(Bloomberg) -- Vietnam is weighing rules curbing the ability of retail investors to buy or trade private corporate bonds in a move to protect individuals from the sometimes risky and volatile debt market.
The draft amendment to the securities law would limit retail investors to buying and trading corporate bonds offered by companies with credit ratings that are backed with collateral, or whose payments are guaranteed by a credit institution, according to a statement posted on the Ministry of Finance’s website. The National Assembly will begin reviewing the proposal, which places no limits on institutional investors, this week.
The news website VnExpress earlier reported that the proposal called for completely banning retail investors from participating in the private corporate debt market.
The measure is part of an overall effort by the government to shore up the bond market after major fraud investigations risked undercutting investors’ faith in the sector.
The total amount of new bonds issued in 2022 and 2023 was 582 trillion dong ($22.9 billion), less than half the total in 2021, according the Vietnam Bond Market Association. The corporate bond market is showing signs of recovery with sales this year through Sept. 30 totaling 277.45 trillion dong, up 47% from the same period last year, according to the association.
The proposed tightening of the securities law aligns with international practices, according to a FiinRatings report assessing previously published proposals. Institutional investors have more experience and knowledge to manage higher risks associated with private corporate bonds, the ratings agency said.
Two years ago, the government began overhauling regulations by requiring companies to report how bond proceeds are used and government officials to closely monitor businesses issuing bonds under their subsidiaries.
The moves to beef up bond regulations followed scandals that unsettled markets.
In September, Do Anh Dung, chairman of hotel developer Tan Hoang Minh Group, was sentenced to seven years in prison for fraudulent appropriation of 8.6 trillion dong in bond sale proceeds.
Following his detention in April 2022, Prime Minister Pham Minh Chinh ordered the finance ministry and central bank to review corporate bond issuances by property firms as part of a sweeping probe of the market, leading to a widespread funding crunch as companies struggled to issue new bonds under the new rules or obtain loans.
In October 2022, police arrested Truong My Lan, chairwoman of real estate company Van Thinh Phat, in connection with an investigation into fraudulent bond issuances and trading. She was sentenced to death earlier this year for massive bank fraud, which she is appealing, and to life in prison in a second trial after being convicted of additional charges that included misappropriating about 30 trillion dong from investors via bond issuances.
(Updates with new details in the first three paragraphs.)
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