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 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.
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
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.
A Vietnamese enterprise issuing a non-Government guaranteed international
bond must satisfy the following criteria:
- The issuer must be established and operating under
- 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.
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.
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.
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
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