Additional corporate bond trading principles in Vietnam from August 12, 2024

Additional corporate bond trading principles in Vietnam from August 12, 2024 (Internet image)

On June 28, 2024, the State Bank of Vietnam issued Circular 11/2024/TT-NHNN amending several articles of Circular 16/2021/TT-NHNN dated November 10, 2021, by the Governor of the State Bank of Vietnam, on corporate bond trading of credit institutions and branches of foreign banks in Vietnam.

Additional corporate bond trading principles in Vietnam from August 12, 2024

The corporate bond trading principles in Vietnamg are specified in Article 4 of Circular 16/2021/TT-NHNN as amended and supplemented by Circular 11/2024/TT-NHNN and Circular 03/2023/TT-NHNN including:

• Credit institutions may buy and sell corporate bonds in accordance with the content noted in the License issued by the State Bank of Vietnam.

• The purchase and sale of corporate bonds by credit institutions shall be performed according to the regulations of the Law on Credit Institutions, Law on Securities, Law on Enterprises, Circular 16/2021/TT-NHNN, and other related legal provisions.

• Credit institutions that buy and sell corporate bonds must have an internal credit rating system and must issue internal regulations on the purchase and sale of corporate bonds in compliance with Circular 16/2021/TT-NHNN and other related legal regulations.

• Credit institutions purchasing convertible bonds or bonds with warrants must comply with the Law on Credit Institutions, the guidance of the State Bank of Vietnam on capital contribution, share purchase, and other related legal regulations.

• Credit institutions may only purchase corporate bonds if their bad debt ratio is below 3% according to the most recent classification period, as stipulated by the State Bank of Vietnam regarding the classification of assets, provisioning rates, provisioning methods for risk mitigation, and the use of provisions to handle risks in activities for credit institutions before purchasing corporate bonds.

• Credit institutions may only purchase corporate bonds when:

  • The corporate bonds meet the requirements set forth in Article 5 of Circular 16/2021/TT-NHNN;

  • The use of funds raised from the bond issuance is lawful and aligns with the issuance plan and/or the plan for using the capital and funds raised from the issuance, which has been approved according to legal provisions (collectively referred to as the plan);

  • The bond issuer commits to repurchasing the bonds ahead of time if the issuer changes the use of the raised capital during the bond holding period; the issuer violates legal regulations on bond issuance; the issuer breaches the issuance plan;

  • The plan is feasible, and the bond-issuing enterprise has the financial capability to ensure the full and timely payment of the bond principal and interest;

  • The issuer does not have bad debts with any credit institutions within the last 12 months before the credit institution buys the corporate bonds.

• Besides meeting the other regulations in this Article, credit institutions may only purchase corporate bonds from issuers that have changed the use of funds raised from bond issuance according to legal regulations before the credit institution purchases the bonds if the bond issuer is rated at the highest level according to the internal credit rating system of the credit institution at the most recent time.

• Credit institutions are not allowed to buy corporate bonds in the following cases:

  • Corporate bonds issued with the purpose of restructuring the debts of the issuing enterprise;

  • Corporate bonds issued with the purpose of contributing capital or buying shares in other enterprises;

  • Corporate bonds issued with the purpose of increasing operational capital.

• Credit institutions may not sell corporate bonds to their subsidiaries, except in cases where the credit institution is the compulsory transferee selling corporate bonds to the compulsorily transferred commercial bank.

• Foreign bank branches are not allowed to purchase convertible bonds or bonds with warrants.

• The currency used in buying and selling corporate bonds is the Vietnamese dong.

• Bond issuers must provide credit institutions with information about related persons as stipulated in the Law on Credit Institutions before the credit institution purchases corporate bonds. Related persons of the bond issuer are organizations and individuals that have a relationship with the bond issuer as defined in Clause 24, Article 4 of the Law on Credit Institutions.

Information about related persons who are individuals includes: full name; personal identification number; nationality, passport number, issuance date, and place of issuance for foreigners; relationship with the bond issuer.

Information about related persons who are organizations includes: name, business registration number, registered office address, business registration certificate or equivalent legal document; legal representative, relationship with the bond issuer.

• Credit institutions must use non-cash payment services for transactions when buying and selling corporate bonds as stipulated by legal regulations on non-cash payments.

Nguyen Ngoc Que Anh

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