Enterprise Private Bonds: Numerous Proposals to Remove Obstacles and Unblock the Impasse

The Ministry of Finance is working on a draft law to amend and supplement several articles of the Law on Securities, the Law on Accounting, the Law on Independent Audit, the Law on State Budget, the Law on Management and Use of Public Assets, the Law on Tax Administration, and the Law on National Reserve. Among these, the proposed amendments to the Law on Securities, particularly regarding the private corporate bond market, have sparked diverse opinions.

Don’t Restrict Individual Investors

A representative from a large enterprise in Hanoi suggested removing restrictions on professional individual investors in the private corporate bond market. Instead, regulations should focus on improving bond quality and ensuring market safety, such as requiring collateral, payment guarantees from commercial banks, or independent assessments from reputable agencies.

“I propose to maintain the current criteria for identifying professional individual investors,” they stated.

Analyzing the market, the representative pointed out that individual investors hold a significant proportion of the market, currently owning nearly 27% of the bond volume, second only to commercial banks. However, Clause 2, Article 1 of the draft law proposes to restrict professional individual investors who do not meet specific conditions, including a minimum of two years of securities investment experience, a minimum of 10 transactions per quarter in the last four quarters, and an annual income of VND 1 billion in the last two years.

“This restriction will limit individual investors who currently hold a quarter of the issued bond volume from participating in the bond market. This is unreasonable. Moreover, according to the government’s target for the years 2025 and 2030, there is a need for over VND 800 trillion in new corporate bonds annually. The lack of individual investors could lead to a shortage of buyers,” they argued.

“Meanwhile, enterprises may face a capital shortage and be unable to implement new projects,” he added.

The representative emphasized that corporate bonds are a reputable, safe, and effective investment channel, and individual investors have a substantial demand to diversify their investment portfolios. Therefore, tightening restrictions on individual investors goes against market trends and ignores the legitimate needs and interests of investors.

Economist Dinh Trong Thinh shared a similar view, suggesting that the current criteria for identifying professional individual investors should be maintained. He argued that it is unnecessary to impose additional conditions, such as a minimum of 10 transactions per quarter in the last four quarters or an annual income of VND 1 billion in the last two years. Such restrictions would limit a large number of investors from participating in the corporate bond market, resulting in a significant loss of capital.

Mr. Nguyen Quang Huy, CEO of Finance and Banking at Nguyen Trai University, agreed, stating that setting excessively high requirements could create a distinction between investors, particularly disadvantaging small individual investors. “Corporate bonds inherently carry a certain level of risk. While it is reasonable to protect investors by requiring investment experience and a minimum income, there should also be flexible control measures instead of rigid regulations,” Mr. Huy emphasized.

He proposed an alternative solution, suggesting that instead of imposing high criteria, requiring individual investors to participate in short-term training courses or pass investment knowledge tests could be a reasonable approach. Reputable state-owned training institutions could conduct these training and certification processes, enabling investors to upgrade their skills and better manage risks when entering the bond market. This way, investors could still freely participate in the market with a clear understanding of the associated risks.

Restricting Institutional Investors is Unreasonable

Another point in the draft Law on Securities that has drawn attention is Clause 16, Article 1, which adjusts the maximum investment limit of public funds in an organization or related group of organizations. The proposal allows investment of up to 15% of the value of the circulating securities of that organization and 35% of the fund’s total assets in the circulating securities of companies within the same group with ownership relations.

According to Mr. Giang Anh Tuan, Director of Tuan Anh Real Estate Exchange, while this regulation is more relaxed than the current one, it does not bring high efficiency due to the restrictions on funds, leading to a smaller market scale.

Currently, the total assets of domestic funds account for less than 0.1% of GDP, which is extremely low compared to other countries. Therefore, it is proposed that public funds be allowed to invest up to 40% of their total assets in the circulating securities of companies within the same group with ownership relations and 20% of their total assets in the securities of a single organization.

Hence, Mr. Tuan suggested loosening the investment conditions for institutional investors. Specifically, commercial banks should be allowed to invest in and guarantee payments for bonds with the purpose of capital restructuring/refinancing, purchasing shares or capital contributions of enterprises, with conditions similar to those for lending by commercial banks.

Additionally, insurance companies should be permitted to invest in bonds with the purpose of debt restructuring. As professional investors with risk management capabilities, insurance companies can analyze the financial health of enterprises.

Furthermore, for non-financial enterprises or unlisted organizations, the minimum two-year requirement for determining professional investor qualifications should be removed.

Proposal to Maintain Bond Issuance Requirements

Clause 4, Article 1 of the draft Law supplements the requirement for the issuing organization to have collateral or a bank guarantee when applying for a permit, except in cases where the credit institution offers secondary debt securities that meet the conditions to be counted as Tier 2 capital and have a bondholder representative as stipulated by the government.

A business representative shared that this requirement forces enterprises to mortgage and register security transactions for bonds before submitting the permit application, which usually takes a few months, resulting in a waste of resources.

Commercial banks are not allowed to guarantee private corporate bonds with the purpose of purchasing shares/capital contributions or debt restructuring, or they are restricted by the credit room of the bank. Private corporate bonds are a form of capital mobilization for credit institutions, and while credit institutions can mobilize individual deposits, requiring security measures for public offerings of private corporate bonds that are not Tier 2 capital is inconsistent with common practices.

The business representative proposed a solution: “Maintain the current condition that allows the Board of Directors to approve the issuance plan. Credit institutions and securities companies should be allowed to offer unsecured private corporate bonds.”

Meanwhile, lawyer Truong Thanh Duc, Director of ANVI Law Firm, argued that the requirement for bond-issuing organizations to have collateral or a bank guarantee aims to minimize investor risk, especially in a volatile financial market. However, rigid application of this requirement could create difficulties, especially for small and medium-sized enterprises.

Not all enterprises have sufficient assets to meet the bond issuance requirements. Moreover, banks may be reluctant to provide guarantees to small-scale enterprises or those without a strong financial position. This situation leads to many businesses being unable to access capital through the bond channel, reducing the diversity of capital mobilization methods and negatively impacting enterprise development.

Lawyer Tran Tuan Anh, Director of Minh Bach Law Company, Hanoi Bar Association, added that not all corporate bonds carry the same level of risk, and applying a uniform regulation to all types of bonds might be unreasonable. Well-established enterprises with stable financial positions and a good track record of bond issuance may not need to be subject to the requirement of having collateral or a bank guarantee.

“The application of this regulation should be adjusted based on the characteristics of different types of bonds and the status of the enterprise. For example, large enterprises with a strong ability to self-guarantee their payment capabilities could be exempt from this requirement,” he suggested.