Circular No. 29/2004/TT-BTC dated April 06, 2004 of the Ministry of Finance guiding the issuance under-writing and issuance agency for government bonds, government-underwritten bonds and local administrations' bonds

CIRCULAR

GUIDING THE ISSUANCE UNDER-WRITING AND ISSUANCE AGENCY FOR GOVERNMENT BONDS, GOVERNMENT-UNDERWRITTEN BONDS AND LOCAL ADMINISTRATIONS' BONDS

In furtherance of the Government's Decree No. 141/2003/ND-CP of November 20, 2003 on the issuance of Government bonds, Government-underwritten bonds and local administrations' bonds, the Finance Ministry hereby guides the issuance underwriting and issuance agency for Government bonds, Government-underwritten bonds and local administrations' bonds (collectively called bonds) as follows:

I. GENERAL PROVISIONS

1. Subject to the regulation of this Circular are issuing organizations, including: the State Treasury (which issues Treasury bonds, centrally-run works' bonds, local administrations' bonds under the authorization of the provincial-level People's Committees), the Development Assistance Fund (which issues investment bonds), enterprises (which issue Government-underwritten bonds), financial and credit institutions (issue local administrations' bonds under the authorization of the provincial-level People's Committees); issuance-underwriting organizations, issuance agents and other concerned organizations and individuals.

2. Bonds are issued and paid in Vietnam dong, in form of certificates or book entries, registered or bearer. The minimum bond denomination is VND 100,000 while other denominations are multiples of VND 100,000.

The Finance Ministry prescribes the contents of bond certificates for printing and distribution to investors by issuing organizations.

3. Bonds issued in each drive with the same date of issuance and the same date of payment may be listed and traded at the Securities Trading Centers (the Stock Exchange).

Government bonds and local administrations' bonds may be sold or purchased on the monetary market or discounted, rediscounted or pledged at the State Bank according to law provisions.

4. The Finance Ministry prescribes the ceiling interest rate in each period for the presidents of the provincial-level People's Committees, the general directors (directors) of the issuing organizations to select and decide on issuance interest rates.

5. Basing themselves on the bond issuance plans already approved by the Finance Ministry, the issuing organizations shall take initiative in deciding on the time of issuance suitable to capital use demands and market situation.

6. Interpretation of terms

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

6.1. Issuance underwriting means that the underwriting organizations assist the issuing organizations in carrying out procedures before issuing bonds into the securities market, distributing bonds to investors, undertake to purchase bonds for resale or to purchase the remaining bonds not yet distributed up.

6.2. Issuance agency means that the issuing organizations entrust other organizations to sell bonds to investors. In cases where bonds are not sold out, the issuance-underwriting organizations may return unsold bond volumes to the issuing organizations.

6.3. Issuance-underwriting conglomerate means a group consisting of two or more issuance-underwriting organizations which participate in the bond issuance underwriting under contracts between them.

6.4. Principal issuance-underwriting organizations mean organizations representing interests and obligations of underwriting conglomerates in bond issuance-underwriting activities with issuing organizations.

6.5. Principal issuance co-underwriters mean principal issuance underwriting organizations jointly representing the interests and obligations of underwriting conglomerates in bond issuance-underwriting activities with the issuing organizations.

6.6. Co-underwriters mean issuance-underwriting organizations in an issuance underwriting conglomerate, having equal interests and obligations in bond issuance-underwriting activities with issuing organizations.

II. SPECIFIC PROVISIONS

1. Types of bond issued by modes of issuance underwriting and issuance agency

1.1. Types of bond issued by mode of issuance underwriting include: Treasury bonds, centrally-run works' bonds, investment bonds, Government-underwritten bonds and local administrations' bonds.

1.2. Types of bond issued by mode of issuance agency include: Treasury bonds, Government-underwritten bonds and local administrations' bonds.

2. Eligible subjects, conditions for and recognition of members participating in bond issuance underwriting or bond issuance agency

2.1. Eligible subjects and conditions:

Eligible subjects participating in bond issuance underwriting or agency are securities companies, investment funds, financial companies, banks and other financial institutions approved by the Finance Ministry.

Organizations participating in bond issuance underwriting or agency must fully satisfy the following conditions:

a/ Having the legal person status, being lawfully established or operating according to the current laws of Vietnam;

b/ Having a minimum legal capital of VND 22 billion;

c/ Earning profits from business operations in the year preceding the year of application for recognition of issuance underwriting members or issuance agents (except for newly established organizations);

d/ Having Vietnam-dong accounts opened at banks.

