From an international perspective, private corporate bonds are considered high-risk investment products. In many countries, they are categorized as "restricted securities," allowing issuers to conduct offerings without registration or compliance with stringent conditions. Consequently, participation in these markets is often limited to qualified, professional investors with substantial financial capability and expertise to assess risks.
However, in Vietnam, private corporate bonds were rapidly democratized, with many low-value retail investors gaining access—an anomaly that diverges from the typical structure of such markets. Although the law mandates that private bonds be sold exclusively to professional investors, issuers have exploited loopholes or willfully violated regulations, enticing many uninformed and inexperienced retail investors into this risky market. The consequences have been severe.
For instance, in the case of Tân Hoàng Minh Group, 6,630 retail investors who purchased private corporate bonds were identified as victims (according to Criminal Judgment No. 177/2024/HS-ST of the Hanoi People's Court, dated March 27, 2024). Moreover, the Ministry of Public Security is still searching for victims of 25 bond packages related to the Vạn Thịnh Phát Group scandal between October 2023 and May 2024. These incidents reflect the vulnerabilities that have plagued Vietnam's private corporate bond market.
Recognizing these challenges, the government introduced Decree 65/2022/NĐ-CP, amending Decree 153/2020/NĐ-CP, to tighten the definition of professional securities investors and increase control over both primary and secondary bond distribution channels. However, these amendments are short-term solutions, limited by the scope of a guiding decree.
To ensure the market operates correctly and aligns with international standards, the third draft of the amended Securities Law proposes restricting participation in the private bond market to professional institutional investors. This aims to mitigate risks for retail investors, who have been disproportionately affected by past scandals.
While this adjustment may seem to narrow the market’s scope, the reality is that retail investor confidence in private bonds has already plummeted since 2022. The participation of individual investors in private bond issuances has been minimal, meaning this regulatory change is unlikely to have a significant impact.
One of the more notable proposals currently under review by the Ministry of Finance involves stricter conditions for public bond offerings, focusing on two key areas: (i) internal procedures and (ii) debt repayment security measures. According to the third draft of the amended Securities Law, the issuance and debt repayment plan must be approved by the general meeting of shareholders, effectively stripping the board of directors of this authority.
Furthermore, companies wishing to publicly issue bonds must provide collateral or a bank guarantee, except for credit institutions offering subordinated bonds that meet conditions for inclusion in Tier 2 capital. This new requirement aims to improve the quality of publicly issued bonds and reduce the risk of issuers defaulting on principal and interest payments.
While these measures are designed to protect investors, they risk turning corporate bonds into a form of secured credit, potentially stifling this important fundraising channel for many businesses. Statistics from 2023 show that only 33% of issued bonds were backed by collateral, while 67% were unsecured. This underscores the heavy reliance on unsecured bonds within the market.
Rather than imposing rigid technical barriers, policymakers should strike a balance between investor protection and business financing needs. A more flexible approach could involve categorizing bonds based on risk levels, with collateral or bank guarantees required only for high-risk bonds or those with poor credit ratings. Companies with strong creditworthiness and transparent financials could be allowed to issue bonds without the need for additional security measures.
Source: thesaigontimes
Compiled by VietnamCredit
