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LEGAL UPDATE – NOVEMBER 2022 – DECREE No. 65/2022/ND-CP SEPTEMBER 16, 2022 AMENDMENTS TO GOVERNMENT’S DECREE NO. 153/2020/ND-CP DATED DECEMBER 31, 2020 PRESCRIBING PRIVATE PLACEMENT AND TRADING OF PRIVATELY PLACED CORPORATE BONDS IN DOMESTIC MARKET AND OFFERING OF CORPORATE BONDS IN INTERNATIONAL MARKET
Issue November 2022
Le Hong Phong |
Le Thi Tuyet Mai |
Decree 153/2020/ND-CP prescribing private placement and trading of privately placed corporate bonds in domestic market and offering of corporate bonds in international market, issued on December 31, 2020, effective into force on January 1, 2021. After 18 months implemented of the decree, before signs of “hot” growth accompanied by many potential risks, state management agencies have issued consecutive warnings to issuers and investors, especially individual investors. However, the reality shows that there is still a deliberate violation to offer secondary sale to individual investors to buy individual corporate bonds or contribute capital through investment cooperation contracts with securities investors under Civil Code. The law observance of the bond issuer is not strict and in compliance with the legal framework, many serious violations have occurred.
To the corporate bond market, the Prime Minister and the Minister of Finance have issued guiding documents on the management, especially stepping up the inspection of issuance, investment, and service providing services in the corporate bond market [1].
In the face of the fast-growing corporate bond market and many risks, the Government has issued a new legal framework that is safe for investors, promotes a transparent market and enhances the supervisory responsibility of investors in state agencies.
The most notable aspects of the New Decree 65/2022/ND-CP amendments to Government’s Decree NO. 153/2020/ND-CP dated December 31, 2020 prescribing private placement and trading of privately placed corporate bonds in domestic market and offering of corporate bonds in international market.
1. Purpose of issuing bonds
Decree 65/2022/ND-CP amending regulations on bond issuance purposes in order to strengthen the responsibilities and obligations of issuers in using proceeds from bond issuance for the right purposes.
According to, bonds are issued for executing investment projects/programs, restructuring the issuer’s debts or serving other purposes as prescribed in specialized laws. The issuer is required to clearly indicate purposes of the bond issue in its bond issuance plan, and disclose the same to investors to serve their subscription for the bond issue. The funds raised from a bond issue shall be used for the purposes which have been defined in the issuer’s bond issuance plan and notified to investors[2].
Decree 65/2022 allows issuers to issue corporate bonds for the purpose of debt restructuring. This is one of the key points in the direction of easing to help businesses with the purpose of debt restructuring (by regulations) still have access to the corporate bond issuance channel.
2. Increase the par value of domestic bonds to 100 million
The New Decree has increased the par value of bonds from VND 100,000 (about US$4.20) (and a multiple of VND 100,000 or about US$4.20) to VND 100 million (about US$4,200) (and a multiple of VND 100 million or about US$4,200). This increase also limits the scope of eligible investors and seems designed to exclude small retail investors. Specifically, Decree 65/2022/ND-CP states: “Face value of a bond offered in the domestic market is VND 100.000.000 (one hundred million) or a multiple of VND 100.000.000 (one hundred million)”[3].
3. Bond buyers
Decree 65/2022/ND-CP also stipulates specifically about Bond buyers. Accordingly, Buyers of non-convertible bonds without warrant are professional investors as defined in the Law on securities.
An individual that is identified as a professional investor as prescribed in Point d Clause 1 Article 11 of the Law on Securities shall be eligible to buy privately placed bonds if he/she holds a quantity of listed or registered securities, excluding securities borrowed to conduct margin transactions and those of REPO* transactions, of which the daily average price determined in a minimum period of 180 consecutive days preceding the date on which he/she is identified as a professional investor shall not be lower than VND 02 billion. The certification of a professional investor status as prescribed in this Point shall be valid for 03 months from the date of certification.
The New Decree guides on requirements for eligible investors, as well as documentation as evidence for such eligibility, accordingly confirms the responsibilities of both issuers and securities companies in the determination and certification of investor eligibility with respect to participation in private bond issuances.
