BLawyers Vietnam in this article provides information on Vietnamese regulations regarding bonds of publicly unlisted companies in Vietnam.
Corporate bonds are a type of debt security with a term to maturity of at least 01 year, issued by an enterprise to confirm the bondholder’s legitimate rights and interests over a part of its debts.
2. What kind of bonds can a publicly unlisted enterprise issue?
A publicly unlisted enterprise is entitled to issue the following bonds:
(i) Non-convertible bond and convertible bond
Convertible bond is a type of bond issued by a joint-stock company (“JSC”) that can be converted into several common shares.
(ii) Non-secured bond and secured bond
Secured bond is a type of bond whose principal and interest payments, when they become due, are entirely or partially secured by a specific asset of the issuer or a third party or guaranteed as prescribed.
(iii) Bond without warrants and bond with warrants
Bond with warrants is a type of bond issued by a joint stock company (JSC) with warrants that entitle bondholders to buy a specific number of common shares of the issuer.
3. What are the rights and obligations of the corporate bondholders?
Rights of the bondholders:
(i) Accessing adequate information disclosed by the issuer as prescribed, and bond offering dossiers as requested.
(ii) Receiving full and timely payments of bond principal and interest when they become due and exercising other associated rights (if any).
(iii) Transferring, giving, donating, discounting or leaving bonds as inheritance or as collateral as prescribed.
Obligations of the bondholders:
(i) Fully accessing information disclosed by the issuer; having a thorough grasp of terms and conditions of bonds, and other commitments before deciding to buy and trade bonds.
(ii) Self-assessing and assuming responsibility for their investment decisions as well as incurring any risks from investment and trading in bonds.
(iii) Clearly understanding and complying with regulations on eligible bond buyers and transaction of corporate bonds.
4. Is the publicly unlisted company entitled to redeem bonds before maturity and conduct bond swaps?
Yes, it is. However, the publicly unlisted company is entitled to redeem bonds before maturity or conduct a bond swap based on conditions and provisions mentioned in the bond issuance plan developed by issuer and approved by the competent authority.
Of note, the redemption of bonds offered in the international market before maturity must comply with State Bank of Vietnam’s regulations on foreign exchange management. Bonds then must be disposed of after redemption.
5. Who can buy corporate bonds issued by a publicly unlisted company?
The following buyers can buy corporate bonds:
(i) Buyers of non-convertible bonds without warrant are professional investors as defined in the Law on securities;
(ii) Buyers of convertible bonds with warrants are professional investors with less than 100 strategic investors.
6. What are the conditions for private placement of corporate bonds from a publicly unlisted company?
As for non-convertible bond or bond without warrants, the issuer must meet the following conditions:
(i) Be a JSC or Limited Liability Company;
(ii) Full payment of principal and interest of issued bonds or full payment of due debts for 03 consecutive years before the bond issuance (if any); except in the case of a bond offering to creditors or selected financial institutions;
(iii) Satisfy financial safety ratios and operational safety ratios under specialized laws;
(iv) Have an approved bond issuance plan;
(v) Have an audited financial statement of the year preceding the year of issuance;
(vi) Ensure that the buyers participating in the offering are professional securities investors under the securities law.
The securities companies or fund management companies that are not public companies do not need to meet the conditions in (ii) above.
As for convertible bond or bond with warrants, the issuer must meet the following conditions:
(i) Be a JSC;
(ii) Ensure that the buyers participating in the offering are professional securities investors and strategic investors, in which the number of strategic investors must be less than 100 investors;
(iii) Full payment of principal and interest of issued bonds or full payment of due debts for 03 consecutive years before the bond issuance (if any); except in the case of a bond offering to creditors or selected financial institutions;
(iv) Satisfy financial safety ratios and operational safety ratios under specialized laws;
(v) Have an approved bond issuance plan;
(vi) Have an audited financial statement of the year preceding the year of issuance;
(vii) Have an interval of at least 06 months between two private placements of convertible bonds or bonds with warrants;
(viii) The conversion of bonds into shares and execution of warrants must ensure the ratio of holding by foreign investors as prescribed.
7. What are the conditions for offering corporate bonds issued by publicly unlisted company in multiple waves?
In addition to the conditions for offering bonds, a company offering bonds in multiple waves shall meet further conditions as follows:
(i) Have demands for funds in multiple waves suitable for the purpose of bond issuance approved as prescribed;
(ii) Have a bond issuance plan in which the quantity of bonds to be offered, issuing time and plan to use funds raised from each offering wave must be specified;
(iii) Bonds offered in each wave must be distributed within 90 days from the date of disclosure of information before offering. Total duration for offering of bonds in multiple waves shall not exceed 12 months from the issue date of the first offering wave.
