Vietnam’s Finance Minister Nguyen Van Thang has called for stricter rules on private placement bond issuance, proposing a cap that would bar companies with liabilities more than five times their equity from raising capital through this channel.
It would, however, exclude key sectors like real estate, banking, and insurance, The Investor has reported→view source.
Key details:
- Proposed cap: Firms with debt-to-equity ratios above 5:1 would be ineligible to issue bonds privately, under a new draft amendment to the Law on Enterprises.
- Exemptions: The limit would not apply to state-owned enterprises, real estate developers, banks, insurers, securities firms, or fund managers.
- Policy rationale: Minister Thang said the move is intended to prevent abuse and improve issuer transparency, adding that similar limits exist in other countries.
- Market concerns: Financial Committee Chair Pham Van Mai argued the proposal needs more flexibility, noting that most repayment defaults involve already-exempt real estate firms.
- Legislative status: A vote on the draft law is scheduled for June 17.
Analysis
The effectiveness of these changes may be limited unless broader structural risks—particularly in real estate—are also addressed.
Specifically, real estate firms have routinely relied on high leverage and opaque fundraising structures, often issuing bonds with inadequate disclosures or investor protections.
As a result, the majority of defaults and repayment issues in Vietnam’s bond market have originated from the real estate sector.
Despite their outsized role in past bond crises, however, these companies would not be subject to the 5:1 debt-to-equity rule under the current draft, undermining the goal of reducing systemic risk.