Decree 65/2022/ND-CP adds responsibilities of bond buyers “Conduct bond transactions according to the provisions of Article 16 Bond trading of Decree 65/2022/ND-CP; not sell bonds to or make joint investment in bonds with investors who are not professional investors in any forms. Capital mobilization and purchase/investment in corporate bonds by credit institutions, FBBs and fund management companies shall comply with specialized laws”[4].
Buyers of convertible bonds and warrant-linked bonds are professional investors and strategic investors of which the number of strategic investors of an issue is limited to 100[5].
4. Supplementing the principle of private corporate bond issuance
Bond issuance conditions comply with the Law on Securities and the Law on Enterprises. The Decree supplements regulations on bond offering documents including: (i) credit rating results according to cases and implementation schedule as prescribed for bond offering to the public, from January 1st, 2023; (ii) the contract signed with the representative of the bondholder in case of offering to individual professional securities investors and (iii) the commercial bank’s confirmation on the opening of an account to receive money for purchase bonds.
Upon completion of the offering, bonds must be (i) registered and deposited with the Vietnam Securities Depository (VSD) and (ii) registered for trading with the Stock Exchange. Previously, there was no particular guidance on these requirements, private issued bonds could be registered with a depository member of the VSD. These new provisions should increase secondary trading and create a more transparent secondary market.
The bond exchange will need to be set up within nine months after issuance of Decree 65/2022. The VSD’s bond registration and depository and the bond trading system of the Stock Exchange are targeted to come into operation in June 2023. Pending the setting up of the bond exchange, privately-issued bonds could continue to be traded under Decree 153/2020.
Decree 65/2022/ND-CP provides: With regard to bonds issued in the domestic market, their terms and conditions as prescribed in Article 6 of this Decree may be changed if the change is approved by [6]:
a) The issuer’s competent authority; and
b) A number of bondholders that represents at least 65% of total outstanding bonds of the same type
Information on the change of conditions and terms of bonds must be unusually disclosed by the issuing enterprise [7].
5. Representative of bondholders
The Decree adds regulations on the representative of bondholders to strengthen the supervision of the purpose of using the bond capital of the issuer as well as strengthen the supervision of the implementation of other commitments of the issuer.
The representative of bondholders strengthens the supervision of the purpose of using the bond capital of the issuer, as well as strengthens the supervision of the implementation of other commitments of the issuer.
Where bonds are offered to professional investors that are individuals, the bond offering dossier must include the contract signed with the representative of bondholders as prescribed in Clause 7 Article 14 of this Decree and the Law on securities [8].
In addition, the representative of bondholders shall report to the State Securities Commission and the Stock Exchange on a quarterly and annual basis and report in case the issuer is found to violations affect the interests of bondholders [9].
6. Modify time of bonds offered in each wave
Decree 153/2020/ND-CP stipulates that bonds offered in each wave must be distributed within 90 days from the date of disclosure of information before offering. Total duration for offering of bonds in multiple waves shall not exceed 12 months from the issue date of the first offering wave
According to Decree 65/2022/ND-CP, Bonds offered in each offering wave must be distributed within 30 days from the date of disclosure of information before offering. Total duration for a multiple-wave offering shall not exceed 06 months from the issue date of the first offering wave.
A bond issuer must sign a contract with a bond issuance consultant which is securities company in all cases. Before Decree 65/2022, a bond issuer being a securities company is exempted from engaging a bond issuance consultant.
A private bond issuer must obtain a credit rating from a rating agency (1) if the total par value of issued bonds of such issuer in each 12-month period prior to the issuance date is greater than VND500 billion and 50% equity recorded on its latest financial statements; or (2) the total par value of outstanding bonds of such issuer as at the time of registration for issuance is greater than 100% equity recorded on its latest financial statement. Before Decree 65/2022, this requirement only applies to public issuance of corporate bonds.
Decree 65/2022 now requires the bond issuance agent (or the underwriter) to certify that the bond issuer has received the bond proceeds into its account.
7. Enhanced Responsibilities of bidding, underwriting and brokerage services:
The New Decree provides that (i) only securities companies are permitted to provide services of auction, guarantee and agency, and (ii) commercial banks and branches of foreign banks are permitted to provide agency services if approved by the State Bank of Vietnam and licensed to engage in depository service by the State Securities Commission[10]. These “intermediaries” must not be related parties of the issuer and enter into a service contract with the relevant issuer, in which rights and responsibilities of each party must be specified.
