How safe are collateral trust bonds?

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The 5th draft of the Decree amending Decree 153/2020/ND-CP includes rules on collaterals, which has businesses worried that complying with these regulations and fundraising will be difficult.

Many strict conditions

According to the above draft, the issuer must ensure that the total outstanding debt of bonds at the time of issuance does not exceed 3 times its equity, as measured by the most recent quarterly financial statements; the issuer has profit in the year preceding the year of issuance and no accumulated loss as measured by audited financial statements related to corporate bonds...

Individual professional investors can only buy private-placed corporate bonds issued by public corporations, according to the draft. For such bonds, collateral or payment guarantees are required.

Furthermore, regulations on collaterals are causing concern among many businesses. Because this is a bottleneck hindering them from obtaining bank finance, and businesses find it difficult to apply these requirements to a variety of projects.

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Difficult to guarantee bond risks

A financial expert referenced Tan Hoang Minh's example to point out that the business has collateral (not to guarantee the issued and canceled bond batch), but once the business is in jeopardy, handling collateral to repay investors is difficult.

Many corporations have issued stock-secured bonds, according to financial expert Dr. Nguyen Tri Hieu. However, if they are threatened, the stock price will plummet. So such collateral is unable to compensate for the risk of bonds.

Besides, although renewable energy firms and BOT projects have significant total investment capital, corporate bond collateral will be generated later. As a result, due to the restricted and delayed cash flow, such collateral is difficult to secure for corporate bonds.

According to a lawyer, many operations relating to asset transfer, payment, or clearance in favor of a creditor are banned if a business has been declared bankrupt by the court.

As a result, financial experts argue that rather than tightening too much and paying too much attention to bond issuance requirements and collateral restrictions, it is critical to make clear business information and professional assessments of corporate bonds.