment of both principal and interest, is not subject to any dispute, is allowed to be traded as per the law, is not under forward contract or discount contract or rediscount contract as guaranteed by the seller (except for cases where a credit institution purchases corporate bond to sell for the first time).

Thus, 03 conditions for corporate bonds to be eligible for trading in Vietnam include:

- Are corporate bonds issued in accordance with the provisions of law.

- Issued in Vietnamese Dong.

- Belonging to the lawful ownership of the seller, not yet due to pay all the principal and interest, and the seller commits that the corporate bond will be free from dispute, is allowed to be traded in accordance with the law, is not in a state of being term trading, discounting, rediscounting (except for the case where credit institutions buy corporate bonds issued for first sale).

What are regulations on responsibilities of credit institutions in purchasing corporate bonds in Vietnam?

In Article 7 of Circular 16/2021/TT-NHNN, there are regulations on responsibilities of credit institutions in purchasing corporate bonds as follows:

1. Inspect fulfillment of principles under Article 4 hereof.

2. Monitor and supervise the use of revenues generated by corporate bond issuance of the issuers; in case the issuers are found to be using revenues generated by corporate bond issuance incorrectly according to the plans and commitment with credit institutions, credit institutions shall request the issuers to repurchase corporate bonds under forward contracts.

3. Request the issuers to settle both principal and interest of corporate bonds when the bonds reach maturity. In case the issuers are incapable of settling principal or interest of corporate bonds that reach maturity or when the issuers fail to repurchase corporate bonds under forward contracts according to commitment under Point c Clause 6 Article 4 hereof, credit institutions shall collect principal and interest of corporate bonds.

4. During the period in which credit institutions are holding corporate bonds, the credit institutions must assess business operations of the issuers, financial situations, and the ability to settle corporate bond principal and interest of the issuers at least once every 6 months.

5. Deal with issues that arise during the process of trading corporate bonds in accordance with relevant law provisions in order to guarantee the ability to recover principal and interest of corporate bonds.

Note: Circular 03/2023/TT-NHNN takes effect from April 24, 2023.

Best Regards!