Corporate bond eligible for trading in Vietnam

Corporate bond eligible for trading in Vietnam (Internet image)

Regarding this issue, LawNet would like to answer as follows:

1. What is corporate bond?

According to Clause 1, Article 3 of Circular 16/2021/TT-NHNN, corporate bond is a type of debt security with a term to maturity of at least 01 year, issued by an enterprise to confirm the bondholder's legitimate rights and interests over a part of its debts.

2. Corporate bond eligible for trading in Vietnam 

According to Article 5 of Circular 16/2021/TT-NHNN, a corporate bond is eligible for trading when all requirements below are satisfied:

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

- The corporate bond is issued in VND.

- 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).

3. Corporate bond purchase limit in Vietnam

Article 8 of Circular 16/2021/TT-NHNN stipulates the corporate bond purchase limit as follows:

- The total corporate bond purchase balance shall be included in total amount of credit extended of a customer or a customer and a related person according to Article 128 of the amended Law on Credit Institutions 2010 (amended in 2017) and regulations of the State Bank of Vietnam on prudential limits and ratios in operations of credit institutions.

- Credit institutions shall elaborate on corporate bond purchase limits:

= Corporate bonds of an issuer;

= Corporate bonds of an issuer and a related person;

= Secured bonds;

= Non-secured bond;

= Readily marketable bonds;

= Bonds held until maturity;

= Corporate bonds being traded.

4. Responsibilities of credit institutions in purchasing corporate bonds in Vietnam

Responsibilities of credit institutions in purchasing corporate bonds include:

- Inspect fulfillment of principles under Article 4 of Circular 16/2021/TT-NHNN.

- 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.

- 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 of Circular 16/2021/TT-NHNN, credit institutions shall collect principal and interest of corporate bonds.

- 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.

- 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.

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