ON THE PURCHASE OF CORPORATE BONDS BY CREDIT INSTITUTIONS AND BRANCHES OF FOREIGN BANKS

1. Scope of regulation

a) This Circular deals with purchase of corporate bonds by credit institutions and branches of foreign banks within the teritory of the Socialist Republic of Vietnam;

b) This Circular does not deal with the purchase of bonds issued by credit institutions and branches of foreign banks, by Vietnam Asset Management Company or among credit institutions; purchase of forward corporate bonds or purchase of bonds with recourse at a discount; and purchase of bonds issued on the international market.

2. Regulated entities

a) Credit institutions and branches of foreign banks entitled to buy bonds (hereinafter referred to as eligible credit institutions) that are established and operate in accordance with the Law on credit institutions, including: Commercial banks; financial companies; branches of foreign banks;

b) Corporate bond issuers that are enterprises established and operating in the territory of the Socialist Republic of Vietnam in accordance with provisions of the Law on Enterprises and relevant law provisions, and issuing bonds for sale to eligible credit institutions in line with provisions of laws on the issuance of corporate bonds and laws on public securities offering;

c) Individuals and juridical persons other than credit institutions that are residents related to the purchase of corporate bonds as prescribed in this Circular.

For the purposes of this Circular, these terms below shall be construed as follows:

1. Corporate bond means a type of debt securities issued by an enterprise, which confirms the enterprise’s obligation to repay principal, pay interests and other liabilities (if any) to the bondholder.

2. Convertible bond means a type of bond issued by a joint-stock company, convertible to common stocks of the same corporate bond issuer in conformity with conditions as defined in the issuance plan of the enterprise.

1. The purchase of corporate bonds by credit institutions shall be performed in accordance with provisions of the Law on Credit Institutions, Law on Securities, Law on enterprises, this Circular and provisions of applicable laws.

2. The eligible credit institution must have a system of internal credit rating, including the credit rating of corporate bond issuers and issue an internal regulations on purchase of corporate bonds in accordance with this Circular and relevant law provisions, at least including:

a) Process and procedures for assessment and decision on purchase of corporate bonds; rules of decentralization and authorization in decision on or approval for purchase of corporate bonds; regulations on risk management in purchase of corporate bonds, ensure the publicity and transparency between the assessment and decision on purchase of corporate bonds;

b) Rules, assessment criteria of risk levels of buying corporate bonds pertaining to types of enterprises and corporate bonds;

c) Policies and limit for credit management, risk measurement and management system, conditions, measures and processes of risk settlement;

d) Internal control of purchase of corporate bonds.

3. The purchase of convertible corporate bonds shall be performed in accordance with provisions of the Law on Credit institutions and guidelines of the State Bank of Vietnam on capital contribution and stock purchase.

4. Currency used in purchase of corporate bonds shall be Vietnamese dong.

5. Credit institutions may not request loans from other credit institutions to buy corporate bonds.

1. Bonds that are issued in accordance with provisions of laws on the issuance of corporate bonds.

2. Bonds that are issued in accordance with provisions of laws on public securities offering, except for the case prescribed in Clause 3 Article 6 of this Circular.

1. Assess and verify the plan and conditions of corporate bond issuance to consider deciding the purchase of corporate bonds upon fully satisfying following requirements:

a) Regarding purchase of corporate bonds in the intitial offering (including the case that the credit institution buy the remaining corporate bonds which are not fully sold according to underwriting of corporate bond offering):

(i) Bonds are issued in compliance with provisions of laws;

(ii) The enterprise’s purposes of using proceeds from the corporate bond offering are legal and conformable with the issuance plan;

(iii) The corporate bond issuer has adequate financial capacity for paying the principal and interest of bonds on the maturity date as committed;

(iv) The corporate bond issuer commits to re-buy the bonds before their maturity in case where the enterprise violates provisions of laws on issuance of corporate bonds, or breaks the plan on issuance of corporate bonds.

b) Regarding repurchase of corporate bonds from juridical persons or individuals:

(i) Requirements prescribed in Point a of this Clause;

(ii) The corporate bonds are under ownership of the juridical persons or the individuals and no dispute, not put as collateral for other obligations and not on the date the principal is due to be paid; and permitted to be transacted as prescribed in applicable law provisions.

