Tight regulations for corporate bond market must not cause market collapse

SGGP
The fifth version of the draft amending Decree No.153/2020/ND-CP on the private placement of corporate bonds has been worrying many experts because it may block this capital mobilization channel.
According to the draft, private placement corporate bond issuers must meet the following conditions: profitable business results in the previous year; total outstanding debt of bonds does not exceed three times of equity; having collateral if the total outstanding debt exceeds the equity. 

“Many people say that the corporate bond market poses risks and needs to be tightened. However, perfecting the legal system does not mean tightening it. Instead, it is necessary to ensure that information reaches the market in an open, transparent, and accurate manner," lawyer Truong Thanh Duc, Director of Law ANVI Firm, said. According to him, it is important now to focus on perfecting the credit rating regulations. In the immediate future, it is possible to follow regulations in a trade-off way. For example, a business with credit rating results will not need, or will need one or two more conditions for issuance because credit rating has covered many audit conditions. If there is no credit rating, issuers must make a trade-off by meeting dozens of conditions.

According to experts, the credit rating will help investors easily determine the quality of the business and the level of risk of the issued bonds and is the basic solution that countries often use. Therefore, it is necessary to have regulations on credit rating to help investors easily determine the quality of the business and the level of risk of the issued bonds. In which, it is necessary to identify the cases where credit rating is required or encouraged, as well as clarify the roles and responsibilities of credit rating agencies.

Regulations on professional securities investors also confuse economic experts. According to the draft, professional individual investors must hold a securities portfolio of at least VND2 billion (US$86,477.2) as certified by a securities company at the time of being identified as a professional securities investor. “So who are they after that time?” Mr. Phan Duc Hieu, Standing Member of the Economic Committee of the National Assembly, raised the question. He shared that, according to the US Securities Act of 1933 as amended in 2010, the designated investor must have a minimum asset of US$200,000 and must always maintain it for two consecutive years, not just at that time. In 2020, the US revised and added new regulations on the professional capacity.

Mr. Dau Anh Tuan, Deputy General Secretary, Head of the Legal Department of the Vietnam Chamber of Commerce and Industry, also said that investors could easily evade the draft regulations by buying Government bonds or securities for a short time and then selling them. Therefore, it is necessary to amend the regulation that professional securities investors must hold and maintain securities investments for two consecutive years, with a minimum value of VND2 billion.

By the end of 2021, nearly VND1.2 quadrillion had been mobilized by businesses through the bond channel, accounting for about 12 percent of the total credit balance of the economy and about 15 percent of GDP. This proportion is targeted to reach 20 percent of GDP in 2025 and 25 percent of GDP in 2030. Besides bank credit capital, from now to 2030, Vietnam needs to mobilize VND700 trillion - VND1 quadrillion of medium and long-term capital each year.

Meanwhile, the commercial banking system is overloaded with long-term lending. Therefore, the capital mobilization channel through the corporate bond market is extremely important. Therefore, it is necessary to correct and close the loopholes. However, it must be done so as not to hinder the development of the corporate bond market, and at the same time, carefully consider intervention measures that may lead to a market collapse.

By Ha My – Translated by Bao Nghi

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