New decree hopes to protect holders of convertible bonds

Government Decree 84/2010/ND-CP, issued pursuant to the Law on Securities, is intended to help bond buyers calculate risk and to encourage companies to more responsibly honour their obligations.

Holders of convertible bonds previously faced short-term risks if the market price of an enterprise's shares fell below the conversion price.

"I think the decree is a good move because it draws clear legal borders and makes convertible bond issues more transparent," said Hoa Binh Securities Co deputy director Nguyen Huy Duong.

It also demonstrated the improvements in Government's and the State Securities Commission's control over the market, Duong said.

The decree has been issued at a time when the availability of bank credit is increasingly limited and convertible bonds are being regarded by enterprises as an alternative way to raise capital.

As of mid-July, about 17 listed firms had issued or planned to issue convertible bonds, most through private offerings or to strategic or institutional investors.

Convertible bond issues totalled about VND10 trillion (US$526.3 million) in the first six months of the year, with an average term of two years and a coupon of 8-10 per cent per year, according to Au Viet Securities Co.

Higher corporate bond coupons were increasingly attractive to investors since bank deposit interest rates now hovered at around 11.5 per cent per year.

Viet Nam Bond Market Association general secretary Do Ngoc Quynh forecasted that the growing medium- to long-term demand of enterprises would continue to drive the growing issue of corporate bonds.

Convertible bonds ensured interest to their holders even when stock prices fell, but when the prices of shares were relatively high, convertible bonds gave investors a chance to convert and invest in shares, Quynh said. — VNS