Decree 08/2023/ND-CP amending and suspending the effect of some articles of Decrees on private placement and trading of corporate bonds

On March 5, 2023, the Government issued Decree No. 08/2023/ND-CP amending, supplementing and suspending the implementation of a number of articles in the Decrees on bond offering and trading individual enterprises in the domestic market and offering corporate bonds to the international market.

Full text of Decree 08/2023/ND-CP amending and suspending the effect of some articles of Decrees on private placement and trading of corporate bonds in domestic market and offering of corporate bonds in international market

Download Decree 08/2023/ND-CP here

Basic information of Decree 08/2023/ND-CP

Basic information on Decree 08/2023/ND-CP amending and suspending the effect of some articles of Decrees on private placement and trading of corporate bonds in domestic market and offering of corporate bonds in international market include:

Contents of Decree 08/2023/ND-CP amending and suspending the effect of some articles of Decrees on private placement and trading of corporate bonds in domestic market and offering of corporate bonds in international market

Responsibilities of bond issuers

Decree 153/2020/ND-CP only stipulates that the payment responsibility of the bond issuer is to pay in full and on time both interest and principal upon arrival and to exercise all attached rights (if any) to bondholders based on the bond’s conditions.

However, Decree 08/2023/ND-CP has amended and supplemented that the bond issuer can negotiate with the bondholder to pay the due principal with other assets if approved by the bondholder. Specifically, the bond issuer still has to pay in full and on time the bond principal and interest upon maturity and exercise the attached rights (if any), however, in case the issuing enterprise is unable to pay on time and in full for bonds offered for sale in the domestic market, enterprises may negotiate with bondholders to make payment with other assets, but must adhere to the following principles:

• Do not violate the provisions of civil law and relevant laws. For conditional business lines and investment lines, they must also comply with the provisions of law on such conditional investment and business lines.
• The bondholder’s approval is required.
• Issuing enterprises must disclose unusual information and take full responsibility for the legal status of assets used to pay bond principal and interest in accordance with law.

This regulation was introduced to provide a new way to handle bond issuers who are having difficulty in paying their bonds due. It is a solution to ensure the interests of investors in case the bond issuer cannot pay in cash. At the same time, it is suitable and beneficial for businesses with assets such as securities, established real estate, fully legal, eligible for transfer.

However, in practice, the implementation of this provision may arise certain limitations related to the dependence on the views on the value of the collateral, or the inequality between bondholders (bondholders with early maturing bonds have a better opportunity to choose assets than bondholders of bonds maturing later).

Change of bond terms and conditions

Decree 08/2023/ND-CP stipulates that bond issuers can consult bondholders to change bond terms and conditions. In particular, the highlighted content is to change the bond term by up to 2 years. Specifically, the change of conditions and terms of bonds must ensure the following principles:

• Comply with the provisions of Clause 3, Article 1 of the Decree.
• In case of extension of the bond’s term, the time must not exceed 02 years compared to the term of the bond issuance plan announced to investors.
• Finally, if the bondholder does not approve the change in terms and conditions of the bond, the issuer shall negotiate to ensure the interests of the investor. In the event that a bondholder does not accept the negotiation plan, the enterprise will must fulfill all obligations towards bondholders according to the bond issuance plan announced to investors (even if the change in terms and conditions of bonds has been approved by bondholders votes representing 65% or more of the total bonds approved).

Decree 08/2023/ND-CP as amended and supplemented the provisions of Decree 65/2022/ND-CP to provide solutions for bond issuers who are having difficulties with their bonds. due. However, according to custom (depending on the terms and conditions of each bond), for the modification of payment-related conditions such as maturity, interest rate, a very high percentage of bondholders is often required. consensus (up to 100%). Therefore, it will still be difficult to extend for bonds with a large number of bondholders.

Stop enforcing regulations on professional securities investors

According to current regulations, only professional securities investors can buy and trade corporate bonds in VND (except for strategic investors in convertible bonds and certified bonds).

Decree 65/2022/ND-CP has added regulations on the identification of professional securities investors, according to which such individuals must meet the following conditions: holding listed securities with a minimum value VND 2 billion is determined according to the average daily market value of the securities portfolio for at least 180 consecutive days immediately prior to the date of determination of eligibility to become a professional securities investor. In addition, the above individual professional securities investor status is only valid for 3 months. It can be seen that this new rule is more stringent than the rule of the securities law applied by Decree 153/2020/ND-CP (not required for 180 consecutive days and status valid for one year).

Decree 65 restricts the sale of bonds to non-PSI investors or joint investment in bonds with non-PSI investors in any form. When selling bonds on the secondary market, the seller must fully disclose to the buyer all disclosed information previously provided by the issuer in accordance with this Decree 65.

However, until the end of 2023, realizing the inadequacy of this provision in practice has slowed down the development of the single bond market, the government has temporarily suspended the effect of the new provisions of the Decree 65/2022/ND-CP on the determination of individual professional securities investors until the end of 2023. Accordingly, the period from March to December 2023, individuals invesstors in securities have time to adapting to new regulations to become individual professional securities investors.

It can be seen that there should be careful consideration according to the development level of the market depending on the period on how to screen professional investors as well as other adjustment policies. The adoption of changes too quickly and abruptly can lead to a breakdown in the market that causes unnecessarily limited damage.

At the same time, in the long run, professional investors should also be defined as mainly institutional investors and a small number of individuals who work professionally in the financial markets or have large assets. However, before adjusting the screening criteria to that goal, it is necessary to create other suitable investment channels to direct the capital flow of individual investors such as developing investment funds or expanding development channels issue bonds to the public. This will result in a smoother market movement without shocking the participants.

Suspend enforcing some other regulations

Decree 08/2023/ND-CP also suspend the implementation until the end of 2023 for a number of provisions of Decree 65/2022/ND-CP related to :

• Time to distribute bonds (Clause 7, Clause 8, Article 1 of Decree No. 65/2020/ND-CP) ;
• Credit rating requirements (Point e, Clause 2, Article 12 of Decree No. 153/2020/ND-CP as amended in Clause 9 Article 1 of Decree No. 65/2022/ND- CP).

Allowing the suspension to ease conditions for bond issuers to help increase the possibility of new bond issuance in 2023. It also shows the Government’s efforts to remove difficulties for the corporate bond issuance market in the short term. However, in order for the regulations to be effective in practice, more guidance from the regulatory agencies is still needed so that the parties can come up with the most optimal and most effective solution.

If you need to consult securities law, corporate law, please contact Viet An Law Firm for the best support.