Vietnam's 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 has made public a draft decree to amend several points of the 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.
Hanoi Stock Exchange (HNX) data shows that 211 firms issued bonds worth totally 280 trillion dong ($12 billion) last year, representing a rise of 25 per cent compared to 2018.
The scale of Vietnam’s corporate bond market expanded from 9.01 per cent of the country’s gross domestic product (GDP) in 2018 to 11.3 per cent GDP last year with a total of nearly 670 trillion dong 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 2019’s last quarter sent out warnings to bond investors, urging them to carefully study 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 per cent 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 said the regulation would help prevent firms from issuing bonds in too large a volume and value which would bring risks to both issuers and investors.
HNX data shows that between January and November last year, 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.
VIET NAM NEWS/ASIA NEWS NETWORK