Manage and develop the corporate bond market following international practices

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Dr. Nguyen Tri Hieu

How do you evaluate the promulgation of Decree 65/2022/ND-CP and its impact on the corporate bond market?

Dr Nguyen Tri Hieu: In the past 10 years, the capital market has had good growth. By the first quarter of 2022, the stock and bond markets reached 135% of GDP in 2021. The corporate bond market has grown at an annual rate of 30-40% in the past five years. That was a significant development.

Unfortunately, in 2022, the corporate bond market fell into crisis with big cases like Tan Hoang Minh, Louis, and Van Thinh Phat, which caused the market to wobble and a loss of investors' confidence. Besides that, many investors who invested in corporate bonds are under investigation, so they don't know if they can get their money back. All of those issues are a huge blow to the bond market.

Decree 65/ND-CP was issued to amend and adjust Decree 153/2020/ND-CP, which has many loopholes and shortcomings and is unsuitable for new conditions. However, many people said that Decree 65 was too tight, thus paralysing the stock market and corporate bonds, but I think that is not true. Decree 65 does not tighten the corporate bond market, but on the contrary, it helps the market to be adjusted in line with Vietnam's financial environment, more in line with international practices and creates conditions for a more sustainable market. However, Decree 65 has shortcomings and is currently being amended and supplemented.

What are the key points to confirm that this Decree does not paralyse the market, sir?

Dr Nguyen Tri Hieu: Decree 65 emphasises the purpose of issuing bonds. It must be stated very clearly in the prospectus of the bond issue. This has not been mentioned in previous texts. Decree 65 also allows issuers to redeem bonds in advance based on an agreement between the issuer and the investor; unless the issuer violates the issuance plan or does not comply with regulations, it is required to buy back the bonds. That's the new point, and now it's becoming a problem for many publishers that have released it incorrectly. In this Decree, the regulations on professional securities investors are stricter than those of Decree 153 to enhance the seriousness of investment in individual corporate bonds. Another new point is that the offer file must have a credit rating, but currently, this regulation only applies to enterprises that issue bonds with a total par value every 12 months that must be more than VND500 billion and greater than 50% equity based on financial statements; or par value up to the time of registration of the offering must be greater than 100% of equity.

Along with these new points, Decree 65 also has regulations on issuance documents, including purposes of use, terms, rates, and methods of calculating the conversion price if it is a convertible bond. In particular, the financial indicators of the issuer must be stated in the prospectus: equity, total debt-to-equity, profit before tax, profit after tax, and other financial safety indicators. One regulation that makes me interested is that the Decree also stipulates the role of the owner's representative, or in other words, the legal representative of the investor. In summary, Decree 65 has many provisions to enhance transparency. From the perspective of protecting investors' interests, these are good conditions, ensuring more safety for investors. But from the perspective of publishers, this is a squeeze. There may be tighter regulations than before, but the adjustments and supplements of Decree 65 are necessary to establish a sustainable and stable corporate bond market development.

Besides these positive points, in your opinion, what solutions are needed for the market to recover in 2023 and the next several years?

Dr Nguyen Tri Hieu: All adjustments and supplements in Decree 65 are necessary conditions for a stable market. However, investors don't just look at such regulations to ensure their interests are protected. The current problem is regulatory regulation and investors' loss of confidence. When investors lose confidence, creating a sustainable market will be impossible. Therefore, the regulations need to be continuously changed. Besides, it is necessary to find solutions to create investors' confidence in the market. This is the core issue for them to return to the market.

To do that, legal changes are not enough; the market is in a downward spiral, so the Government needs to support stronger and more drastic. I suggest that the Government should have a national debt deferral program for issuers for one year when their bonds come due to help businesses overcome difficulties. However, this offer does not apply to all issuers, only those that comply with regulations.

What content of Decree 65 do you think needs to be further adjusted?

Dr Nguyen Tri Hieu: That's the credit rating. It is necessary to improve the credit rating because the knowledge level of investors in Vietnam has been limited. Issues such as credit analysis, financial statement dissection, analysis of investment ability, payment, cash flow, profit, development trend, and debt repayment ability of enterprises in the coming years require professional third-party support. In Vietnam, there are currently two units; there may be one more shortly. Take advantage of these credit rating agencies. I suggest that it is necessary to apply credit rating regulations to all corporate bond issuances, regardless of the issuance size. All issuances must pass a credit rating.

We cannot find a perfect document because all legal documents follow the passage of time and the development of the financial market. I hope that Decree 65+1 will mention the role of investors' legal representatives. It was mentioned in Decree 65, but in my opinion, it is necessary to define more clearly the responsibilities and rights of the legal representative for the owner to promote their role in protecting investors' interests, and contributing to stabilising the corporate bond market. Complying with the provisions of Decree 65 and solutions to remove difficulties for the corporate bond market in the Decree amending Decree 65 is expected to promote the recovery of the corporate bond market next year.

Thank you, sir!