The New Decree also imposes additional responsibilities of these intermediaries to provide true and accurate information on the bond issuance to the investors and ensure distribution of bonds only to eligible investors. This is a clear step towards promoting more responsibility on the part of these intermediaries.
8. Cases in which bonds are redeemed before maturity[11]:
This is a completely new regulation compared to Decree 153/2020/ND-CP, whereby Decree 65/2022/ND-CP requires the responsibility of the issuer. Additional Decree stipulates that Bonds must be compulsorily redeemed before maturity when the issuer fails to comply with the bond issuance plan (including the capital use plan), and that violation cannot be rectified or violate the law; Before and after the bond issuance, there must be a disclosure of information on solvency, an audit report on the financial position and an audit of the use of capital for the bond issuance purpose.
Cases in which bonds are redeemed before maturity:
a) The redemption is made under an agreement between the issuer and bondholder.
b) Bonds shall be compulsorily redeemed at the request of investors in the following cases:
- The issuer commits violations against regulations of law on offering and trading of corporate bonds according to decision issued by a competent authority, and such violations cannot be rectified or a number of bondholders that represents at least 65% of total outstanding bonds of the same type refuses to give approval for remedial measures for such violations.
- The issuer fails to comply with the bond issuance plan, and that violation cannot be rectified or a number of bondholders that represents at least 65% of total outstanding bonds of the same type refuses to give approval for remedial measures for that violation.
- Other cases defined in the bond issuance plan which is prepared according to Article 13 of Decree 65/2022/ND-CP (if any).
Note: The case of compulsory redemption at the request of the investor does not apply to the case where the bonds are withdrawn under the decision of the competent authority [12].
Recognize
With the bond issuance of new regulations on the issuance and trading of privately placed corporate bonds, it will promote the formation of professional long-term investment institutions in a transparent and sustainable market. Strengthen coordination between Ministries and sectors in operating, managing and supervising the stock market, bond market, money market, bank credit and proactively informing, propagating and orienting the market. Establish an organized trading market and complete regulations on management and supervision mechanisms.
These represent a key step in ensuring transparency and investor protection in the bond market which industry experts have considered to be lacking.
Market participants, in addition to learning about corporate bonds, need to comply with the law before and during the transaction. Bond issuer must ensure the truthfulness of bond offering documents, use capital for the right purposes, and be responsible for explaining to investors information related to the issuance plan and legal risks management, investment risks, capital use risks, rights, interests and liabilities of the parties when issuing and investing corporate bonds.
* Repo is a generic name for both repurchase transactions and buy/sell-backs. Repos are sometimes known as ‘sale-and-repurchase agreements’ or just ‘repurchase agreements’. In some markets, the name ‘repo’ can be taken to imply repurchase transactions only and not buy/sell-backs. Repurchase transactions are also known as ‘classic repo’. Under EU regulation — along with securities lending, commodities lending and margin lending — repurchase transactions and buy/sell-backs are types of ‘securities financing transaction’ (SFT)
[1] Directive No. 01/CT-BTC dated April 25, 2022 of the Ministry of Finance
[2] Clause 2 Article 5 of Decree 65/2022/ND-CP
[3] Point a Clause 4 Article 6 of Decree 65/2022/ND-CP
[4] Point dd Clause 2 Article 8 of Decree 65/2022/ND-CP
[5] Point b Clause 1 Article 8 of Decree 65/2022/ND-CP
[6] Clause 4 Article 5 of Decree 65/2022/ND-CP
[7] Point c clause 1 Article 22 of the Decree 65/2022/ND-CP
[8] Point dd clause 2 Article 12 of the Decree 65/2022/ND-CP
[9] Clause 2 Article 33 of Decree 65/2022/ND-CP
[10] Clause 4 Article 14 of Decree 65/2022/ND-CP
[11] Clause 3 Article 7 of Decree 65/2022/ND-CP
[12] Clause 4 Article 7 of Decree 65/2022/ND-CP
LEGAL UPDATE – OCTOBER 2022 – Decree 53/2022: Some notable points in implementation of Law on Cybersecurity
Issue October 2022
Nguyen Trong Nghia |
Le Anh Kien |
On 12 June 2018, the National Assembly passed the Law on Cybersecurity and took effect from 01 January 2019, however, some provisions were not clearly specified and there were many obstacles in practical implementation. Therefore, recently on 15 August 2022, the Government issued the Decree No. 53/2022/ND-CP (“Decree 53”) in order to detail a number of articles of the Law on Cybersecurity.
