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Focus: Asia Finance – Vietnamese companies may issue international bonds

20 August 2009

In brief: The Vietnamese Government has issued the long-awaited Decree 53/2009/ND-CP on Issuance of International Bonds, which will, for the first time, allow Vietnamese companies to issue foreign currency denominated bonds in the international market. Partner Thomas Miller (view CV) and Lawyer Minh Duong report.

How does it affect you?

Decree 53/2009/ND-CP on Issuance of International Bonds, dated 4 June 2009, (Decree 53) became effective on 30 July 2009.

Subject to meeting certain conditions, Vietnamese enterprises wishing to access international financing for their projects or expansion plans may issue foreign currency denominated bonds to international investors. Vietnamese enterprises may also apply to the Government to provide a payment guarantee on the bond.

The decree creates new opportunities for service providers such as international underwriters, advisers and other agents to assist Vietnamese enterprises with the bond offering to international markets.

The decree treats international bonds as loan certificates and they must therefore be registered with the State Bank of Vietnam following the completion of the bond offer.


Background

Previously, Vietnamese Government bonds were the only type of bonds that could be issued to the international market in foreign currency. Vietnamese enterprises were prevented from issuing foreign currency denominated bonds to the international market because the Government feared a resulting inability to control currency movements. However, state-owned enterprises (SOEs) could access offshore funds through the issuance of Government bonds. SOEs were able to issue 'Government-backed bonds' for specific project purposes guaranteed by the Government.

Given the current global financial crisis and the inability of domestic companies to access finance, the Government is now taking a new policy approach under Decree 53 by allowing Vietnamese enterprises to issue international bonds. However, the Government remains sensitive about capital flight and the risk of a devalued Vietnamese dong, and so Vietnamese corporate borrowings (including international bonds) must fall within the allowable international borrowing limit set by the Prime Minister each year (the borrowing limit).


Who can issue international bonds?

Decree 53 regulates the private and public offer of foreign currency denominated bonds to the international market by the Government and Vietnamese enterprises. This Focus will only examine the issue of international bonds by Vietnamese enterprises, including SOEs.


What are the eligibility criteria?

A Vietnamese enterprise issuing a non-Government guaranteed international bond must satisfy the following criteria:

  • The issuer must be established and operating under Vietnamese law.
  • The bond issuance plan (the issuance plan) must be approved by the relevant decision-making body under the charter of the issuer (the general meeting of shareholders for a shareholding company and the members' council for a limited liability company). Decree 53 also prescribes matters that must be included in the issuance plan, such as the use of offer proceeds, and details of the bond price, coupon, volume and term. In the case of an SOE, prime ministerial approval is required.
  • The size of the offering must not exceed the borrowing limit. According to Decision 457/QD-TTg of the Prime Minister, dated 9 April 2009, the total national borrowing limit is US$ 4.7 billion, of which the corporate borrowing limit is US$600 million.
  • The program or project of the issuer is determined, first, to be of national importance, or second, by the relevant authority to be effective, and complies with the investment procedures set by law. Decree 53 does not stipulate who the relevant authority is – presumably, it is the authority that issued the investment certificate or business registration certificate to the issuer (eg the Department of Planning and Investment, the State Securities Commission or the State Bank of Vietnam, depending on the industry sector of the issuer).
  • If the bond is a convertible bond or is secured by assets in Vietnam, the issuer must comply with current laws. This will mean that any conversion to equity will need to comply with current foreign ownership restrictions and the security arrangements may require registration.
  • If the issuer is an SOE, it must be rated and the rating must not be lower than the Vietnamese Government's credit rating.
  • The issuer must have an issuance file (including a prospectus, underwriting agreement, subscription agreement, legal consultancy agreement, legal opinion and other agency agreements) compliant with Vietnamese law and the law of the foreign jurisdiction in which the bond is offered.

The issuer may seek a Government guarantee for the offer but the guarantee must be approved by the Prime Minister. There are also other conditions on the offer, including that the issuer must be rated and its rating cannot be less than the Vietnamese Government's credit rating. The value of the bond for each offering tranche must not be less than US$100 million. The issuer must also have audited accounts for the past three years, and must not have incurred any loss or have outstanding debts.


Offer process

Decree 53 sets out an offer process that corresponds with the drafter's experience of an international bond offer. The issuer first selects an internationally reputable investment bank to be its underwriter. Second, the issuer and the underwriter select their legal advisers (note that this is the first time that a regulation recognises the role of lawyers in the offer process). Third, the issuer, underwriter and legal advisers prepare the relevant issuance file. Fourth, the issuer rates the bond, if required. Fifth, the issuer goes on a road show with the underwriter to market the bonds. Lastly, the issuer issues the bonds to the investors that will subscribe and pay for the bonds.


State Bank registration

To ensure that the international bond offering is within the borrowing limit, the issuer must provide the issuance plan to the State Bank of Vietnam (the SBV) to confirm this. The SBV must work with the Ministry of Finance to provide the confirmation to the issuer within 15 days of the submission of the issuance plan.

As the SBV treats the bond offer as a loan, the SBV requires the issuer to register the bond following the completion of the offer. So far, the SBV has only issued registration forms that relate to the registration of foreign loan agreements with a term of more than 12 months. The SBV will need to issue registration forms for international bonds.

Bonds are more likely than foreign loans to be transferred. An issue is that, while the transfer of registered foreign loans requires a new registration, it is not known whether an issuer will need to register changes in bondholders. If so, this would be an administrative burden both for the issuer and the SBV.

Decree 53 contemplates the role of a trustee appointed by the bondholders to represent them and protect their interests. To avoid the administrative burden associated with re-registration on transfer, the SBV should only require the issuer to register the trustee as bondholder.


Relationship with domestic issuance

Decree 52/2006/ND-CP of the Government on the Issuance of Enterprise Bonds, dated 19 May 2006, regulates the domestic issuance of corporate bonds. These bonds may only be denominated in Vietnamese dong. If the issuer would like to issue foreign currency denominated bonds to foreigners, it must now follow Decree 53. Note that Vietnamese enterprises may still not issue foreign currency denominated bonds to Vietnamese investors.

Published 20 August 2009

For further information, please contact:

Thomas Miller
Partner,
Ho Chi Minh City
Ph: +84 8 3822 1717
Thomas.Miller@allens.com.au

 

Matthew Barnard
Partner,
Hong Kong
Ph: +852 2903 6212
Matthew.Barnard@allens.com.au

 

Jim Dunstan
Partner,
Hong Kong
Ph: +852 2840 1202
Jim.Dunstan@allens.com.au

 

Robert Fish
Partner,
Singapore
Ph: +65 6535 6622
Robert.Fish@allens.com.au

 

Seamus Cornelius
Partner,
Beijing
Ph: +86 10 8515 0250
Shanghai
Ph: +86 21 6841 2828
Seamus.Cornelius@allens.com.au

 

Marae Ciantar
Partner,
Bangkok
Ph: +66 2646 1888 ext 1004
Marae.Ciantar@allens.com.au

 

Other client updates

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Client Update: May 2013 Vietnamese retail industry reform offers greater foreign investment opportunities

Client Update: March 2013 Greater foreign investment in Vietnamese credit institutions

Client Update: April 2009 Vietnamese interest rate developments

Client Update: January 2009 Foreign investment in Vietnam's securities market

Client Update: May 2008 Foreign investment in State-owned telecommunications enterprises

Client Update: April 2007 Foreign shareholding in Vietnamese banks