What should three-no bond investors keep in mind?

Many businesses have issued three-no bonds

>> Issuers seek solutions to delay bond debt payment

In 2023, TDG Global Investment Joint Stock Corporation (TDG) intends to issue bonds for private placement. TDG’s three-no bonds with a three-year term and a par value of 100 million VND are expected to be sold in order to raise 50 billion VND. The bonds, which are aimed at professional investors, will be issued in book-keeping form.

The goal of this issuance is to complement TDG's operating capital for its production and business activities. TDG will spend 20 billion dong on steel to make gas cylinders and 30 billion dong on gas in the second and third quarters of 2023.This bond lot's fixed interest rate is 13.7% per year, and TDG intends to redeem bonds early if rules are broken or if bondholders ask for it. However, the volume of bonds that are proposed to be redeemed in a given year cannot be greater than 25% of the entire volume of bonds that are still outstanding at par value at that time.

TDG intends to issue bonds in the first quarter of 2023 with the assistance of APG, a securities joint stock company. As an LNG business founded in July 2005, TDG has a chartered capital of VND 167.7 billion as of 1Q2023. Its net revenue and profit are anticipated to reach VND 1,300 billion and VND 11.3 billion in 2022, down 10.5% and 28.3%, respectively.

In addition to TDG, numerous companies, especially those in the real estate industry, are issuing three- no bonds to obtain money. Unfortunately, this has resulted in a significant number of bonds maturing at the moment, which strains issuers' cash flow for payment.

Three- no bonds refer to privately placed bonds by businesses that are not subject to many constraints and regulations compared to publicly issued bonds. Many of these bonds have collateral in the form of stocks, future assets, or other assets, which can be risky for investors. In the real estate industry, over 80% of the value of corporate bonds belongs to unlisted enterprises and falls into the category of "three nos" bonds or high-risk collateral. These businesses often have weak financial health but still issue corporate bonds to raise trillions of VND in capital.

>> Extension of the bond term as a solution to help businesses balance resources

According to official figures from the Ministry of Finance, half of the corporate bonds issued in 2021 were issued without collateral, while the other half were mainly secured by the company's own shares or future projects.

Decree 65/2022/CP was issued to regulate the offering and trading of corporate bonds placed privately in the domestic market and offered to sell in the international market, aiming to control risks for the market and investors. However, this decree has also caused a sudden squeeze in the market.

Mr. Nguyen Hoang Duong, Deputy Director of the Department of Banks and Financial Institutions (Ministry of Finance), advised bond buyers to pay attention to the regulations on professional investors. These investors must have a portfolio of securities worth at least VND 2 billion for a minimum of 180 days on average, excluding loans. This means that the 2 billion dong is the investor's real asset, excluding the value of margin loans and the value of securities made for trading, and investors must hold this portfolio for at least 180 days.

Decree 65/2022 also requires investors who purchase bonds to carefully read, comprehend, and sign a document acknowledging that they have fully reviewed the relevant bond documents, understand the law, and accept the risks associated with buying individual corporate bonds in both primary and secondary markets.

According to experts, one of the risks in the market is that individual investors can’t analyze the bond market as well as professional investors. To address this issue, Decree 65/2022/ND-CP has introduced new provisions to improve the quality of professional investors and limit  non-professional investors' access to the bond market, thereby reducing overall market risk.

Although the amendment to Decree 65 has not been released yet, individual investors who wish to purchase privately issued bonds must demonstrate that they are professional investors according to current laws. Investors should also exercise caution when signing a document confirming that they have full access to the issuer's information. This document will be signed by the investor, issuer, and organization that certifies professional investors.