Decree 53 takes effect from 01 October 2022 and has a number of noted key points as follows:
1. Data localization
Data localization is considered as the most remarkable point of Decree 53. Accordingly, the subjects of data localization are foreign enterprises that conduct business in Vietnam in one of the following fields: Telecommunications services; services of data storage and sharing in cyberspace; supply of national or international domain names to service users in Vietnam; ecommerce; online payment services; payment intermediary; services of transport connectivity via cyberspace; social networks and social media; online video games; and services of provision, management, or operation of other information in cyberspace in the forms of messages, phone calls, video calls, emails or online chat, are obliged to comply with the data localization requirements and set up a branch or a representative office in Vietnam in case the service(s) provided by foreign enterprises used to commit a violation of the Law on Cybersecurity, which had been notified and requested to coordinate, prevent, investigate and handle in writing by the Department of Cybersecurity and High-tech Crime Prevention under the Ministry of Public Security but the foreign enterprises fail to comply, incompletely comply with, or prevent, obstruct, disable, or invalidate cybersecurity protection measures implemented by the cybersecurity protection specialized force. The time to set up a branch or representative office in Vietnam starts from the foreign enterprise receives the request to set up a branch or representative office in Vietnam until the foreign enterprise no longer operates in Vietnam or regulated services are no longer available in Vietnam.
With regard to the domestic enterprises, Clause 2 Article 26 of Decree 53 stipulates: “Domestic enterprises store data specified in Clause 1 of this Article in Vietnam”. This provision can be understood that all domestic enterprises are obliged to localize all types of data according to the law. However, there may be another viewpoint that only domestic enterprises “provide services on telecommunications networks and the Internet, value-added services in cyberspace in Vietnam have activities on collecting, exploiting, analyzing and processing data about personal information, data on the relationship of service users, data created by service users in Vietnam” is required to localize data in Vietnam (quoted from Clause 3, Article 26 of the Law on Cybersecurity 2018).
2. Data subject to data localization
According to Decree 53, the types of data that enterprises must localize in Vietnam include (i) Data regarding personal information of service users in Vietnam; (ii) Data generated by service users in Vietnam: user service account name, time of service use, credit card information, email address, network address (IP) of most recent login, logout, registered phone number for the account or data and (iii) Data about the relationship of service users in Vietnam: friends and groups with which the user connects or interacts.
3. Form and time period of data localization
The form of data localization in Vietnam is decided by the enterprises.
About the time period of data localization, Decree 53 stipulates: “The data localization period specified in Article 26 of this Decree starts from the time the enterprise receives the data localization request until the end of the request. Minimum localization period is 24 months.”
This regulation does not specify whether it is applicable to the domestic enterprises or foreign enterprises, however, it can be understood that this regulation only applies to foreign enterprises because such enterprises are obliged to localize data at the request of a competent state authority. For domestic enterprises, data localization can be understood that it must be carried out throughout the operation of such enterprises, from the date Decree 53 takes effect.
4. Other provisions
Other than the regulations of data localization, Decree 53 also contains other critical provisions related to the establishment of cybersecurity criteria for important information system for national security; cybersecurity conditions for important information systems for national security; order and procedures for applying cybersecurity protection measures; cybersecurity protection activities in State authorities, central and local political organizations./.
LEGAL UPDATE – SEPTEMBER 2022 – NEW REGULATIONS ON E-GAMBLING FOR FOREIGNER BUSINESS
Issue September 2022
Trinh Hoang Lien |
Phan T.Lan Phuong |
There are some changes in the regulations on electronic gambling for foreigners business after the issuance of the Decree No. 121/2021/ND-CP dated December 27, 2021 by the Government regulating the business of prize-winning electronic games for foreigners in the territory of the Socialist Republic of Vietnam (“Decree No. 121”) replacing Decree No. 86/2013/ND-CP dated 29th July, 2013, Decree 175/2016/ND-CP dated 15th February, 2017 and Decree 151/2018/ND-CP dated 7th November, 2018 (hereinafter collectively referred to as “Decree 86”). Decree 121 takes effect from 12th February, 2022 and is detailed by Circular 39/2022/TT-BTC (“Circular 39”) dated 24th June, 2022 and Circular 09/2022/TT-NHNN (“Circular 09”) dated 12th July, 2022. This article summarizes notable changes that have significant implications for this business.