2.2. Recognition of issuance underwriting members and issuance agents

Organizations wishing to participate in bond issuance underwriting or issuance agency must each submit to the Finance Ministry the following documents:

- An application for participation in bond issuance underwriting or agency (made according to a set form);

- A notarized copy of the business registration certificate or business license;

- Banks' certification of accounts opened;

- The audited financial statement of the latest year (except for newly established organiza-tions);

- Other relevant documents.

Within 15 days after fully receiving lawful and valid dossiers, the Finance Ministry shall recognize in writing or refuse to recognize members participating in bond issuance underwriting and agency.

The list of members participating in bond issuance underwriting and agency of a year shall be announced before December 15 of the preceding year.

3. Bond issuance underwriting

3.1. Bond selling modes

Bonds issued by mode of issuance underwriting shall be sold by the following modes

a/ Mode of denomination parity

- For bonds with their principals and interests paid in lump sums upon their maturity:

+ Bond selling prices are equal to 100% of their denominations

+ Bond payment amount upon their maturity is calculated according to the following formula:

T = MG x (1 + Ls)n

In which:

T: Total (principal and interest) amount to be paid

MG: Bond denomination

Ls: Bond interest rate (%/year)

n: Bond term (years)

- For bonds with their interests paid periodically:

+ Bond selling prices are equal to 100% of their denominations

+ Periodically paid interest amount is calculated according to the following formula:

Ls
L = MG x
k

In which:

L: Interest amount to be periodically paid

MG: Bond denomination

Ls: Bond interest rate (%/year)

k: Times of interest payment in a year

+ Upon bond maturity, bond owners is paid the principals equal to bond denominations and interest amount of the last interest payment period.

b/ Mode of discount:

- Bond selling prices are determined according to the following formula:

MG
G =
(1+ Ls)n

In which:

G: Bond selling price

MG: Bond denomination

Ls: Bond interest rate (%/year)

n: Bond term (years)

- Upon bonds' maturity for payment, payments shall be made equal to bonds denominations.

3.2. Procedures for underwriting the bond issuance

a/ Notification of contents of bonds to be issued

- At least 20 days before the date of bond issuance, the issuing organizations shall send "notices on bond issuance contents" (made according to a set form) to members participating in the bond issuance underwriting.

- Basing themselves on notices of the issuing organizations, members participating in the issuance underwriting shall probe the possibility of investors to purchase bonds in form of subscription (made according to a set form).

b/ Registration of underwriting and selection of issuance underwriting organizations

- At least 10 days before the date of bond issuance, basing themselves on the investors' subscriptions for bond purchase, the members participating in the issuance underwriting shall send their "registrations of bond issuance underwriting (made according to a set form) to the issuing organizations for use as basis for consideration and selection of underwriting structures and issuance underwriting organizations.

- The issuance underwriting structure shall be decided for each issuance drive in one of the following forms:

+ One underwriting organization or several issuance co-underwriting organizations;

+ Issuance underwriting conglomerate consisting of one underwriting organization or several principal issuance co-underwriting organizations.

- Organizations to be selected to underwrite bond issuance are those having at least 50% of the bond value they underwrite to be distributed to investors; offer issuance underwriting interest rates and charges lower than those offered by other underwriting-registering organizations and within the ceiling interest rate and issuance underwriting charge rate prescribed by the Finance Minister. The selection of issuance-underwriting organizations must ensure the principle of keeping at the lowest level the bond issuance expenses (including interest rate and underwriting charge).

c/ Agreement on conditions and signing of issuance underwriting contracts

- At least 7 days before the issuance date, the issuing organization shall hold a meeting to reach agreements with members selected to underwrite the issuance on the contents related to the bond issuance drive, including: Interest rate, underwriting charge, bond volume to be underwritten, minimum bond volume which must be distributed to investors, bond selling mode and other relevant matters.

- Basing itself on agreements with issuance- underwriting organizations, the issuing organization shall sign "bond issuance underwriting contract" (made according to a set form) with the sole issuance-underwriting organization or each co-underwriting organi-zation or the principal issuance-underwriting organization or each principal issuance co-underwriting organization. Issuance-underwriting organizations must commit in the bond issuance-underwriting contracts to distribute at least 50% of underwritten bond prices to investors.

d/ Notification of official contents of bond issuance drives

At least 5 days before the date of bond issuance, basing themselves on "bond issuance underwriting contracts," the issuing organizations and the issuance-underwriting organizations shall coordinate with the Securities Trading Centers (the Stock Exchange) in posting up "bond issuance notices" (made according to a set form, not printed herein) on the securities market.

e/ Distribution of bonds to investors

Basing themselves on bond issuance notices and bond issuance underwriting contracts already signed with the issuing organizations, the issuance-underwriting organizations shall distribute bonds they underwrite to investors.

f/ Transfer of underwritten bond money amounts

- On the date of bond issuance, the issuance-underwriting organizations must transfer the whole money amount of bonds they underwrite under contracts into accounts of the issuing organizations.

