A suitable legal framework needed for corporate bonds

The market is not yet fully recovered

According to a research issued in September 2023 by VNDIRECT Securities Joint Stock Company, the issuance and buyback of privately-placed corporate bonds before to maturity have decreased.

As of September 26, 2023, there have been 8 successful individual corporate bond issuances worth roughly VND 9,465 billion, a 68.9% reduction from the previous month.

According to experts, the Vietnamese corporate bond market appears to have passed through its most challenging period, at least in the near term, as a result of government involvement. However, these remedies are just temporary and cannot help market recovery right away. As a result, the corporate bond market should continue to enhance its policy framework, with proper circumstances.

Truong Thanh Duc, Director of ANVI Law Company, argues that the provisions in the Securities Law and the Enterprise Law governing general bond issue and individual bond issuance are overly stringent and out of step with reality. Bonds must theoretically fulfill all safety conditions before they can be issued. In the case of bonds, however, if the interest rate is high, the safety is low, and vice versa.

"Some argue that corporate bonds must be completely secure. They are no longer bound in that instance. The mandated issuing of corporate bonds should be reconsidered; it is an important conduit for firms. As a result, the Enterprise Law, Securities Law, and associated Decrees must be amended to be compatible and allow the market to tolerate varied states and risks, particularly by establishing criteria for openness, correctness, and rigorous supervision. If there are indicators of infractions, severe action should be taken to attain the most crucial goal: "everything must be real, and once it is real, any risk is acceptable," Truong Thanh Duc stated.

Openness in regulations is essential

According to Associate Professor Dr. Dinh Trong Thinh, a financial expert, when studying the bond markets of various countries around the world, there are two parts: one is the bond market of listed companies, which must register issuance while meeting all market requirements. In such situation, the management agency will set requirements comparable to those in our existing listed market. This market is pretty safe, but the interest rates are low.

The other is the OTC bond market, which varies widely between countries. In Japan, for example, any corporation can issue corporate bonds without having to provide financial reports or meet any other requirements. The interest rate determines if the accompanying risk is acceptable, and the quantity of purchasers determines whether the issue is successful. Bonds are completely a risk-versus-interest-rate trade-off that investors must examine; there is no necessity for buyers to be professional investors.

In Singapore, the issuing of OTC bonds is not required; rather, it is encouraged, and if a firm has a credit rating, the government will instantly cover certain costs.

Mr. Dinh Trong Thinh said, precise parameters must be set for corporations to issue bonds in order to improve rules for the corporate bond market. Regulations should not be as strict as Decree No. 65/2022, and Decree No. 08/2023, which only made temporary adjustments based on Decree No. 65's criteria, is exceedingly difficult for bond issuers.

Companies are not required to obtain credit ratings until December 31, 2023, according to Decree No. 8. When will corporations be allowed to issue bonds, considering the existing number of rated companies in Vietnam and enterprises in the market? As a result, very few corporations will have credit ratings to issue bonds not just until the end of 2023, but even until the end of 2025.

Furthermore, demanding collateral assets limit s firms' borrowing rights and investor trust in enterprises. The current trading bond requirements, in particular, require buyers to be professional investors with a regular investment capital of VND 2 billion that must be kept consistently for 6 months. This is a challenging requirement to meet.

Another consideration is the proportion of corporate bond issuance to equity. Setting explicit limit s on the amount of corporate bonds to equity would guarantee that issued capital is used more safely. The regulations should make it easier for buyers and sellers to accept and engage with one another, allowing them to swap rights to utilize money. Associate Professor Dr. Dinh Trong Thinh suggested this.

Trinh Quynh Giao, General Director of PVI Asset Management Company (PVI AM), advised investors that determining whether a bond is secure for private investors is extremely difficult. As a result, there are two concerns to consider: first, if individuals lack adequate information, they can delegate investing choices to professional financial counselors or professional investment funds.

Besides, if investors have a specific degree of understanding, they must obtain comprehensive information and make investment judgments based on the market's credit rating evaluation stages. It is not only about the first investment selection; investors must regularly manage their investments and monitor if credit ratings fluctuate, altering their investment portfolios accordingly.