Finance Ministry issues warnings about corporate bond market
Under the Law on Securities and Enterprise Law, there are two types of bonds - bonds issued to the public and privately issued bonds. Publicly issued bonds are offered to all investors and can be issued only with the State Securities Commission’s (SSC) licenses. Privately issued bonds are offered and transacted among professional securities investors.
The domestic bond market has developed to become an important capital mobilization channel for enterprises and the economy, helping ease pressure on banks. However, some problems have arisen.
Some firms issue bonds in large quantities and offer high interest rates despite their limited financial capability. Some investors, when buying bonds, only care about interest rates, and don’t fully appreciate the nature and possible risks of bonds. Some investors intentionally violate rules when claiming they are professional investors. Many investors who are not professionals buy privately issued bonds.
After recent violations committed by issuers, enterprises have rushed to buy back bonds, while individual investors have sold bonds before maturity for fear that issuers cannot pay the debts.
For investors, MOF recommends that when issuers have difficulties in payment, investors can work with enterprises and institutions to negotiate to find solutions that can ensure benefits for both investors and issuers. Investors need to be careful analyzing and classifying bonds so they can make reasonable decisions and not listen to false rumors.
Individual investors, when invited to buy privately issued bonds or when intending to invest in corporate bonds, should ask bond distributors to provide sufficient and accurate information about the enterprises that issue bonds.
They need to understand regulations and enterprises’ prospectuses. They also need to pay attention to responsibilities and commitments by service-providing institutions.
Even though commercial banks and securities companies distribute corporate bonds, the institutions do not act as guarantors for the issuers. The institutions only provide services and receive service fees from issuers. The risks are faced by issuers.