Liquidation of mortgaged assets to collect bond investment debt: Bondholders are helpless

The legal process to liquidate assets and repay creditors is often lengthy, so many bondholders grit their teeth and accept the extension or postponement of bond debt instead of choosing to liquidate the secured assets.

The legal process to liquidate assets and repay creditors is often lengthy, so many bondholders grit their teeth and accept the extension or postponement of bond debt instead of choosing to liquidate the secured assets.

The amended Securities Law was passed by the National Assembly on November 29, 2024, officially taking effect from January 1, 2025.

“We believe that these amendments are beneficial to bondholders by preventing violations from bond issuers, restricting high-risk investment activities, and mandating timely disclosures and credit ratings to improve market discipline,” said VIS Rating analysts.

The amended provisions of the Law bind the obligations of bond issuers and intermediaries in the corporate bond market, specify the authority of the regulatory agency to intervene in the market, set out new requirements for the issuance of bonds to the public and classify individual bonds in which individual investors can invest.

Compared to the current law, the new amendments clearly define the roles and responsibilities of each party involved in public and private bond issuance, including consulting, auditing, and credit rating agencies.

The new law requires these entities to comply with all applicable laws and regulations and provide services honestly and responsibly.

In addition, the State Securities Commission will have the right to enforce the law against any violations that may harm investors, such as when issuers fail to disclose necessary information to investors.

Under various regulations implemented in the last two years, bond issuance dossiers must include a list of detailed information to be disclosed to investors.

The new Securities Law continues to focus on improving market transparency and protecting investors’ interests. In addition to enhancing information transparency, the new law will prevent high-risk investment activities by individual investors.

First, high-risk companies will be restricted from issuing bonds to the public; issuers will have to comply with stricter criteria, such as debt-to-equity ratios, bondholder representative requirements, and regulatory credit ratings.

Second, for private placements, private placements are no longer distributed and sold to individual investors unless they are considered professional investors and the bonds are rated and must be guaranteed by a bank or have collateral.

Professional individuals participated in investing in more than 40% of private placements issued in 2024.

According to VIS Ratings estimates, professional individuals will participate in investing in more than 40% of private placements issued in 2024.

Credit ratings can provide new information to help investors better understand their risks. Bank payment guarantees can reduce the risk of loss in the event of default.

In the Vietnamese market, there are very few cases where bondholders recover their investments through liquidation of collateral.

According to VIS Rating's research, the legal process to liquidate assets and repay creditors is often lengthy.

In fact, the majority of bondholders of secured bonds facing payment delays in the 2022-2024 period have chosen debt restructuring, i.e. extending payment, instead of liquidating the secured assets, mainly in the form of stocks and real estate-related assets.

Bondholders need to evaluate the legality, liquidity, and value of collateral in the event of a bond default and determine whether the collateral can provide adequate credit enhancement as intended.

VIS Rating expects the revised Securities Law (effective from January 1, 2025) to better protect investors, helping to sustainably grow the corporate bond market. This will promote improved market confidence and more vibrant issuance activities in 2025.

“We understand that the Government plans to soon issue detailed regulations on public bond issuance to specify the provisions in the new Law. The revised regulations include mandatory credit rating requirements for enterprises or bonds issued to the public and debt ratios below specific thresholds.

“When issued in 2025, we expect the use of credit ratings in the corporate bond market to become widespread. The ratings will help convey an independent opinion on risk and help investors determine an appropriate risk premium for their bond investments,” VIS Rating said.

Source: https://baodautu.vn/thanh-ly-tai-san-the-chap-de-doi-no-dau-tu-trai-phieu-trai-chu-bo-tay-d232696.html