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The private bond market is now solely the playground of institutional investors.
By nature and international practice, privately placed corporate bonds are considered a very high-risk investment product. Many countries classify them as “exempt securities,” allowing issuers to initiate the issuance process without registration or compliance requirements. Consequently, participation in this market is limited to a small group of qualified, professional investors with financial prowess and expertise to recognize and assess risks.
In Vietnam, however, a recent phenomenon of corporates hastily popularizing these privately placed bonds among numerous retail investors (mostly with low investment values) can be viewed as abnormal and contrary to the market’s intrinsic nature.
Although the law stipulates that privately placed bonds should only be distributed to professional securities investors, issuers have exploited regulatory loopholes or deliberately broken the law to lure countless inexperienced retail investors who lack the knowledge and ability to assess risks. Needless to say, this has led to negative consequences.
6,630 retail investors who purchased privately placed corporate bonds were identified as victims in a criminal case involving Tan Hoang Minh Group (according to the first-instance criminal verdict No. 177/2024/HS-ST dated March 27, 2024, by the Hanoi People’s Court). From October 2023 to May 2024, the Investigation Police Agency under the Ministry of Public Security issued notices to identify victims with outstanding bond principal amounts related to 25 bond packages involved in a case at Van Thinh Phat Group. These numbers and events vividly illustrate the turmoil in Vietnam’s corporate bond market.
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A reasonable approach could be to categorize bonds based on risk levels. Consequently, only high-risk bonds with low or no credit ratings would require collateral or bank guarantees. |
Recognizing these issues, the government issued Decree No. 65/2022/ND-CP, amending and supplementing a number of articles of Decree No. 153/2020/ND-CP, to tighten the criteria for professional securities investors and increase control and supervision of corporate bond distribution channels in both the primary and secondary markets. However, within the scope of a decree guiding the law, this action is merely a temporary solution.
To steer the corporate bond market back to its intrinsic nature and align it with international practices, the third draft of the amended Securities Law has adjusted the regulations to restrict participants in this market to professional institutional investors only, in both primary and secondary markets. This regulation aims to prevent and control the risks that individual investors have faced in the past.
At first glance, this regulation might seem to narrow the scope of the private bond market. However, after the recent market shock, individual investors’ confidence has been severely shaken, and private bond issuances since 2022 have rarely involved retail investors. Therefore, the impact of this regulation on the market seems negligible.
On the other hand, for the sustainable development of this market, policies governing private bond offerings should also shift towards granting more autonomy and self-responsibility to enterprises while reducing state intervention, thus restoring this market as an arena for professional players.
Publicly issued bonds become secured credit!
One notable policy currently being considered by the Ministry of Finance is to further tighten the conditions for public bond offerings. This focuses on two aspects: (i) internal procedures and (ii) measures to guarantee debt repayment. According to the third draft of the amended Securities Law, the bond issuance plan, the plan for capital use and repayment must be approved by the general meeting of shareholders, and the board of directors will no longer have this authority.
At the same time, enterprises wishing to issue public bonds must provide collateral or obtain bank guarantees, except in cases where the credit institution issues subordinated debt that meets the conditions to be counted as Tier 2 capital and has a bondholder representative as stipulated by law.
The addition of issuance requirements aims to enhance the quality of publicly issued bonds and prevent enterprises from defaulting on their bond principal and interest repayment obligations.
While this regulation will positively protect investors’ rights and interests, it inadvertently equates corporate bonds to secured credit and may strangle many enterprises’ capital mobilization channel. Statistics from 2023 reveal that only about 33% of the bond value issued had collateral, while 67% lacked this security. This indicates that the number of unsecured bonds is currently double that of secured ones.
Instead of adopting an extreme technical barrier approach, authorities should consider a more balanced policy between investor protection and business facilitation. A reasonable approach could be to categorize bonds based on risk levels. Consequently, only high-risk bonds with low or no credit ratings would require collateral or bank guarantees. For enterprises with strong credibility or transparent and healthy financial conditions, bond issuance without collateral could be permitted.
Luu Minh Sang – University of Economics and Law, Vietnam National University, Ho Chi Minh City
The Accused, Truong My Lan, Testifies About the Fateful Lunch Meeting Regarding the Bond Issuance
Mrs. Truong My Lan, at the behest of Mrs. Hong, hosted a “lunch meeting” and invited several key accused individuals, including leaders from SCB and Tan Viet Securities, to discuss matters pertaining to the bond issuance.
Optimizing Capital: Exploring the Viable Bond Route for Banks
With positive signs of credit demand recovery in the last months of the year to boost and expand production and business, diversifying capital mobilization channels, including bond issuance by banks, is expected to witness growth in the coming time.
Unveiling the Flaws in the New Proposal for Corporate Bond Investments
The proposed criteria of a minimum of 10 transactions per quarter with professional investors in the last four quarters could potentially deter investors from participating in the bond market. This may further complicate capital raising for enterprises, as the market liquidity is already low following the collapses in 2022.
The CEO of VIS Rating: Most Individuals Holding Key Financial Positions Are Not Professionals.
“It’s clear that the majority of private investors currently holding corporate bonds are not professional investors, and this is an anomaly in the context of market development,” says Tran Le Minh, CEO of Vietnam Investment and Rating Joint Stock Company (VIS Rating).
