Vietnam: Borrowing funds by issuing bonds

Based on budget estimates, the annual borrowing and repayment plan, the policy for issuance of municipal bonds of the provincial government as approved by the Provincial People’s Council and the provincial government's borrowing plan prescribed in Article 7 of Decree No. 93/2018/ND-CP of Vietnam’s Government, the Provincial People's Committee shall complete the scheme for issuance of municipal bonds and submit it to the Ministry of Finance for giving opinions about bond terms and conditions as prescribed in Article 53 of the Law on public debt management.

Contents of the scheme for issuance of municipal bonds

A scheme for issuance of municipal bonds includes:

- The issuer is the Provincial People's Committee;

- Purposes of issuance of municipal bonds as regulated by the Law on state budget and the Law on public debt management;

- Planned terms and conditions of municipal bonds, including:

+ Quantity of bonds to be issued;

+ Bond term which must be at least 01 year;

+ Bond's face value which is VND 100,000 or its multiple;

+ Currency which is VND;

- Planned time and method of issuance of municipal bonds;

- The provincial government’s borrowing and repayment of principals and interests of all loans in 03 budget years preceding the year in which municipal bonds are issued;

- Debt limit granted to the provincial government, repayment of principals and interests during the year, outstanding balance at the time of formulation of bond issuance scheme, and planned remaining debt after issuance of bonds;

- The plan for using funds to pay bond principal and interest upon their maturity date;

- Information to be provided for investors before the bond issue;

- The issuer’s commitments to bondholders;

- The issuance of municipal green bonds must conform to regulations on issuance of municipal regular bonds, and the Provincial People's Committee must report the list of projects using funds from issuance of municipal green bonds as regulated by the Ministry of Finance.

The Provincial People's Committee shall submit a written request to the Ministry of Finance for opinions about terms and conditions of municipal bonds, enclosed with the following documents:

- The scheme for issuance of municipal bonds as regulated;

- The Resolution of the Provincial People’s Council approving the provincial government’s budget estimate, and borrowing and repayment plan of the year in which municipal bonds will be issued, and medium-term public investment plan;

- The provincial government’s annual borrowing and repayment plan approved by the Provincial People's Committee under regulations in Article 7 of Decree No. 93/2018/ND-CP;

- Other relevant documents.

Within 15 working days from the receipt of the provincial government's request and documents as prescribed, the Ministry of Finance shall consider giving written approval for terms and conditions of municipal bonds as specified above before the Provincial People's Committee organizes the bond issue. In case of refusal, the Ministry of Finance shall state its reasons for refusal in writing.

According to Decree No. 93/2018/ND-CP, the issuance of municipal bonds is specified as follows:

- At least 05 working days before the planned date of bidding, or at least 10 working days before the date of issuing municipal bonds through underwriting, the Provincial People’s Committee must publish basic information about the bond issue on its website or on the website of the organization that is authorized to issue municipal bonds or in charge of conducting bidding. Information to be published is specified in Section 1 of the Appendix I enclosed herewith;

- Issuance methods:

+ Bidding: The bidding for municipal bonds is conducted by the organization in charge of conducting bidding for Government’s debt instruments. The principles and methods of bidding, participants in bidding, procedures for organization of the bidding, method of determining bidding results and bond settlement method shall comply with regulations on issuance of government’s debt instruments through bidding;

+ Underwriting: The Provincial People’s Committee, or its authorized authority, shall carry out a negotiation directly with the main underwriter on the quantity, terms and conditions of bonds (including bond term, interest rate, date of issuance, date of bond settlement, and bond prices), underwriting fee and relevant contents. Process of issuance of municipal bonds through underwriting shall be the same as that of issuance of government's debt instruments through underwriting.

- Interest rate:

+ At least 10 working days before the issuance of municipal bonds, the Provincial People's Committee shall request the Ministry of Finance in writing to announce the bracket of bond interests. Such request should indicate the planned date of issuance, quantity of bonds to be issued, bond term, method and type of issuance, needs to buy bonds of investors (including expected quantity, term and interest rate);

+ Within 07 working days from the receipt of the written request, the Ministry of Finance shall announce the bracket of bond interests in order for the Provincial People’s Committee to organize the issuance of municipal bonds;

+ The Provincial People’s Committee shall decide the interest rate of municipal bonds to be issued according to the interest bracket announced by the Ministry of Finance and the market developments at the date of issuance;

+ Within 07 working days upon the end of each issue, the Provincial People’s Committee shall publish results of the bond issue, including the quantity, term and interest rate of municipal bonds issued, on its website or on the website of the organization that is authorized to issue municipal bonds or in charge of conducting bidding.

