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Issue of enterprise bonds in Vietnam

From December 1 2011, Decree No 90/2011/NÐ-CP (dated October 14 2011) on the issue of enterprise bonds came into effect. It replaced Decree No 52/2006/NÐ-CP (May 19 2006) on the issue of enterprise bonds and some selected provisions of Decree No 53/2009/NÐ-CP on the issue of international bonds.

Decree 90 regulates the issue of private bonds within Vietnam, and the issue of bonds on the international market by enterprises domiciled in Vietnam. It applies only to shareholding companies and limited liability companies.

Decree 90 provides for two types of bonds – convertible and non-convertible bonds – which may be secured or unsecured and can be issued in the form of certificates, book entries or electronic data. Only shareholding companies can issue non-convertible bonds with options or convertible bonds. Limited liability companies may only issue non-convertible bonds.

Enterprises may issue bonds for three purposes: conducting investment projects, expanding their capital and restructuring loans. Unlike the previous legislation, Decree 90 imposes no restrictions on the term of loans which may be restructured (previously only long term loans could be restructured), but states that bonds issued must comply with certain principles. These include not issuing bonds on the international market in order to restructure Vietnam dong (VND) denominated loans, and the issuer maintaining a minimum ownership of capital in the enterprise at 20% of the total capital of the investment project.

All bonds must have a minimum term of at least one year and enterprises must wait for a minimum period of six months between each issue of convertible bonds. Convertible bonds and securities rights issued with bonds may not be transferred within one year of the completion of the issue date, except where transferring bonds to or between institutional securities investors.

Decree 90 provides bonds issued on the domestic market must be denominated in VND, but bonds issued on the international market may be issued in a freely-convertible foreign currency. An enterprise is permitted to issue bonds when it satisfies all conditions set out in Decree 90, including being profit making and having the approval of the competent authority.

As is already the case under Decree 52, authority from a general meeting of shareholders is required to issue convertible bonds or bonds with options attached. For other types of bonds, this approval can be given by any of the general meeting of shareholders, the board of management, the members council or the chairman of the enterprise (subject to the enterprise's charter).

For state-owned enterprises, bond issues must be approved by the owner (the Ministry, People's Committee or other authorised organisation) of the enterprise.

For bond issues on the international market, the issuer must also comply with further requirements, including certification that the value of the proposed international bond issue is within the annual quota on foreign commercial borrowing, as approved by the Prime Minister.

Decree 90 introduces in Vietnam (for domestic bonds only) swap bonds, being the simultaneous sale and purchase of two bonds issued by one issuer, in order to restructure existing loans. Swapping is subject to approval of the competent authorities and agreement between the issuer and bond owner.

Juniper Cheng

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