Overview of regulations on corporate bond trading in Vietnam
Conditions on sale and purchase of corporate bonds in Circular 16

Overview of regulations on corporate bond trading in Vietnam

The legal framework on the corporate bond market in Vietnam has undergone significant changes during the past five years. Previously, Decree No. 163/2018/ND-CP (Decree 163) encouraged corporate bond issuance with lenient policy, resulting in the rapid expansion of the corporate bond market with lax control. Decree No. 81/2020/ND-CP (Decree 81), amending Decree 163, was issued with stricter requirements to stem the excessive issuance of private high-risk, high-reward bonds. In addition, the Law on Enterprises 2019 and the Law on Securities 2019 set out general regulations, while Decree No. 155/2020/ND-CP details the public bond issuance and offering, and Decree No. 153/2020/ND-CP details private bond issuance and trading (Decree 153).

On 1 January 2021, the new regulatory framework on corporate bond trading came into force. The two notable points of the current regulations regarding corporate bond trading are:

  • the removal of several requirements imposed on corporate bond issuers; and
  • the introduction of stricter conditions for trading corporate bonds.

Conditions imposed on bond issuers under Decree 163 and Decree 81 are no longer required under Decree 153. The conditions were:

  • having at least one year of operation;
  • signing a consulting contract with a consultancy organisation on bond issuance dossiers; and
  • having a total outstanding debt on corporate bonds (issued through the private placement at the time of issuance) that does not exceed the owner's equity by more than five times.

On 10 November 2021, the State Bank of Vietnam promulgated Circular 16/2021/TT-NHNN (Circular 16) on corporate bond trading of credit institutions and branches of foreign banks (together, credit institutions). Circular 16, which came into force on 15 January 2022, introduces stricter conditions for trading corporate bonds.

Conditions on sale and purchase of corporate bonds in Circular 16

Circular 16 sets out safety measures and more rigorous control in corporate bond transactions, as enshrined in the following three notable points.

Firstly, Circular 16 puts in place hard limits for trading corporate bonds. In particular:

  • Credit institutions are only permitted to buy corporate bonds if their bad debt ratio is less than 3% in the latest classification.
  • Credit institutions are not allowed to sell corporate bonds to their subsidiaries, except for the compulsory transfer as provided under the law.
  • Credit institutions are not allowed to purchase corporate bonds when one of the purposes of issued corporate bonds is to:
    • restructure debts of the issuer;
    • contribute capital and/or purchase share in other enterprises; or
    • increase working capital.
  • Only after 12 months from the date on which a credit institution sells unlisted corporate bonds is the credit institution allowed to purchase traded unlisted corporate bonds, provided that the following conditions are met:
    • the buyer of the corporate bonds must settle all purchase expenses upon signing the bond sale contract; and
    • the issuer is at the highest rating according to the latest internal credit rating system.
  • Bond issuers must have no bad debt in credit institutions in the 12 months prior to the date on which credit institutions purchase corporate bonds.

Secondly, Circular 16 determines that credit institutions must promulgate and annually review internal regulations on corporate bond trading. The internal regulations shall define, among other things, the responsibilities and obligations of each department and individual involved in corporate bond trading. The internal regulations shall also define professional processes and regulations on risk management for the purchase and sale of corporate bonds.

Thirdly, Circular 16 once again regulates the responsibility of credit institutions to monitor and supervise the use of revenues generated by corporate bond issuance of issuers, and to classify and set up provisions for risk management of the purchase balance of corporate bonds, similar to the regulations provided by the former Circular 22/2016/TT-NHNN and Circular 15/2018/TT-NHNN.


Two important considerations should be made.

Does Circular 16 constrain credit institutions from investing in corporate bonds?
The term describing the impact of Circular 16 on credit institutions in the corporate bond market should be "restrain" rather than "constrain". Strict conditions provided in Circular 16, however, may reduce the number of credit institutions joining the corporate bond trading market, help to direct credit institutions to trade corporate bonds of better quality, and manage credit risks both internally (via internal regulations) and externally (via supervising the issuer).

Does Circular 16 make the corporate bond a less approachable credit channel to enterprises?
More requirements to be fulfilled by the investors and the issuers in the sale and purchase of corporate bonds mean money from the corporate bond channel is curbed in order to be passed to the corporates. However, the potential perks of complying with such strict requirements are:

  • bond issuers can better control their financial capacity because they are now required to have healthier liquidity; and
  • corporates can approach investors with a high credit rating, which is especially beneficial in cases where such investors hold convertible bonds that are being converted into shares.

In sum, it can be observed that the lawmaker aims to make the corporate bond market more transparent, reliable and sustainable via tightened requirements under Circular 16. Corporates and credit institutions should fully study the new requirements and be prepared to participate in the corporate bond market, which is becoming a high-quality credit channel.

For further information on this topic please contact Thanh Minh Vu or Nguyen Dieu Quynh at LNT & Partners by telephone (+84 28 3821 2357) or email ([email protected] or [email protected]). The LNT & Partners website can be accessed at www.lntpartners.com.