The Ministry of Finance will tighten regulations over corporate bond issuance because of an overheating market to protect investors and prevent risks which might arise from the abuse of this capital raising channel.

The Ministry of Finance will tighten corporate bond issuance as the market
was seeing overheating development (Photo: baodauthau.vn)

The ministry has made public a draft decree to amend several points of Decree 163/2018/ND-CP about corporate bond issuance for comments, which included amendments of conditions for corporate bond issuance, rates, issuance approach in domestic and international markets, information disclosure and reporting mechanism.

It was pressing to tighten the management as the market has seen rapid growth since banking credit for several sectors were narrowed, forcing firms to shift to bond issuance to raise capitals.

The corporate bond market has been overheating development in recent years.

Statistics of the Hanoi Stock Exchange showed that 211 firms issued bonds worth totally 280 trillion VND (12.1 billion USD) in 2019, representing a rise of 25 percent compared to 2018.

The scale of the Vietnam’s corporate bond market expanded from 9.01 percent of the country’s gross domestic product (GDP) in 2018 to 11.3 percent GDP in 2019 with a total of nearly 670 trillion VND (28.8 billion USD) worth of corporate bonds in circulation.

The ministry said overheating implied significant risks as a number of firms did not clarify the purposes of the capital raised from bond issuance, repayment plans and bond yields.

Some enterprises even offer high yields which would negatively affect the rates of the overall market, the ministry said.

The ministry at the beginning of the last quarter of 2019 sent out warnings to bond investors, urging them to study carefully information about the issuer companies, issuance purposes, mortgage asset, payment commitment, bond yield and the financial situation of the companies.

Under the draft, regulations about bond yields and bond transactions would be tightened.

Accordingly, bond yields would not be allowed to be higher than 20 percent per year.

This aimed to prevent firms from offering high bond yields which would negatively affect the capital market.

In addition, bonds issued in the domestic market would be restricted from trading among less than 100 investors while under the current regulation, the restriction was applied only in the first year. This aimed to protect bond investors, the ministry said.

Two issuances must be at least six months apart, according to the draft.

Notably, issuer companies must ensure the outstanding value of bond issued would not exceed three times of their charter capitals. The Ministry of Finance said that this regulation would help prevent firms from issuing bonds in too large a volume and value which would bring risks to both issuers and investors.

The Hanoi Stock Exchange’s statistics showed between January and November 2019, 28 out of 177 firms issued bonds worth three times higher than their charter capitals. Among them, 11 had bond issuance more than 50 times higher than their charter capitals and six had bond issuance more than 100 times higher.

The ministry said some did not clarify their purposes of bond issuance and how they could repay the bonds.

The draft asked bond issuer companies to state in detail how the capital raised from bond issuance to be used.