The green bond market has been developing worldwide in the past decade, financing projects in renewable energy, energy efficiency and other eco-friendly industries combating climate change. In line with the United Nations Environment Programme, the government has approved the country's Green Growth Strategy for 2011 to 2020. As a result, municipal green bonds have been prepared and issued for green projects as pilot programmes in Ho Chi Minh City and Ba Ria-Vung Tau Province since 2016. According to Vietstock, the Vietnamese bond market gained an average annual growth of 24% per year for the period of 2011 to 2016 and mobilised VND2,000,000,000,000,000 ($86 billion) in 2017, equivalent to 40% of Vietnam's GDP for that year. Since the target revenue gained from the bond market is 65% of the GDP until 2030, there is still room for development of the Vietnamese bond market, including green bonds.
In addition to the government green bond market, which has been gradually stabilising, the corporate green bond market appears to be a potential fund channel for the green projects of enterprises. However, the lack of regulation governing the issuance of corporate green bonds creates certain obstacles to promoting green capital in the private sector.
To facilitate the development of the green bond market, the government has made many efforts in reviewing, improving and issuing relevant policies and legislation with the aim of promoting corporate green bonds. In particular, on December 4 2018, the government introduced the first-ever legal framework for corporate green bonds under Decree 163/2018/ND-CP on corporate bond issuance (Decree 163), which repealed Decree 90/2011/ND-CP (Decree 90), and which became effective as from February 1 2018. Decree 163 is believed to have created more relaxed corporation bond issuance conditions for enterprises and made good the deficiencies involved in the issuance of corporate green bonds under Decree 90 by creating a leverage tool to encourage investment in green projects in the private sector. Below are the notable points regarding corporate green bonds under Decree 163.
Definition and overview of corporate green bonds
According to Article 4.3 of Decree 163, corporate green bonds are corporate bonds issued for the purpose of investing in an environmental protection project in accordance with the Law on Protection of the Environment, which is in line with other relevant regulations in other countries. For example, in Ontario, Canada, green bonds are defined as debt securities where the issue proceeds are used to fund projects with specific environmental benefits, such as clean transportation, energy efficiency and conservation, clean energy and technology.
Since corporate green bonds are a type of corporate bond, bond issuers issuing green bonds must comply with the regulations on bond issuance as described in Decree 163. These regulations include basic conditions for bond issuance, terms and conditions of bonds, conditions for bonds issued for the domestic market, conditions for bonds issued for international market, regimes on disclosing information and reporting.
Principles for the issuance of corporate green bonds
- When issuing corporate bonds, bond issuers are required to comply with the following principles:
- Self-borrowing, self-repayment and self-responsibility for effective capital use and repayment ability;
- Bonds are issued for the purpose of implementing programmes and projects, increasing operational capital or restructuring the enterprise's debts. Such purposes must be specifically written in the bond issuance plan and announced to investors registering to purchase the bonds; and,
- Capital mobilised from the bonds must be correctly used as planned and announced.
When issuing corporate green bonds, in addition to the principles above, bond issuers must separately account for and manage the capital mobilised from the corporate green bonds. Such capital must also be disbursed for environmental protection projects as planned by the enterprise and approved by competent authorities.
Disclosing and reporting regimes for corporate green bonds
Decree 163 introduces a comprehensive disclosure regime applicable to bond issuance. Under this regime, bond issuers are required to provide: disclosure of relevant information before the bond issuance, the issuance result, regular disclosure (semi-annual and annual reports), and irregular disclosure for events such as suspension to the bond issuer's business, changes to announced information, changes to the use of proceeds, or inability of loan repayment.
In line with this disclosure regime, where corporate green bonds are concerned, the issuers are additionally requested to disclose information about the process of managing and drawing down capital raised from the green bond issuance, and to include the environmental impact assessment report in their regular disclosures. Under Decree 163, the disclosures must be published on the websites of the bond issuers and the relevant stock exchange.
Issuance method, redemption and swap of corporate green bonds
To enjoy the same relaxed and favourable regulations on bond issuance under Decree 163, issuers of corporate green bonds are permitted to directly issue green bonds to investors without having to engage an underwriter or a bond issuance agent. Additionally, bond issuers may redeem their bonds before maturity or swap the bonds to reduce or restructure debts, provided that within 15 days before the arrangement of the early redemption or swap, they announce on the website of the relevant stock exchange their plan for the early redemption or swap as approved by the competent authorities.
Restrictions on the transfer of corporate green bonds
Decree 163 sets forth certain restrictions on corporate bond issuance, including corporate green bonds. In particular, within one year from the completion date of the bond issuance instalment, transactions involving fewer than 100 investors are restricted (excluding professional securities investors), except for cases involving a decision of the Court or inheritance under Vietnamese law. After the expiry of this term limit, corporate bonds, including corporate green bonds, can be traded without any restriction on the number of investors, unless otherwise decided by the bond issuers.
Potential channel and platform
Green bonds have been considered a helpful financial tool for sustainable development goals for investment into green projects in both global and domestic markets. Thus, the regulation of corporate green bonds under Decree 163 is expected to create a potential channel to mobilise capital for green projects in the private sector, creating a platform for green product derivatives trading in Vietnam. In addition, the legal framework for corporate green bonds under Decree 163 is projected to attract more investment from domestic and foreign investors interested in environment-related projects in Vietnam, such as renewable energy, waste management and the like.
Vu Le Bang and Nguyen Thi Thanh Tram
Nishimura & Asahi