A new governmental regulation on the issuance of corporate bonds is expected to give enterprises better access to public capital and facilitate the development of the nation's fledging capital market, said the director of the finance ministry's Finance and Banking Department, Pham Phan Dung.

Scheduled to come into effect on July 1, the new decree supersedes Decree 120/CP, which regulated the issuance of State-owned enterprises bonds and shares for more than 10 years ago.

The previous decree has proven to be ineffective, given the modest progress of the country's corporate bond market, said Dung.

He said newly-issued Decree 52/2006 would also reduce the pressure on banks to provide credit services, and responds to growing concern in the sector of increased risks associated with an overwhelming demand for capital among enterprises.

Recent statistics released by the ministry revealed a total of VND5.4tril (US$337.5mil) has been mobilised from corporate bonds, which it said falls far short of actual demand for capital.

"To pump more capital into business, enterprises have to rely on bank loans. Many projects therefore face problems raising long-term capital, and their credit risks increase," said the director.

Decree 120 was widely criticised for its outdated issuance model, for not conforming with international standards and market rules, and for a lack of transparency, he said.

"The decree's regulations on interest rates is bureaucratic, and thus discouraged enterprises from moving forward. The conditions for issuing bonds were too stringent. For example, the decree stipulated enterprises must post 3 years of consecutive profits before being permitted to have a bond issuance," he added.

The previous decree also stated corporate bond issuances must be underwritten by a credit institution. "As a result, only 10 enterprises have issued bonds since 1994," said Dung.

Under the new Decree 52/2006, joint-stock companies, State-owned enterprises being restructured into limited liability companies, and foreign invested companies operating in Vietnam would be eligible to issue bonds.

The decree stipulates that enterprises would be fully responsible for issuing the bonds and making subsequent bond payments, and states capital raised from bonds should only be used for investment projects, resettlement of long - and medium-term loans, and raising operational capital. Bond issuances must also be executed in a transparent manner guaranteeing the rights of investors.

To be eligible, companies will have to satisfy conditions of operating for at least one year, file an audited financial report demonstrating profitable operations in the previous year, and seek approval from relevant authorities of their issuance plan.

(Source: Viet Nam News)