2. Enter into contracts of purchase of unlisted corporate bonds in accordance with relevant law provisions and the following regulations:

a) The corporate bond purchase contract which at least contain: Number of bonds, purchase price, total sum of bond purchase, interest rate of bonds; method of payment for the bond purchase sum; term and method of bond payment; actions against breaches of the bond purchase contract by contracting parties; and handling of dispute arising. Other agreements concluded by contracting parties in accordance with this Circular and relevant law provisions;

b) A secured contract for the case of purchasing secured bond is in line with provisions of laws on secured transactions.

3. Monitor or through an agent of bond issuance to monitor the use of proceeds from the issuance of bonds by the enterprise; in the event where the corporate bond issuer is found out not to use the proceeds from the issuance of bonds for the proper purposes as stated in the plan on issuance of bonds and commitment with the investors, then the credit institutions shall require the enterprise to re-buy the bonds before maturity.

4. Request the corporate bond issuer to make payment for the bonds upon maturity; in the event where the corporate bond issuer is unable to make payments for the bonds at maturity, the credit institution and foreign bank's branch shall dispose the secured asset for the bonds secured by assets, and ask the underwriter to perform the obligation of payment for the bonds that are underwritten for payment, and to prosecute the enterprise or the underwriter who breaks the commitments on bond payment.

5. Settle matters arising in the purchase of corporate bonds in accordance with provisions of applicable laws so as to ensure the recovery of principals and interests of the corporate bonds.

1. The total amount used to buy corporate bonds shall be charged to the total credit amount extended to a single customer, for a single customer and related person in line with provisions in Article 128 of the Law on Credit Institutions and applicable regulations of the State Bank of Vietnam on prudential limits and ratios of credit institutions.

2. The credit institutions shall stipulate in details the limits for purchase of corporate bonds: purchase of bonds issued by an enterprise; purchase of bonds issued by an enterprise and a related enterprise; purchase of secured corporate bonds and/or unsecured corporate bonds; purchase of corporate bonds for sale, for investment and for holding to maturity.

3. A foreign bank's branch shall not be authorized to buy convertible bonds.

1. Risk coefficient for total amount used to buy corporate bonds shall be in accordance with provisions of the State Bank on prudential ratios in operations of credit institutions.

2. Credit institution shall build up reserve fund and deal with risk for the outstanding debt of corporate bond purchase as follows:

a) For bonds that are already listed in the securities market or already registered in the trading market of unlisted public companies (UPCom), the credit institutions shall build up reserve fund for the reduction of bond price and deal with the fund in accordance with provisions of applicable laws and guidance of the Ministry of Finance on the regime of build up reserve fund against the reduction of financial investments' price;

b) For bonds that are not listed in the securities market yet or not registered in the trading market of unlisted public companies (UPCom), the credit institutions shall build up reserve fund against risk for outstanding debt of corporate bond purchase in accordance with regulations of the State Bank of Vietnam on the amount and methods of building up reserve fund and use of fund to deal with risks in the operations of credit institutions.

1. Do accounting of purchase of corporate bonds in accordance with regulations of the State Bank of Vietnam on accounting regime applicable to credit institutions.

2. Send reports on staticstic of purchase of corporate bonds in accordance with regulations of the State Bank of Vietnam on reporting regime applicable to credit institutions.

3. Keep records of corporate bond purchase in conformity with provisions of laws on keeping records of credit documents.

1. This Circular comes into force from August 15, 2016 and replaces Circular No. 28/2011/TT-NHNN dated September 1, 2011 on puchase of corporate bonds by credit institutions and branches of foreign banks.

2. Pursuant to provisions of this Circular and applicable laws, credit institutions shall issue their Regulations on purchase of corporate bonds and send to the Banking Inspection and Supervision Department immediately after the issuance thereof so that they shall be used as bases for the inspection and supervision over the purchase of corporate bonds by credit institutions, foreign bank's branches.

3. With respect to corporate bond purchase contracts concluded before the effective date of this Circular, credit institutions and customers may decide whether to keep execute those contracts or make necessary amendments in accordance with this Circular.

4. The Chief officers, the Director of the Financial policy department, Heads of affiates of the State Bank of Vietnam, Director of branches of the State Bank of provinces and central-affiliated cities, Presidents of the Board of Directors, Presidents of the Member assembly, General Directors (Directors) of credit institutions shall implement this Circular./.