New regulations in Decree 08/ND-CP help strengthen the corporate bond market confidence

Strengthen market confidence

One of the important contents specified in Decree 08/ND-CP is that if the bond issuers face difficulty in paying the bond’s principal and interest can use their legal assets to negotiate with the investors about payment by assets.

The handling of bond debt by assets must comply with the provisions of civil law and relevant laws, be approved by the investors, and the assets for the payment must ensure legality.

In addition, there is a regulation that if the issuers encounter difficulties, they can negotiate with the investors to extend the term of the bond to a maximum of two years under the approval of the investor. If the investors disapprove, the issuers must fulfill their obligations described in the previously announced plan. Decree 08 also allows suspending the implementation of a number of provisions in Decree 65/2022/ND-CP, including regulations on determining the status of professional securities investors as individuals; regulations on credit rating for issuers.

Assessing the new points in Decree 08/ND-CP, Deputy Minister of Finance Nguyen Duc Chi said that the contents of Decree 08 have shown a flexible policy response in line with the real situation of Vietnam's corporate bond market, especially after strong fluctuations in the world and domestic financial and monetary markets, difficulties in the economy after the Covid-19 pandemic and geopolitical fluctuations.

“The introduction of these new regulations helps strengthen market confidence, bring investors and issuers back to the market, helping further stabilize and develop the market in a transparent and sustainable manner. The Deputy Minister said that Decree 08 will bring conditions suitable to the current market situation and help the relevant legal provisions transparent, especially create legal conditions for both investors and issuers to deal with market-related issues that have arisen in recent times," said Deputy Minister Nguyen Duc Chi.

Positive impact on corporate bond market

According to Mr. Do Bao Ngoc, Deputy General Director of Vietnam Construction Securities Joint Stock Company (VNCSI), Decree 08/ND-CP, which is officially issued, will positively affect the corporate bond market in the direction of creating a legal framework for issuers and bondholders to have more time and new options for negotiating payment of bond’s principal and interest.

Bond issuers have more time to restructure their finances if they succeed in negotiation with bondholders and have more lawful options to pay bond debts to bondholders. For bondholders, they have more opportunities to receive principal and interest from other assets of equivalent value. The right of bondholders is still appreciated in Decree 08 when though they accept or do not accept the debt extension or asset swap plan offered by the issuer, their interests must still be ensured.

“This is a point that I think is true to the nature of the borrowing relationship in the current bond market. If the parties can come to an agreement on extending bond debt payment or asset swap, it will significantly reduce the default risk of many issuers, when many units have not been able to pay the due principal and interest,” said Mr. Ngoc.

Assessing the new points in this decree, Mr. Do Bao Ngoc said that Decree 08 has had some amendments and supplements in the direction of supporting the individual corporate bond market in the coming time.

Accordingly, with the stipulation that the issuer and the bondholder can negotiate the payment of bond principal and interest with other assets, Mr. Do Bao Ngoc said that this new regulation will create a legal framework for the parties to have the opportunity to negotiate and come to an agreement on a new debt payment plan suitable to the difficult financial situation of many issuers today. At the same time, this regulation will take advantage of the existing assets of many issuers in the debt payment process for bondholders. For many bondholders, receiving another asset, possibly real estate, is also a viable option provided they do not accept the issuer's grace period conditions.

According to economic expert Dinh Trong Thinh, the promulgation of Decree 08/ND-CP is a temporary solution, temporarily removing immediate difficulties for issuers. Accordingly, the regulation to delay the credit rating deadline to early 2024 also means "expanding" for issuers in bond issuance. In addition, this Decree does not require debt repayment in short term, which means that many issuers can issue bonds for a long time enough to be able to recover capital from selling bonds. Decree 08/ND-CP also allows non-professional investors to return and participate in the corporate bond market. This will create more favorable conditions for bond issuers as well as investors.