For the economy in general and businesses in particular, capital mobilization is an issue that many companies are particularly interested in. Capital mobilization plays an important role in the operation of enterprises; especially the process of investing, building infrastructure as well as maintaining business operations. One of the most popular ways to raise capital is by issuing bonds. So what are bonds? What are the conditions for offering bonds in the domestic market? Today, LSX Lawfirm will give you an article about “Conditions for offering bonds in Vietnam market”, as follows:
Legal grounds
Enterprise Law 2020
Decree No. 153/2020/ND-CP
What are bonds?
According to the provisions of Clause 1, Article 4 of Decree 153/2020/ND-CP; corporate bonds are a type of securities with a term of 1 year or more; issued by the enterprise, confirming the obligation to repay the principal; profits, and other obligations (if any) of the enterprise towards investors owning bonds.
A bond is essentially a loan agreement to increase a company’s debt. The relationship between bondholders and the company is that of creditors and debtors.
Issuance of bonds: this is a form of borrowing capital; whereby the borrower issues a common certificate with a specified interest rate; guarantees payment within a specified time period in the future. The result of a bond issue is an increase in the company’s debt capital.
Bond classification
According to the provisions of Decree No. 153/2020/ND-CP; Currently, there are 06 popular types of bonds as follows:
- Corporate bonds are securities with a term of 1 year or more; issued and certified by the enterprise; and the owner’s legitimate interest in a portion of the debt of the issuing enterprise.
- Green corporate bonds are corporate bonds issued; for the purpose of investing in projects in the field of environmental protection; the project brings environmental benefits according to the provisions of the law on environmental protection.
- Convertible bond is a type of bond issued by a joint-stock company, which can be converted into ordinary shares of the issuing enterprise according to the terms and conditions specified in the bond issuance plan then.
- Secured bond is a type of bond that is guaranteed to pay in full; or a part of the interest and principal upon maturity is equal to the assets of the issuing enterprise; and or assets of a third party in accordance with the law on security transactions; or guaranteed payment as prescribed by law.
- Bonds with warrants are types of bonds issue by a joint stock company with warrants, allowing warrant holders the right to purchase a number of ordinary shares of the issuing enterprise under conditions, terms have been determine in the bond issuance plan then.
- Bonds can redeemed before maturity. This is a type of bond that a business issues with a clause that allows the right to redeem before maturity. In other words; this is the enterprise’s repurchase of its own issued bonds before the maturity date.
Conditions for offering bonds in the domestic market
For the offering of non-convertible bonds without warrants
For the offering of non-convertible bonds without warrants; Enterprises must meet the following conditions:
- Is a joint stock company or a limited liability company; was establish and operated under Vietnamese law.
- Make full payment of both principal and interest of issued bonds; or fully pay due debts for 03 consecutive years before the bond issuance (if any); except for the case of bond offering to creditors being select financial institutions.
- Meet the financial safety ratios; the safety ratio in operation in accordance with specialized laws.
- Having an approved and approved bond issuance plan as prescribed in Article 13 of this Decree.
- Having financial statements for the year immediately preceding the year of audited issue, conducted by a qualified audit organization as prescribed in this Decree then.
- Entities participating in the offering shall comply with the provisions of Point a, Clause 1, Article 8 of this Decree then.
For the offering of non-convertible bonds without warrants
For the offering of non-convertible bonds without warrants of securities companies; a securities investment fund management company that is not a public company: an enterprise must satisfy the conditions specified at Points a, c, d, dd and e, Clause 1 of this Article.
For the offering of convertible bonds or warrant-linked bonds
- Firstly, The issuer is a joint stock company.
- Secondly, Entities participating in the offering shall comply with the provisions of Point b, Clause 1, Article 8 of this Decree.
- Thirdly, Satisfy the conditions for offering for sale specified at Points b, c, d and dd, Clause 1 of this Article.
- Private placements of convertible bonds; bonds with individual warrants must be space at least 06 months apart; from the date of completion of the latest offering.
- Finally, The conversion of bonds into shares, Exercising warrants must meet the requirements of foreign investors’ ownership ratio as prescribed by law.
Method of issuing bonds
The bond issuance method is specified in Clause 1, Article 14 of Decree 153/2020 as follows;
- Firstly, Issuance bidding: is a method of selecting investors who are eligible to win a bid to buy bonds that meet the requirements of the issuer.
- Secondly, Underwriting: is a method of selling corporate bonds to investors who buy bonds; through an underwriting organization or an underwriting group.
- Thirdly, Issuing agent: is the method by which the issuing enterprise authorizes another organization; sell bonds to investors who buy bonds.
- Finally, Selling directly to bond investors for the issuer being a credit institution.
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Related article
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Related questions
According to the provisions of Clause 8, Article 4 of Decree 153/2020/ND-CP, a bond swap is an enterprise issuing bonds to swap for its own outstanding bonds at the same time to debt portfolio restructuring.
The par value of bonds is specified in Clause 4, Article 6 of Decree 153/2020/ND-CP. Accordingly, for bonds offered for sale in the domestic market, the par value is one hundred thousand (100,000) Vietnam Dong or a multiple of one hundred thousand (100,000) Vietnam Dong. As for bonds offered for sale in the international market, the par value shall comply with regulations in the issuing market.
According to the provisions of Clause 1, Article 7 of Decree 153/2020/ND-CP; Issuing enterprises may redeem before maturity or swap according to an agreement with bondholders to reduce debt and restructure bond debt. Particularly for early redemption of bonds offered for sale in the international market, the implementation must comply with regulations on foreign exchange management of the State Bank of Vietnam. Bonds are canceled after being redeemed.
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