- In cases where the issuance-underwriting organizations delay the transfer of money amounts to the issuing organizations, they shall be fined for late payment. Late payment fine is determined according to the following formula:

(St x Ls x 150%) x n
P =
365

In which:

- P: Late payment fine amount

- St: Late paid amount

- Ls: Bond interest rate (%/year)

- n: Number of late payment days

If past 5 days after the issuance date, the issuance-underwriting organizations still fail to pay fully the underwritten bond money amounts, the issuing organizations shall cancel the issuance of the unpaid bond volume and the issuance-underwriting organizations shall be imposed a fine equal to 5% of the amount unpaid to the issuing organizations.

- Fines for late payment and fines for cancellation of bond issuance shall be remitted into the State budget (for Treasury bonds and centrally-run works' bonds), or local budgets (for local administrations' bonds) or issuing organi-zations (for investment bonds and Government-underwritten bonds).

g/ Delivery of bonds

- Newly issued bonds shall be in form of book entries. Basing themselves on the list and bond purchase amounts of investors sent by issuance-underwriting organizations, the issuing organizations shall deliver bond ownership certificates (made according to a set form) to the issuance-underwriting organizations. At the investors' requests, the issuance-underwriting organizations shall forward the list and bond ownership certificates to custody organizations (member securities companies and commercial banks licensed by the State Securities Commission for custody operations) for re-custody at the Securities Trading Centers (the Stock Exchange).

- In cases where investors wish to receive bond certificates, the custody organizations where bond owners open accounts shall request the Securities Trading Centers (the Stock Exchange) to notify such to the issuing organizations for granting of certificates. Basing themselves on certificates delivered by the issuing organizations, the Securities Trading Centers (the Stock Exchange) shall record the reduction of book-entry bond volume and hand over such certificates to bond owners through the custody members.

4. Bond issuance agents

4.1. Bond selling modes:

Bonds issued through agents shall be sold by the following modes:

a/ Mode of denomination parity

By this mode, money amounts paid by bond purchasers to bond issuance agents shall be equal to bond denominations. Bond issuance date shall be the date the agency organizations receive money from bond purchasers or receive credit notices from banks (for case of bond purchase with account transfers).

b/ Mode of selling bonds at prices higher or lower than their denominations:

- Sale of bonds at prices higher than denominations:

This mode shall apply in cases where the actual bond sale date follows the bond issuance date. The formula for calculating bond selling prices is as follows:

MG x Ls x n
G = MG + (1)
365

In which:

G: Bond selling price

MG: Bond denomination

Ls: Bond interest rate (%/year)

n: Number of days counting from the issuance date to the actual purchase date

- Sale of bonds at prices lower than denominations:

This mode shall apply in cases where the actual bond sale date precedes the bond issuance date. The formula for calculating bond selling prices is as follows:

MG x Ls x n
G = MG - (2)
365

In which:

G: Bond selling price

MG: Bond denomination

Ls: Bond interest rate (%/year)

n: Number of days counting from the actual purchase date to the issuance date

Bonds issued by mode of sale at prices higher or lower than their denominations in the same issuance drive have the same date of issuance and date of payment maturity. In cases where the issuance date is the sale date, the bond-selling prices shall be equal to the bond denominations.

4.2. The bond interest payment modes:

The payment of interests of bonds issued by both selling modes (denomination parity and sale at prices higher or lower than denomina-tions) shall be effected by the following modes:

a/ Periodical interest payment: Bond interests shall be paid on the dates specifically determined upon their issuance. Upon the payment maturity, bond owners shall have bond principals and the last period's interests paid.

b/ Payment of interests right at the time of issuance: Interests shall be paid right at the time of issuance and deducted from the bond-selling prices. For sale of bonds at prices higher or lower than their denominations, the interests deducted from bond-selling prices shall be determined according to above-said formula (1) or (2).

c/ Payment of interests in lump sums together with principals upon maturity.

4.3. Procedures for bond issuance agency

a/ Selection of organizations to act as bond issuance agents

Basing themselves on bond issuance plans, the issuing organizations shall notify tentative contents of a bond issuance drive to agency organizations so that the latter can register for acting as agents.

On the basis of registration results, the issuing organizations shall select organizations which satisfy the conditions for distributing bonds and offer lower issuance agency commission rates within the prescribed issuance commission rate to act as bond issuance agents. The selection of agents must ensure the principle of keeping bond issuance expenses at the lowest level.

b/ Signing of bond issuance agency contracts

At least 5 days before the first day of a bond issuance drive, the issuing organizations shall sign "bond issuance agency contracts" (made according to a set form) with the issuance agency organizations.

c/ Notification of contents of bond issuance drives

At least 3 days before the bond issuance date, the issuing organizations shall send "bond issuance notices" (made according to a set form) to issuance agency organizations and publicize them on the mass media.

d/ Delivery of bonds

- Issuing organizations shall deliver to issuance agency organizations the quantity of bond certificates or bond ownership certificates corresponding to the volume of bonds the issuance agency organizations contract to sell right after the date of signing bond issuance agency contracts.

