Proposed new guidance on covered warrants

(Chinhphu.vn) - The Ministry of Finance is drafting a Circular providing guidance on secured warrants.

Ministry of Finance proposes new guidance on covered warrants

The draft proposes regulations on covered warrants (warrants); underlying securities of warrants; limits on offering, trading, payment, and exercise of warrants; types of exercise and methods of exercise of warrants; adjustment of warrants; market-making activities, risk prevention, protection of rights of warrant holders; reporting, information disclosure, and other activities related to warrants.

General provisions on warrants

Warrant type: call warrant.

Warrant type: warrant whose owner can only exercise the right on the expiration date.

According to Securities Law No. 54/2019/QH14, warrants are a type of security issued together with the issuance of bonds or preferred shares, allowing the warrant holder the right to buy a certain number of common shares at a predetermined price within a specified period of time.

Covered warrants are a type of security with collateral issued by a securities company, allowing the owner the right to buy (call warrant) or sell (put warrant) underlying securities with the organization issuing the covered warrant at a predetermined price, at or before a predetermined time, or to receive the difference between the exercise price and the price of the underlying securities at the time of exercise.

Warrant exercise method: warrants are paid in cash.

Warrant term: calculated from the date of issue to the maturity date, minimum 03 months and maximum 02 years. In which, the issue date is the date when the registration to buy warrants begins according to the announcement of the issuer in the issuance announcement.

Registration price for offering warrants: minimum is 1,000 VND/warrant.

The minimum number of warrants registered for offering is 1,000,000 units and is a multiple of 10.

The name of the warrant must not be identical or confusing with other types of issued securities, must be written in Vietnamese, may be accompanied by numbers and symbols, must be pronounceable and have at least the following elements: The phrase "warrant" followed by the abbreviated name of the underlying security and the abbreviated name of the issuing organization; the term of the warrant.

Underlying securities of warrants

According to the draft, the issuing organization is only allowed to offer warrants based on underlying securities that are securities in the list of securities that meet the conditions for offering warrants; it is not allowed to offer warrants based on the shares of the issuing organization itself and the securities of organizations that are related to the issuing organization as prescribed in the Law on Securities.

The underlying securities of warrants are stocks listed on the Stock Exchange that meet the following criteria:

- Belong to VN30 or HNX30 index;

- Average daily capitalization value in the last 6 months up to the date of data review is from 5,000 billion VND or more;

- The total trading volume in the last 6 months up to the date of closing the data for consideration must reach at least 25% of the average number of freely transferable shares in the last 6 months, in which: the average number of freely transferable shares in the last 6 months = (number of freely transferable shares at the beginning of the 6 months + number of freely transferable shares at the end of the 6 months)/2; or the average daily trading value in the last 6 months up to the date of closing the data for consideration is from 50 billion VND/day or more;

- The ratio of freely transferable shares at the date of data review is from 20% or more;

- Listing period of 06 months or more up to the time of review. In case the stock changes listing floor, the listing period is calculated as the total listing period on both Stock Exchanges;

- The business performance of the underlying securities issuer is profitable and has no accumulated losses based on the most recent financial statements up to the time of review, including audited annual financial statements or reviewed semi-annual financial statements or audited by an auditing organization approved to conduct audits for public interest entities in the securities sector;

- Not being under warning, control, restricted trading, suspended trading, suspended trading, or delisted according to the regulations of the Stock Exchange.

The data cut-off date is the last trading day of March, June, September and December of the year.

Warrant offering limit

The draft clearly states that the total limit allowed to be issued for each underlying security is the number of shares converted from issued warrants of all issuing organizations not exceeding 10% of the total number of freely transferable shares of the underlying securities issuing organization. Number of shares converted from warrants = Number of warrants/Conversion ratio.

Remaining limit allowed to be offered for each underlying security:

Remaining limit allowed to be offered for each underlying security = Total limit allowed to be issued for each underlying security – Number of shares converted from issued warrants.

In case there are multiple registration dossiers for offering warrants on the same underlying security at the same time, leading to exceeding the remaining permitted offering limit for the underlying security, the State Securities Commission shall issue a Certificate of registration for offering covered warrants to the issuer with the first valid registration dossier.

Limit on the number of shares converted from registered warrants offered in an offering by an issuer: not exceeding 1.5% of the total number of freely transferable shares of the underlying securities issuer.

Value limit of registered warrants for sale

The total value of issued warrants (excluding the number of warrants that have been delisted or expired) and the value of registered warrants offered by an issuer compared to the available capital value of that issuer must not exceed the following levels: (*)

- 0% for issuers with available capital ratio from 180% to 250%;

- 5% for issuers with available capital ratio above 250% to 300%;

- 10% for issuers with available capital ratio of over 300% to 450%;

- 15% for issuers with available capital ratio above 450% to 600%;

- 20% for issuers with a capital adequacy ratio above 600%.

The available capital ratio for considering the limit specified in (*) above is the lowest available capital ratio of the 6 most recent months immediately preceding the month of submitting the application for registration of the warrant offering, based on the monthly financial safety ratio report of the issuer sent to the State Securities Commission.

The total value of issued warrants specified in (*) above is calculated as follows:

Total value of issued warrants = Offering price (for unlisted warrants) x Number of unlisted warrants + Closing price of warrants on the most recent trading day (for listed warrants) × Number of listed warrants.

In case the warrant transaction price has not been established, the warrant value is calculated according to the offering price.

The warrant offering price is determined as follows:

For first-time warrants: The offering price is announced by the issuer in the Warrant Issuance Notice.

For additional warrants: The closing price of the warrant on the trading day immediately preceding the date of announcement of the Warrant Issuance Notice.

The total value of the registered warrants for sale specified in (*) above is calculated by multiplying the registered offering price by the number of registered warrants for sale; in which the registered offering price of the warrants is determined as follows:

For warrants registered for initial offering: The issuer may register a specific offering price or register a range of warrant offering prices (including the expected highest offering price and the expected lowest offering price). In case the issuer registers a range of warrant offering prices, the registered offering price to calculate the total value of the warrant is the expected highest offering price.

For additional registration warrants: The closing price of the warrant on the trading day immediately preceding the date of submission of the registration dossier for additional registration.

Reduce the limit of offering warrants

For each time an issuer is warned for not complying with the risk prevention plan as prescribed in Point c, Clause 8, Article 10 of this Circular, the issuer shall have its limit on the number of shares converted from registered warrants offered in subsequent offerings of an issuer reduced by 25% for subsequent registrations within 3 months.

In case the issuer is warned more than 03 times within the last 03 months, the issuer is not allowed to offer warrants for sale within 06 months from the last warning.

The draft clearly states that when offering warrants, the issuing organization must comply with the regulations on the warrant offering limit. The warrant offering limit prescribed in this Article shall be applied during the time the State Securities Commission reviews the registration dossier for offering covered warrants to the public.

The Ministry of Finance is soliciting comments on this draft on the Ministry's Electronic Information Portal./.

Source: https://baochinhphu.vn/de-xuat-huong-dan-moi-ve-chung-quyen-co-bao-dam-102251010183755197.htm