8. What are the steps for offering bonds of a publicly unlisted company?
A publicly unlisted company offers its bonds by the following steps:
Step 1: Prepare bond offering documents as prescribed;
Step 2: Disclose information before the offering as prescribed;
Step 3: Organize the bond offering according to the prescribed methods. Enterprises must complete the bond distribution within 90 days from the date of information disclosure before the bond offering.
Step 3.1: Open an escrow account at a bank or foreign bank branch and transfer the proceeds from the offering to that account (Enterprises offering non-convertible bonds or bonds without warrants do not have to do this step).
Step 3.2: Report the results of the offering to the State Securities Commission (“SSC”). After the SSC has notified receipt of such report, the issuer is entitled to release the proceeds from the offering (Enterprises offering non-convertible bonds or bonds without warrants do not have to do this step).
Step 4: Register and deposit bonds according to regulations.
9. What documents must a publicly unlisted company submit to be able to offer bonds?
An unlisted company must submit documents covering:
(i) The bond issuance plan;
(ii) Documentary evidence of fulfillment of bond offering conditions;
(iii) The disclosure of information about the bond offering;
(iv) The contracts signed between the issuer and the bond issue-related service providers;
(v) Periodic reports on use of funds raised from the bond issuance with respect to outstanding bonds;
(vi) Rating results given by credit rating agencies with respect to the issuer;
(vii) Decision to approve and accept the bond issuance plan;
(viii) Written approval given by a competent authority as prescribed in the specialized law (if any);
(ix) A confirmation document from a commercial bank or foreign bank branch, regarding the issuer opening an account to receive payments for non-convertible bonds without warrants, or opening a blocked account to receive payments for convertible bonds or warrant-linked bonds offered. In case the issuer is a commercial bank, its confirmation of receipt of adequate payments for offered bonds is required.
In the case of offering of convertible bonds or bonds with warrants by public companies, securities companies or fund management companies, in addition to the documents mentioned in Point (i) to (viii) above, the bond offering dossier shall include:
(x) Application for registration of bond offering in a form;
(xi) Copy of the decision to approve the bond offering dossier issued by the General Meeting of Shareholders/Board of Directors;
(xii) Commitment with no violations against regulations on cross ownership as prescribed in the Law on Enterprise at the time of conversion from bonds into shares and exercise of warrant.
In the case of offering of secured bonds, in addition to the documents mentioned in Point (i) to (xii) above, the bond offering dossier shall also include:
(xiii) Documentary evidence of the legal status of the collateral and collateral valuation reports provided by qualified valuation service providers; documents proving completion of registration of collateral as security interest;
(xiv) Documents/information on the order of payments made to bondholders if the collateral is used for debt payment.
In addition, the bond offering dossier includes the following documents:
(xv) The written certification of bond buyers;
(xvi) The written confirmation by the organization providing bidding, underwriting or brokerage services of transfer of funds raised from the bond offering to the issuer’s account. If the issuer is a commercial bank, its confirmation of receipt of adequate funds raised from the bond issue is required;
(xvii) Other documents related to the bond offering (if any).
10. Must a publicly unlisted company develop a bond issuance plan?
Yes, it must do so. Publicly unlisted companies issuing bonds must develop a bond issuance plan for obtaining approval from a competent authority and serve as a basis for information disclosure.
11. How are the registration and deposition of the publicly unlisted company regulated by law?
A publicly unlisted company must register and deposit its bonds within the time limit as follows:
(i) 05 working days from the date on which SSC gives a notification of receipt of report on the private placement of convertible bonds or warrant-linked bonds by a public company, securities company or fund management company; or
(ii) 05 working days from the date on which the issuer discloses offering results other than those specified in point (i) above.
Bonds must be deposited at Viet Nam Securities Depository and Clearing Corporation (VSDC) through depository members before they are traded or their ownership is transferred, unless otherwise prescribed by the Ministry of Finance of Vietnam.
12. How is the restriction on transferring bonds issued by a publicly unlisted company regulated by law?
Vietnamese law shall restrict transferring of bonds as follows:
(i) Investors who buy or transfer private bonds must be professional securities investors or strategic investors defined in the bond issuance plan;
(ii) Convertible bonds and bonds with warrants subject to transfer restriction for a minimum of 03 years for strategic investors and at least 01 year for professional securities investors from the date of completion, except for transfer between professional securities investors or in compliance with legally effective court judgments or decisions, arbitration decisions or inheritance as prescribed.
The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at firstname.lastname@example.org. We would love to hear from you.
Date: 28 November 2023
Writer: BLawyers Vietnam