Circular No. 28/2011/TT-NHNN dated September 01, 2011 of the State Bank of Vietnam providing for the purchase of enterprise bonds by credit nstitutions, foreign bank's branches

THE STATE BANK OF VIETNAM

Circular No. 28/2011/TT-NHNN of September 1, 2011, providing for the purchase of corporate bonds by credit institutions and foreign bank branches

Pursuant to June 16, 2010 Law No. 46/2010/QH12 on the State Bank of Vietnam;

Pursuant to June 16, 2010 Law No. 47/2010/QH12 on Credit Institutions;

Pursuant to the Government’s Decree No. 96/2008/ND-CP of August 26, 2008, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

The State Bank of Vietnam provides for the purchase of corporate bonds by credit institutions and foreign bank branches as follows:

Article 1. Scope of regulation and subjects of application

1. Scope of regulation

a/ This Circular provides for credit institutions’ and foreign bank branches’ purchase of corporate bonds issued for the first-time sale to purchasers on the primary market in the territory of the Socialist Republic of Vietnam (below referred to as purchase of corporate bonds), including credit institutions’ purchase of quantities of corporate bonds not yet sold up to purchasers according to corporate bond issuance underwriting commitments.

b/ This Circular does not provide for the purchase and sale of bonds issued by credit institutions and foreign bank branches; redemption and resale of corporate bonds among credit institutions and foreign bank branches themselves; redemption and resale of corporate bonds between credit institutions and foreign bank branches and individuals and organizations other than credit institutions and foreign bank branches; and purchase and sale of bonds issued on the international market.

2. Subjects of application

a/ Commercial banks, financial companies and foreign bank branches established and operating under the Law on Credit Institutions.

b/ Enterprises established and operating in the territory of the Socialist Republic of Vietnam under the Law on Enterprises and issuing bonds (bond issuers) for the first-time sale to purchasers under regulations on issuance of corporate bonds and public offering of securities.

Article 2. Interpretation of terms

In this Circular, the terms below are construed as follows:

1. Corporate bond means a type of debt securities issued by an enterprise, which certify the enterprise’s obligation to pay both bond principal and interest towards bond owners.

2. Convertible corporate bond means a type of bond which may be converted into common stocks of the bond issuer under law and conditions already specified in the bond issuer’s bond issuance plan.

Article 3. Principles of corporate bond purchase

1. Credit institutions’ and foreign bank branches’ purchase of corporate bonds complies with the Law on Credit Institutions, the Law on Securities, the Law on Enterprises, this Circular and relevant laws.

2. The outstanding debt of corporate bond purchase shall be included in the outstanding credit according to regulations of the State Bank of Vietnam in each period.

3. The purchase of convertible corporate bonds must comply with the Law on Credit Institutions and the State Bank of Vietnam’s guidance on capital contribution and share purchase.

4. The currency used in corporate bond purchase transactions is Vietnam dong.

Article 4. Types of corporate bonds which can be purchased by credit institutions and foreign bank branches

1. Bonds issued under regulations on issuance of corporate bonds.

2. Bonds issued under regulations on public offering of securities.

Article 5. Conditions for credit institutions and foreign bank branches to purchase corporate bonds

Credit institutions and foreign bank branches may purchase corporate bonds when fully meeting the following conditions:

1. Being commercial banks, financial companies or foreign bank branches established and operating under the Law on Credit Institutions.

2. Their State Bank of Vietnam-granted establishment and operation licenses have a content on purchase of corporate bonds.

3. They comply with safety ratios in operations of credit institutions and foreign bank branches under regulations of the State Bank of Vietnam.

4. They have an internal system of credit rating and conduct internal credit rating, including credit rating of bond issuers.

5. They issue regulations on purchase of corporate bonds in accordance with this Circular and relevant laws, including the order and procedures for appraising and deciding on purchase of bonds; responsibilities and competence of persons and units to approve and decide on purchase of bonds; types and characteristics of bonds they can purchase; conditions for corporate bonds they can purchase; credit management policies and limits; risk measurement and administration systems, risk handling measures and processes; compliance with safety ratios in business operations; and internal control of bond purchase activities.

Article 6. Responsibilities of credit institutions and foreign bank branches

1. To appraise and examine bond issuers’ bond issuance plans and conditions in order to consider and decide to purchase corporate bonds when the following conditions are fully met:

a/ Bonds are issued in accordance with law.

b/ The purpose of use of proceeds from bond issuance is lawful and compliant with the bond issuer’s production and business line and sector.

c/ Bond issuers are financially capable for paying bond principals and interests on time as committed.

d/ Bond issuers are committed to redeeming premature bonds in case they violate regulations on issuance of corporate bonds or breach corporate bond issuance plans.

