Corporate bonds

Corporate bonds: from words to deeds

Phoc held another working session on April 25, 2022 with the leaders of the Ministry of Public Security and the agencies of the two ministries.

“The spirit of not criminalizing economic and civil relations has again been promoted,” Phoc said.

The Minister’s efforts, as he explained, are aimed at delivering on the commitments made by the Prime Minister at the Capital Market Development Conference.

The Prime Minister has affirmed no less than twice that the Party and the state do not intend to criminalize economic relations, and that there are always policies encouraging companies to obey the law, do business efficiently and enrich legitimately, thus contributing to building a prosperous country.

The recent swings in the stock market and the corporate bond market are concerning. The capitalization value on the HCM City Stock Exchange (HOSE) is estimated to have lost $30 billion, while the capitalization value of the top 20 listed companies has shrunk by VND 400 trillion over the past two weeks.

There are many reasons for this, but analysts emphasize market confidence.

Companies worry about issuing corporate bonds because they do not know if they could commit a crime if they use the capital raised by issuing bonds for other purposes.

For example, a company issues bonds to develop a real estate project “A”. However, after fundraising, the implementation of Project “A” is stalled due to legal issues. Therefore, the company decides to deposit the money in the banks or use the money for a “B” project which could generate higher profits. The question is, is the company breaking the law if it uses capital for project “B” and not “A”?

The banking experience

During the 10th session of the Standing Committee of the National Assembly, when commenting on the government’s report on the practice of saving and preventing waste in 2021, the Minister of Finance reportedly said that there was shortcomings in Decree 153 and that the shortcomings must be corrected and the control must be strengthened.

However, how to “strengthen control” should be clearly explained so as not to worry investors and companies and affect the development of the bond market.

According to the Governor of the State Bank of Vietnam (SBV), Nguyen Thi Hong, in order to ensure the safe operation of credit institutions, the SBV, through numerous regulations, closely controls the purchase of bonds by the commercial banks.

The purchase and investment in corporate bonds are included in a customer’s credit balance when setting the credit limit under the Credit Institutions Act. When purchasing corporate bonds, banks must rate the bonds based on internal credit rating systems. Banks can buy corporate bonds if they have a bad debt ratio below 3%.

Under the regulations, credit institutions can only buy corporate bonds when the plans for issuing and using the capital are feasible and the issuers have the financial capacity to ensure the payment of the debt. In particular, bond issuers must not have had any bad debts with banks in the last 12 months.

Commercial banks are not allowed to buy bonds to restructure the debts of issuers, to provide capital to other businesses or to expand the scale of operations.

According to Hong, the central bank regularly reviews and amends regulations on limits and adequacy ratios in the operations of credit institutions. She regularly makes inspection tours to monitor banks’ investments in bonds, in order to give warnings about the risks. The SBV has partnered with the Ministry of Finance to review bond issuance in 2019 and 2020.

Actions to reassure the market

Words and deeds should be used to reassure the market. It must be said that developing the corporate bond market is the right policy and Vietnam has been consistent. It should also be noted that the treatment of the three Tan Hoang Minh, FLC and Louis cases aims to protect the market and investors so that the market can develop soundly.

In the immediate future, the Tan Hoang Minh case must be dealt with to help the company pay its debts to investors.

In addition, it is important to join forces with the Ministry of Public Security and other ministries and departments to “not criminalize economic relations”, as Finance Minister Ho Duc Phoc said.

In the long term, when changing the securities law and government decrees, the regulations of developed countries should be referenced. For example, individual investors should be allowed to invest in bonds through investment funds, rather than making direct investments. Investment funds with professional ability can make reasonable investment decisions.

Current regulations regarding individual investors and professional investors, while sufficient in the legal system, have been circumvented by securities companies, while state management agencies can be accused of ‘slacking off management’.

Some analysts have recommended that it would be better to reconsider and improve the functions, tasks and rights of the National Securities Commission because the market has developed rapidly with a scale almost identical to GDP.

The stock market is the highest symbol of the flow of capital, capital, where investor confidence is always a “thermometer”. Market management should be transparent, open, accountable and skillful.

Tu Giang