1. Persons eligible for participating in e-gambling
Regulations on people eligible for participating in e-gambling under new regulations are stricter than those in the Decree 86, specifically, foreigners and overseas Vietnamese, who legally enter Vietnam with valid passports or international travel documents issued by foreign competent authorities and visa is in validity; have full civil act capacity as prescribed by Vietnamese law and willingly comply with Game Rules as well as other provisions under Decree 121.
Accordingly, Decree 121 does not allow foreigners and overseas Vietnamese illegally entering Vietnam or legally entering Vietnam but not leaving the country before visa expired according to regulations to participate in e-gambling.
2. Business conditions and licenses
Basically, an enterprise operating this business must have two sublicenses, a certificate of eligibility for prize-winning electronic games business issued by the Ministry of Finance and a license for collection and payment in foreign currency and other foreign exchange operations issued by the State Bank before commencing its operation.
Conditions that enterprises shall fully satisfy for being issued the certificate of eligibility for prize-winning electronic games business under the Decree 121 are harder. Remaining basic regulations as those in Decree 86, such as having tourist accommodation establishments of five-star class; having an area for arranging Business Location satisfying the conditions under regulations; having managers or operators for Business Location who satisfy the conditions and standards (graduated from university and having experience in managing and operating prize-winning electronic game business for more than 3 years), having a business plan, Decree 121 sets higher conditions in respect of the followings:
- Increasing the minimum charter capital from VND 200 billion to VND 500 billion and requiring that the profit of fiscal year preceding the year of application for the business eligibility certificate is gain;
- Increasing the storage time of electronic equipment and camera systems for constant monitoring and surveillance of all activities in the Business Location (24/24h) to at least 180 days from the date of recording and ensuring the clear image of all footage at the following locations: the entrance and exit area of the Business Location; the area where slot machines are located; cashier area, treasury for counting cash, conventional currency and storing equipment for cash and conventional currency. The previous regulations only required minimum storage period of 30 days for such areas and 15 days for others.
- The slot machines purchased or imported for operation shall be brand new, adhering to the technical specifications announced by manufacturers, and certified by an independent inspection organization from a state member of G7.
- Strictly regulating the number of slot machines to be licensed. The maximum rate of machines is still 1 machine per 5 accommodation rooms as per the previous regulations, but only counted on the accommodation rooms that have been put into operation.
3. Management of conventional currency
The mechanism for issuing and “registering” conventional currency with the Department of Finance and the tax authority in respect of its model, quantity, and type before putting it into business and re-registering this information upon changes has been replaced by a mechanism of “notifying” to the Department of Finance and the tax authority as the basis for issuing invoices to calculate the revenue of the enterprise. In addition, Decree 121 also annuls the provision on basic information that the conventional currency of enterprise must contain, subsequently, the conventional currency only needs to have its mark and signs for identification.
Regarding this new regulation, Decree 121 has simplified the conditions for the form and quality of the conventional currency as well as the procedures to apply this currency in operation. Furthermore, the enterprises also ease the burden of obtaining licenses or approvals issued by competent authorities on using conventional currency.
The payment for conventional currency under the provisions of Circular 09 remain unchanged in comparison with previous regulations. Players can pay by cash, transference from overseas accounts or from their foreign currency payment accounts opened at permitted banks in Vietnam to the operator’s specialized foreign currency accounts, or by credit card. These regulations seem very limited in consideration of the emerging of numerous non-cash payment methods currently.
4. Loosen deductible expenses
Regulations on accounting expenses for such business are loosen. Specifically, the cap of hiring management fees, which was previously limited to 4% of revenue, is no longer applied.
Decree 121 and its guiding regulations shall tighten state management on such conditional business on the one hand and create a more proper environment for businesses after satisfying all regulated conditions.