Registering, depositing, listing and trading bonds: Municipal bonds shall be registered and deposited at the Vietnam Securities Depository, listed and traded at the Stock Exchange. Procedures for registering, depositing, listing and trading municipal bonds are the same as those applied to government’s debt instruments.

Repurchase of bonds

- The Provincial People’s Committee may repurchase bonds before they mature to its debt or serve debt restructuring according to the plan approved by the Provincial People’s Council;

- Bonds must be openly and transparently repurchased according to market rules;

- The plan for repurchase of municipal bonds includes the following contents: purposes; terms and conditions of bonds to be repurchased; repurchase method; planned date of repurchase; list of holders of bonds to be repurchased; provincial-government budget’s outstanding balance after the repurchase;

- Funds for repurchasing bonds and repurchase expenses shall be covered by provincial-government budget in accordance with regulations of the Law on state budget, the Law on public debt management and their instructional documents;

- Process of repurchase of municipal bonds shall follow guidance of the Minister of Finance;

- Interest rate of repurchased bonds:

+ At least 10 working days before the repurchase date, the Provincial People's Committee shall submit a written request, indicating the date of repurchase, quantity of bonds to be repurchased, bond term and repurchase method, to the Ministry of Finance for announcement of bracket of interests of bonds to be repurchased;

+ Within 07 working days from the receipt of such written request, the Ministry of Finance shall announce the bracket of interests of repurchased bonds in order for the Provincial-level People’s Committee to organize the repurchase of municipal bonds;

+ The Provincial People’s Committee shall decide the interest rate of municipal bonds to be repurchased on the basis of the interest bracket announced by the Ministry of Finance and the market developments at the date of repurchase;

- Within 07 working days upon the end of the repurchase, the Provincial People’s Committee shall publish information concerning the repurchase, including the code, quantity and interest rate of municipal bonds repurchased, on its website or on the website of the organization in charge of conducting bidding for repurchase of municipal bond.

Swap of bonds

- The Provincial People’s Committee may swap bonds to serve debt restructuring according to the swap plan approved by the Provincial People’s Council;

- Bond swap must be openly and transparently carried out according to market rules. The quantity of bonds issued to swap outstanding bonds must not exceed the debt limit in the year of the provincial government;

- The plan for swap of municipal bonds includes the following contents: Purposes; terms and conditions of sold bonds and those of purchased bonds (planned quantity of new bonds and bonds additionally issued); swap method; list of holders of bonds swapped at the date of formulation of swap plan; planned date of bond swap; planned outstanding balance of the provincial government after the bond swap;

- After the bond swap plan has been given approval by the Provincial People’s Council, the Provincial People's Committee shall ask for the Ministry of Finance’s approval for terms and conditions of sold bonds and purchased bonds before organizing the bond swap;

- Expenses for swapping bonds shall be covered by provincial-government budget in accordance with regulations of the Law on state budget, the Law on public debt management and their instructional documents;

- Process of swap of municipal bonds shall follow guidance of the Minister of Finance;

- Discount interest rate:

+ At least 10 working days before the date of bond swap, the Provincial People's Committee shall request the Ministry of Finance in writing to announce the bracket of discount interests in order to determine the prices of sold bonds and purchased bonds in each bond swap. Such written request should indicate the planned date of swap, quantity and term of sold bonds and purchased bonds;

+ Within 07 working days from the receipt of such written request, the Ministry of Finance shall announce the bracket of discount interests in order for the Provincial People’s Committee to organize the swap of municipal bonds;

+ Based on the discount interest bracket announced by the Ministry of Finance and market developments at the date of bond swap, the Provincial People's Committee shall decide the bond discount interest so as to determine the prices of sold bonds and purchased bonds;

- Within 07 working days upon the completion of the bond swap, the Provincial People's Committee shall publish results of the bond swap, including codes and quantity of sold bonds and of purchased bonds, and discount interest rate, on its website.

Issuance of municipal green bonds shall follow the Scheme approved by the Prime Minister and guidance of the Ministry of Finance.

More details can be found in Decree No. 93/2018/ND-CP of Vietnam’s Government, which takes effect from July 01, 2018.

-Thao Uyen-

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