- During the bond issuance time, the issuance agency organizations shall be responsible for safe-keeping of bond certificates and bond ownership certificates.

- Upon the conclusion of an issuance drive, the issuance agency organizations shall organize the inventory of unused bond certificates and bond ownership certificates and return them to the issuing organizations. In cases where the issuance agency organizations lose or misplace bond certificates and bond ownership certificates, they must compensate the issuing organizations with amounts equal to the principals plus (+) interests of lost or misplaced bonds upon their payment maturity.

e/ Transfer of bond sale proceeds

- The transfer of bond sale proceeds shall be made once every five working days. At the end of the 5th working day, basing themselves on the bond sale lists (made according to a set form), the issuance agency organizations shall transfer the whole proceeds from the sale of bonds within these 5 days to the issuing organizations.

- In cases where issuance agency organizations delay the transfer of bond sale proceeds to issuing organizations, they shall be fined for late payment. Late payment fine amount is determined according to the following formula:

(St x Ls x 150%) x n
P =
365

In which:

- P: Late payment fine amount

- St: Late paid amount

- Ls: Bond interest rate (%/year)

- n: Number of days of late payment

- Late payment fine amounts shall be remitted into the central budget (for Treasury bonds), local budgets (for local administrations' bonds), or enterprises (for Government-underwritten bonds).

5. Payment of bonds issued by issuance underwriters and issuance agents upon their maturity

5.1. For non-custody bonds

The payment of bond principals and interests shall be made at the issuing organizations or agents entrusted by the issuing organizations to make payments. One working day before the date of maturity for principal and interest payment, financial agencies (at the central or local levels); the Development Assistance Fund, financial and credit institutions issuing investment bonds, enterprises issuing Government-underwritten bonds shall carry out the procedures for transferring money to the State Treasury (for types of bond issued by the State Treasury) or payment agents for payment to bond owners.

5.2. For custody bonds:

The payment of bond principals and interests shall be made at bond custody organizations. One working day before the date of maturity for principal and interest payment, financial agencies (at the central or local levels); the Development Assistance Fund, financial and credit institutions and enterprises which issue bonds shall carry out the procedures for transferring money to the Securities Trading Centers (the Stock Exchange) for direct payment by custody organizations to bond owners.

5.3. Repurchase of immature bonds

In case of necessity, issuing organizations may repurchase immature bonds. The repurchase of immature bonds must be approved in writing by the Finance Ministry.

6. Bond issuance and payment expenses

6.1. Payment sources

a/ The central budget covers issuance and payment expenses for Treasury bonds and centrally-run works' bonds;

b/ Local budgets cover issuance and payment expenses for local administrations' bonds;

c/ The Development Assistance Fund, financial and credit institutions cover issuance and payment expenses for investment bonds;

d/ Enterprises cover issuance and payment expenses for Government-underwritten enterprise bonds.

6.2. Bond issuance and payment charge rates

a/ The bond issuance underwriting charge rate is at most equal to 0.15% of the underwritten bond value.

b/ The bond issuance agency commission rate is at most equal to 0.1% of the value of bonds already sold to investors.

c/ The bond payment agency commission rate is equal to 0.1% of the total actually paid principal and interest amount.

d/ Expenses for printing bond certificates shall be paid to printing agencies under contracts.

e/ Expenses for transferring bond principals and interests into accounts at the bond owners' requests shall be paid by such bond owners and equal to the charge rate for payment via the banking system.

7. Responsibilities of issuance-underwriting organizations and issuance agency organizations

7.1. To distribute and sell bonds to investors strictly according to bond issuance-underwriting contracts and bond issuance agency contracts already signed with the issuing organizations.

7.2. Issuance-underwriting organizations shall report on bond sale results (reports are made according to a set form, not printed herein) to issuing organizations within the time limits prescribed by the issuing organizations.

7.3. To manage books and carry out the procedures for bond registration, custody and listing at the Securities Trading Centers (the Stock Exchange) according to the regulations.

III. ORGANIZATION OF IMPLEMENTATION

1. This Circular takes effect 15 days after its publication in the Official Gazette.

2. The ministers, the heads of the ministerial-level agencies, the heads of the Government-attached agencies, the presidents of the People's Committees of the provinces and centrally-run cities, the general directors (directors) of issuing organizations and the heads of the concerned units shall have to strictly comply with the guidance in this Circular.