The Decree 08 amends, supplements and suspends the effects of articles in decrees on issuing and trading privately placed corporate bonds in the domestic and international markets.

Temporary solution

Can Van Luc, chief economist of BIDV, member of the National Advisory Board for Financial and Monetary Policies, commented that the issuance of the decree is a necessity and has long been awaited by the market, investors and enterprises.

According to Luc, the decree will have three major impacts.

First, it creates a legal framework allowing bond issuers to negotiate with bond holders on the extension of payment deadlines on mature bonds up to two years.

This will ease pressure to pay bond debts (most of which will mature in 2023, estimated at VND120 trillion for real estate firms, and in 2024, estimated at VND110 trillion)

Second, the decree creates a legal framework and gives basic guidance to the implementation of negotiations for exchanging bonds for goods (mostly assets, real estate or other properties) in a clear and consistent way, which minimizes risks. Enterprises need to be transparent and ensure legitimate benefits for investors.

Meanwhile, investors also need to have sympathy and good will towards bond issuers.

Third, the decree extends the deadline until the end of 2023 on qualifications for professional investors, and shortens the time for bond distribution and credit rating before issuance.

Luc stressed this is a necessity amid the difficult market, lower confidence, and lower liquidity, while more time is needed for investors, bond issuers and credit rating firms to make preparations.

“The decree sets temporary solutions which will help solve most of the problems related to bonds that are about to mature this year and next year. However, involved parties need to prepare for the next few years, when they have to apply higher standards again (professional investors, credit ratings and time for bond distribution),” Luc said.

He said enterprises should get ready to sell assets with discount rates of up to 30-40 percent, step up product restructuring, cut costs, and prepare to issue new bonds according to Decree 08 to get money to pay debts, complete unfinished products, diversify capital sources and pay more attention to financial risk management.

Investors’ confidence

Nguyen Tri Hieu, a respected economist, was more cautious about the possible impact Decree 08 may have on the bond market.

“The decree is expected to be the solution to the bond market. However, the core issue of the bond market is creating confidence for investors,” Hieu said.

Regarding the decree’s article that issuers be allowed to pay debts in other ways instead of cash, Hieu said under current laws, paying debts in cash is not a must. In principle, borrowers and lenders can also negotiate on the debt payment time.

However, he is worried about investors accepting delays in debt payment. 

“If issuers cannot pay debts at this time, no one can say for sure that they will be able to pay debts after two years and that the situation will be better,” he said.

“If I were a lender, I would rather collect debts as soon as possible. The delay in debt collection will pose high risks to lenders,” he said.

Regarding the decision on delaying the time to apply standards for professional securities investors, Hieu said it would help market liquidity and assist individuals in joining the market more easily.

However, what Hieu feels worried about is that if any investors accept the delays in debt payment. 

“If issuers cannot pay debts at this moment, no one can say for sure they will be able to pay debts after two years. If I were a lender, I would rather collect debts as soon as possible,” he said.

Regarding the decision on delaying the time to apply standards for defining professional securities investors, Hieu agreed that this is necessary as it helps the market have more liquidity and helps individuals join the market more easily.

However, he wondered if individual investors massively join the bond market, which may lead to massive losses. In general, individual investors have limited knowledge about the financial market and credit analyses.

He doesn’t agree with the regulation on one-year extension of the implementation of regulation on mandatory credit rating. He stressed that the in the bond market are partially attributed to lack of tools that show if there are risks in the bonds investors buy. The regulation on mandatory credit rating will provide the tool to foresee risks.

Dinh Tuan Minh, research director of the Research Center for Market Solutions to Economic and Social Problems, said that the most important thing of the decree is giving the market time to prepare, and giving the state time to learn more deeply about the orientations of the bond market in the future.

Duy Anh