The past several years have seen a spate of legislation developing the capital-raising options for Vietnamese entities, most notably the securities law and its implementing regulations (but also separate pieces of legislation covering non-public issuances of bonds by enterprises and banks, respectively). Until now, a missing piece in this mosaic has been a framework for issuances and listings by Vietnamese entities in offshore markets.
Although media focus has been mainly on the possibility of Vietnamese entities listing shares on offshore stock exchanges (something that has yet to take place), on 4 June 2009 the government passed Decree 53 on the issuance of international bonds. Decree 53 aims to be a comprehensive piece of legislation, covering offshore bond issuances by the government, state-owned enterprises and private enterprises. This is certainly a welcome development, because non-state-owned enterprises have never before had a legal framework for issuing debt in offshore markets. Furthermore, the only legislation on international bond issuances by the government and state-owned enterprises (including state-owned banks) was Decree 23 of the government, which dated from the pre-Asian Crisis dark ages of 22 March 1995 and, at approximately four pages in length, was slightly short on detail.
Decree 53 imposes a restrictive approval process. The basic principle is that government bonds must be approved by the government and bonds issued by stateowned enterprises (as well as private enterprise bonds benefiting from a government guarantee) are subject to an approval process that begins with an application with the Ministry of Finance (MOF) and ends with the MOF forwarding the application (with an MOF report) to the prime minister for ultimate approval.
Although private enterprise bonds are not subject to the potential delays inherent in this multi-tiered approval process, they suffer from their own potential bottleneck. Though the only ‘approval’ required is the enterprise’s internal corporate approval process, following such internal approval the enterprise must submit the bond issuance plan to the SBV for its ‘certification of the compliance of the loan with the total national annual limit of commercial foreign loans’. This is a consequence of Vietnamese law treating the issuance of international bonds as a form of foreign borrowing subject to the control of the SBV. However, this certification requirement goes beyond what is otherwise required of private enterprises when they borrow offshore loans. Loan agreements are not subject to certification; they must simply be registered within a fixed period after signing and before drawdown.
Under Decree 53 the SBV is required to liaise with the MOF and then ‘give notice to the enterprise certifying that the value of the issue is within the total national limit of commercial foreign loans’ within 15 working days. It is possible that the SBV will in practice sometimes take longer than 15 days. This has the potential to introduce frustrating delays into the bond issuance process. After this certification the issuer must still register the bond as a foreign loan with the SBV.
Decree 53 contemplates the issue of convertible bonds in broad terms, but in this regard ‘provisions of applicable laws must be complied with’. Unfortunately, the current legislation on convertible bonds issued within the Vietnamese market suffers from a lack of implementing regulations to stake out adequately the rights of convertible bond holders and it is not clear how that legislation would apply to conversion into shares listed offshore.
The foreign exchange treatment of international bonds is another issue that is skated over in Decree 53. Issuing enterprises are required to comply with regulations on foreign exchange control, but also required to make ‘direct transfer of money to paying agents under the signed agreements for payment of principal and interest of corporate bonds to the bondholders upon maturity’. Unfortunately it is not entirely clear how an issuing enterprise could make such payment while complying with regulations on foreign exchange control. A purchase of bonds issued by Vietnamese enterprises is best categorised as a form of foreign indirect investment in Vietnam; however, draft regulations on the foreign exchange treatment of indirect investment in Vietnam circulated by the SBV earlier this year did not cover the purchase of Vietnamese bonds issued in international markets.