Luat Viet

:: Question :: Some enterprises have recently issued convertible bonds in the Stock Market. What is the convertible bond and conditions to issue convertible bonds ?

Answer:

According to Decree 52/2006/ND-CP on issuance of enterprise bonds ("Decree 52"), convertible bonds means a bond which may be converted into an ordinary share of the same issuing organization on terms stipulated in the plan for issuance. Convertible bonds may be secured or non-secured bonds.  

Bonds may be secured by the following forms: (a) Guarantee of payment by a financial or credit institution; (b) Guarantee by assets of the issuing organization; (c) Guarantee by assets of a third party.

The minimum par value of enterprise bonds shall be 100,000 Vietnamese dong. Other par values shall be multiples of 100,000 Vietnamese dong.

The time-limit for conversion of bonds shall be fixed by the issuing organization and publicly announced to investors upon issuance of bonds.

The enterprise issuing bonds shall make a decision on the bond interest rate for each issuing tranche. The bond interest rate may be set as a fixed rate for the whole term of the bonds or floated on the market. When bonds are issued with a floating interest rate, the issuing organization shall announce reference interest rates used as the basis for setting the interest rate payable to bondholders.

Interest on bonds shall be paid by the following methods: (a) Periodical payment of interest; (b) Payment of interest immediately on issuance; (c) One-off payment of interest together with principal upon maturity.

The bond conversion ratio shall be fixed by the issuing organization at the time of issuance. If at the time of bond conversion the share price fluctuation exceeds the range of fluctuation of share price announced at the time of issuance of the bonds, the enterprise owner shall have the right to make an appropriate adjustment to the bond conversion ratio.

Conditions to issue convertible bonds: (a) being a joint stock company; (b) operating for at least 01 year from the date on which the enterprise officially commenced operation; (c) having audited financial statements for the year immediately preceding the year of the issuance; (d) The production and business operation for the year immediately preceding the year of the issuance was profitable; (e) having a plan for issuance of bonds passed by the general meeting of shareholders.

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