Ministry of Finance of Vietnam continues to give recommendation on the corporate bond market

Headquarters of the Ministry of Finance of Vietnam

Investors in Vietnam need to thoroughly analyze risks

The Ministry of Finance of Vietnam stated: Corporate Bonds are a type of security product confirming the obligation of principal and interest repayment by enterprises to the investors holding the bonds. Bond investors will enjoy interest rates and receive principal and interest payments from the enterprise when the bonds mature. International practices and Vietnamese law both stipulate that corporate bonds, issued by enterprises, follow the principle of self-borrowing, self-repaying, and self-responsibility.

corporate bonds is not a bank savings deposit product. Bonds generally carry higher risks than bank savings products, and the higher margin compared to savings interest rates is the risk that investors accept when buying corporate bonds. Given this characteristic, investors have the responsibility to self-assess investment risks in bonds, limit trading of invested bonds, and bear the responsibility for their investment decisions.

In recent times, the domestic corporate bonds market has gradually developed into an important channel for raising medium and long-term capital for businesses and the economy, thereby helping to reduce pressure on bank credit channels.

During its development, the market has encountered potential risks, and regulatory agencies and the Ministry of Finance have closely monitored market developments to refine policies. The legal framework for offering and trading corporate bonds has been fully enacted by the National Assembly and the Government of Vietnam, ranging from laws and decrees to the Ministry of Finance's guiding circulars. In the Securities Law and Enterprise Law, there are two types of bonds: publicly offered bonds and privately placed bonds.

Specifically, since 2021, two bond issuance methods have been distinctly differentiated: Publicly offered bonds are marketed to all investors and can only be offered after being licensed by the State Securities Commission; privately placed bonds are marketed and traded solely among professional securities investors who have the knowledge, experience, and assets to invest in products riskier than publicly offered bonds.

Alongside refining the legal framework, the Ministry of Finance of Vietnam regularly disseminates information about corporate bonds, clarifying the differences between this product and financial products from commercial banks such as savings deposits or certificates of deposit.

However, the rapid growth of the corporate bonds market has also exposed certain issues, such as enterprises issuing large volumes of high-interest bonds despite limited financial health; some service providers failing to ensure service quality; some individual investors focusing solely on interest rates without fully assessing the characteristics and nature of corporate bonds, and certain investors deliberately violating rules to become professional securities investors.

There has been a phenomenon of individual investors who are not professional securities investors buying privately placed corporate bonds. In light of this, since 2019, the Ministry of Finance has regularly informed about the corporate bonds market, issuing 17 press releases that warned issuers, market participants, and individual investors of risks to consider when investing in corporate bonds.

A potential market but in need of sanitizing

In response to recent violations by issuing enterprises, the market has seen enterprises increasing bond buybacks and individual investors selling bonds prematurely due to concerns that enterprises may default on their debts.

Given this situation, the Ministry of Finance recommends that market participants adhere to legal regulations and consider a few points.

For issuing enterprises: Adhering to the self-borrowing, self-repaying, and self-responsibility principle, enterprises are responsible for fully and punctually paying bond interest and principal and fulfilling commitments to investors. Hence, issuing enterprises must balance cash flow to meet obligations to bondholders. If facing financial difficulties, enterprises must proactively devise specific repayment plans and seek unified solutions with investors to ensure investor rights and maintain the enterprise's reputation through debt restructuring, bond swaps, handling secured assets, or negotiating to repay bond principal and interest with other assets. If agreements cannot be reached, issues will be resolved according to court decisions.

For service providers, consulting firms, issuing agents, custody agents, and other service providers, they are responsible for cooperating with issuing enterprises and investors to ensure contracted obligations and maintain service reputations in the market.

For investors, when issuing enterprises face payment difficulties, they should negotiate with the enterprises and service providers to agree on appropriate solutions, ensuring the interests of both investors and issuing enterprises. Investors should carefully analyze and classify their bond holdings to make suitable decisions and not rely on unfounded rumors. Individual investors, when introduced to privately placed corporate bonds or intending to invest in corporate bonds, need to request full and accurate information about the issuing enterprises and bonds from the distribution organizations. Investors should read, understand, and grasp the provisions stated in bond documents and the enterprises' information disclosures. Additionally, investors should be highly aware of the responsibilities and commitments of service providers. The involvement of commercial banks and securities companies in distributing corporate bonds does not imply these entities guarantee or endorse bond purchases—they only provide services and receive service fees from issuing enterprises. Bond risks remain the responsibility of the issuing enterprise.

The corporate bonds market remains potential as the demand for business capital for production and business development in the foreseeable future is significant. Therefore, the perspective of the Government of Vietnam is to continue developing the market towards safe, healthy, and transparent operations. Market participants must conform to legal regulations.

On September 16, 2022, the Government of Vietnam issued Decree No. 65/2022/ND-CP supplementing the regulations to screen professional securities investors and limit individual investors who do not have the capacity to participate in the market. These are also the regulations to protect small individual investors from the risks associated with corporate bonds when they lack the ability to analyze and assess. The Decree also enhances the responsibilities and obligations of issuing enterprises in complying with offering plans and documents, requires comprehensive information disclosure policies, clarifies the responsibilities of service providers in the market, and perfects management and supervision mechanisms along with the inspection and examination responsibilities of regulatory agencies.

Regulatory agencies will continue to research, refine the legal framework, and enhance inspection and supervision efficiency. In the immediate future, implementing Decree No. 65/2022/ND-CP along with strict measures against recent violations in the corporate bonds market will help the market adjust towards more efficient operations.

Anh Minh

According to the Government of Vietnam's electronic information portal

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