2. To carry out bond purchase procedures and sign bond purchase contracts under regulations on civil transactions and this Circular:

a/ A bond purchase contract with the following details: quantity of purchased bonds, purchase price, total amount of money for bond purchase, bond interest rate; mode of bond issuance; mode of payment for purchased bonds; time limit for and mode of bond payment; bond payment security (if any); the bond issuer’s commitment to issue and pay for bonds or redeem premature bonds in case it violates regulations on issuance of corporate bonds or breaches the corporate bond issuance plan; rights of the credit institution or foreign bank branch to supervise and request the bond issuer to fulfill its commitments on bond issuance and payment; handling of the credit institution or foreign bank branch and bond issuer for their breaches of the bond purchase contract; and other agreements between the credit institution or foreign bank branch and the bond issuer.

b/ A security contract, in case of purchase of secured bonds, under regulations on security transactions.

3. To supervise the bond issuer’s use of proceeds from bond issuance; if detecting that the bond issuer uses proceeds from bond issuance not according to the purpose indicated in the bond issuance plan and not as committed with investors, to request the bond issuer to redeem premature bonds. Not to purchase the bond issuer’s bonds in the subsequent drives of issuance under such bond issuance plan.

4. To request the bond issuer to pay for mature bonds; if the bond issuer is incapable of paying for mature bonds, to deal with security assets for asset-secured bonds, request bond payment underwriters to pay for underwritten bonds, and initiate lawsuits against the bond issuer or bond payment underwriters that breach bond payment commitments.

5. To handle problems arising in the course of purchasing corporate bonds in accordance with relevant laws so as to recover corporate bond principals and interests.

Article 7. Corporate bond purchase limits

1. The total investment in corporate bonds shall be included in the total outstanding credit debt for a client or for a client and related persons under Article 128 of the Law on Credit Institutions and relevant regulations of the State Bank of Vietnam.

2. Credit institutions and foreign bank branches shall specify corporate bond purchase limits: purchase of bonds of a single bond issuer; purchase of bonds of a single bond issuer and a bond-issuing related enterprise; purchase of secured or non-secured corporate bonds; and purchase of corporate bonds for sale, investment and keeping until their maturity date.

3. Foreign bank branches are not allowed to purchase convertible bonds.

Article 8. Risk ratio, setting-up of risk provisions and handling of risks for outstanding debt of purchased corporate bonds

1. The risk ratio for the outstanding debt of purchased corporate bonds complies with the State Bank of Vietnam’s regulations on safety ratios in operations of credit institutions.

2. Credit institutions and foreign bank branches shall set up risk provisions and handle risks for the outstanding debt of purchased corporate bonds as follows:

a/ For bonds already listed on the securities market or registered for trading on the listed public companies market (UPCom), credit institutions and foreign bank branches shall set up bond investment price decrease provisions and deal with such provisions under law and the Finance Ministry’s guidance on the setting-up and use of financial investment price decrease provisions.

b/ For bonds not yet listed on the securities market or not yet registered for trading on the listed public companies market (UPCom), credit institutions and foreign bank branches shall set up risk provisions for the outstanding debt of purchased corporate bonds under regulations of the State Bank of Vietnam.

Article 9. Cost-accounting, making statistics, reporting, and preservation of corporate bond purchase files

1. To conduct cost-accounting for purchased corporate bonds under the law on the accounting regime of credit institutions.

2. To make statistics and send monthly reports on purchase of corporate bonds (made according to the forms provided in Appendices 01 and 02 to this Circular - not printed herein) to the State Bank of Vietnam on the 12th of the month following the reporting month at the latest.

3. To preserve corporate bond purchase files under regulations on archival of credit files.

Article 10. Organization of implementation

1. This Circular takes effect on October 20, 2011.

2. Pursuant to this Circular and relevant laws, credit institutions and foreign bank branches shall issue regulations on purchase of corporate bonds and promptly send these regulations to the Banking Inspection and Supervision Agency for inspection and supervision of their purchase of corporate bonds.

3. Corporate bonds purchased by credit institutions and foreign bank branches before the effective date of this Circular are allowed to be in circulation until their maturity date.

4. The Chief of the Office, the director of the Monetary Policy Department and heads of units under the State Bank of Vietnam, directors of the provincial-level State Bank branches, chairpersons of boards of directors and members’ councils, directors general (directors) of credit institutions, and related organizations and individuals shall implement this Circular.-

For the State Bank Governor
Deputy Governor
NGUYEN DONG TIEN