NV bond law could hurt growth

The regulations introduced in the Draft Decree 153 on the issuance of bonds could hamper the growth of companies in Vietnam, reducing their competitiveness against their foreign competitors.

This question was discussed by experts during a meeting entitled: “The corporate bond market under the impact of the draft amendments to Decree 153/2020/ND-CP”.

The draft stipulates that companies are not allowed to issue bonds to raise capital which will be used to buy shares, buy bonds from other companies or lend to other companies.

“Under the Investment Law and the Enterprise Law, capital injection and lending are a right of enterprises. This is also common practice in the international market. Companies have the right to bring in capital for investment, such a draft regulation is a limitation of company rights,” Vietnam Bond Market Association (VBMA) Secretary General Do Ngoc Quynh said.

On the issue of corporate credit rating results, Mr. Quynh said there is a need to consider applying the relevant regulations on mandatory credit rating to the private placement of bonds.

“Since 1992 when Malaysia’s first credit rating agency was established, the country has required all bond issuers to obtain mandatory credit rating results. They said the move was aimed at creating a culture transparency of information among the business community and investors,” Quynh said.

Issuing bonds to the public also faces obstacles, he said.

“The issuer must seek approval from the State Securities Commission, whereas a private bond placement does not. The state Securities Commission’s request and response process takes 30 days, preventing companies from controlling the timing of bond issuance, resulting in a breakdown of plans. Companies often prefer private placement,” Quynh said.

“The magnitude of the corporate bond market is currently 15.9% of GDP [gross domestic product], which is a very large number, beyond the regulator’s imagination. However, the rapidly growing market certainly comes with potential risks. Credit growth needs to be managed more cautiously, especially in sensitive areas such as real estate,” said Nguyen Hoang Duong, deputy director of the Department of Banking and Financial Institutions at the Ministry of Finance.

“On the primary market, the number of corporate bonds purchased by individual investors still represents a very low rate of around 5.5% of the total bonds issued on the market. However, in the secondary market, it represents almost 30%, even more in the real estate sector, at almost 40%.

“There is a phenomenon that individual investors circumvent the law to become professional investors. They do not break the law but take advantage of loopholes in the law to trade like professionals.

“However, individual investors themselves are still unable to properly assess or measure the risks of issuers as well as bonds,” Duong said.

In addition, the draft also adds regulations on credit ratings for certain types of bonds issued to increase publicity and transparency, help improve the quality of bonds issued, and comply with international practices that limit risk. for investors, he added.


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