The issuance of individual corporate bonds is an important capital mobilization channel but is sensitive to the risk of "information asymmetry" when the issuer knows better than investors about financial health, purpose of using capital, collateral and debt repayment capacity. When the obligation to disclose information is carried out in a slow, insufficient or wrong form, the market is prone to falling into improper risk valuation, wrong capital allocation and causing a lack of investor confidence.
The disclosure obligation of enterprises also gradually increases in terms of standardization, frequency, disclosure channels and accountability.
In the article, we will point out common types of information disclosure violations, the reasons for violations and at the same time propose solutions for businesses to consider applying to their units.
Legal framework for disclosure of information on individual corporate bonds
The legal framework for the issuance of corporate bonds in Vietnam has changed and improved over time. Accordingly, the disclosure obligation of enterprises also gradually increases in terms of standardization, frequency, disclosure channels and accountability.
An important milestone is that from January 1, 2021, in Vietnam, the Law on Securities 2019 and the Law on Enterprises 2020 take effect at the same time. This contributes to reshaping investors, standardizing issuance conditions and laying the foundation for a specialized disclosure mechanism for individual corporate bonds. Looking at Vietnam's corporate bond market in recent years, it can be seen that the following stages can be observed:
Foundation building period (2011–2020): Decree 90/2011/NDCP and Decree 163/2018/NDCP stipulate the issuance of corporate bonds, creating a framework for conditions and principles of issuance according to periods.
Stage of standardization of disclosure channels (from 2021): Decree 153/2020/NDCP (effective 01/01/2021) sets out the disclosure mechanism for individual corporate bonds and the "specialized" mechanism/reporting regime for enterprises.
Period of tightening transparency and responsibility for using capital (2022): Decree 65/2022/NDCP amends Decree 153, emphasizing that enterprises must specify the purpose of issuance in the issuance plan and disclose information to investors, and at the same time require the use of capital for the right purpose according to the plan/disclosure plan.
Adjustment period to reduce maturity pressure (2023): Decree 08/2023/NDCP amends/supplements a number of provisions of the bond decree chain and still requires enterprises to issue irregular disclosures in some payment/negotiation mechanisms with bondholders with other assets.
Common disclosure violation groups
The table below classifies common forms of disclosure violations of enterprises in the process of issuing individual bonds to investors. Violations are quite diverse in the details of the behavior but have been classified and arranged specifically by us as shown in the table below.
|
STT |
Types of disclosure violations |
Violation details |
Impact on investors' interests |
|---|---|---|---|
|
1 |
The plan for issuance is missing/announcing the purpose is not specific |
The purpose of the release is written in general, without stating the program/project/schedule; lack of financial targets; Conflicting information on fixed assets |
Investors cannot locate the final purpose of cash flow, it is difficult to assess project risks and risks in capital flow management of the issuer |
|
2 |
Pre-release disclosure is not in the right form/missing mandatory content |
Lack of information on the time and progress of disbursement; bond conditions; description of fixed assets; lack of accompanying documentation |
The decision to buy based on the "offer" of lack of facts increases the risk of buying bonds that do not suit the taste and risk tolerance of investors |
|
3 |
Disclosure not on time/failure to disclose information to be disclosed |
Delay in publication; not sending/not posting information; lack of periodic/irregular disclosure |
Investors are not promptly updated on risk developments; increase losses when risks have arisen |
|
4 |
Inaccurate/incomplete disclosure content |
Data bias, missing important parts; misleading statements about purpose, cash flow, or obligations |
Wrong valuation of debt repayment; deviations in property appraisal and terms |
|
5 |
Disclosure/explanation of the use of capital with insufficient evidence |
Failing to prove that it is used for the right purpose according to the plan; "authorize" partners to use money; Cash flow through intermediaries |
High moral risk: mobilized capital may serve a goal beyond the commitment; increase the probability of default on debt repayment |
|
6 |
Abnormal disclosure when changing terms/incomplete bondholder negotiations |
Failure to make timely disclosure when changing terms and conditions, renewals, swaps, or other asset payments |
The investor does not receive timely information to decide to approve/enforce the right |
Why are disclosure violations repeated?
There are three groups of common causes for violations of enterprises in complying with disclosure when issuing individual corporate bonds.
Firstly, from the lag between the legal framework and market practice
The individual corporate bond market is hot in the period before and immediately after 2021, while the disclosure framework and infrastructure are in the process of being completed. The strong amendment and supplementation of Decree 65 requirements on the purpose of issuance, responsibility for the right use of capital and extraordinary disclosure reflects the need to "patch" the weaknesses that have been exposed from the vulnerabilities due to the "weak" and lacking legal framework.
Second, corporate governance and internal control are weak
Standard and regulated disclosure is not only the issuance and disclosure of ordinary documents but also the control system: financial data, project information, fixed assets, bond terms, etc. must be approved, traced and updated by the board/management. In many cases, the issuance/disclosure plan is lacking or incorrect, showing the possibility of gaps in the process of approving, drafting and applying legal regulations at enterprises.
Third, the trading engine and structure are potentially risky
When the goal is to mobilize capital quickly and at low cost, businesses may have an incentive to "minimize" unfavorable information or blur the purpose of using capital with a multi-tiered contract/cooperation structure. Many recent corporate violations show signs of cash flows passing through intermediaries and it is difficult to verify the final purpose in some issuers, showing that the risk is not merely an administrative error but can touch the true nature of the transaction "hidden" behind the disclosed information.
Source: Investment Securities Newspaper
Consequences of violations of enterprises
The consequences of disclosure violations can be seen in the following aspects:
Damage to investors
When the pre-issued disclosure lacks information about the purpose/progress of disbursement/fixed assets, investors assess risks based on missing/misleading data. When periodic/abnormal disclosure is slow or not implemented, investors lose the ability to withdraw early. This is especially serious for individual corporate bonds, which are aimed at professional investors but in fact can still be distributed through many different intermediaries and to small and retail investors who lack information and market experience. This has been proven by the actual issuance of many enterprises in Vietnam in recent years, typically the case of issuing individual corporate bonds in the group of enterprises in the "ecosystem" of Van Thinh Phat.
Negative impact on the bond market
When information is falsified, businesses will be handled for administrative violations and even criminal violations depending on the severity of the behavior. However, no matter how sanctioned, any violation of the enterprise will affect the psychology of the investor, and further the general psychology of the society about a transparent and effective bond market, bringing benefits not only to investors and businesses. society.
System risk when data is skewed
The market surveillance mechanisms of the regulatory agency depend very strongly on the quality of the data provided by enterprises. When the data is wrong/missing/slow, the State's supervision is forced to switch from the management method of "prevention" to "struggle", and the cost of mobilizing capital for the whole market increases because stakeholders from the State and investors are more "strict" in the method of appraisal of enterprises and the amount of corporate bonds issued to the market. At this time, the cost for businesses to issue is no longer as "cheap" as before.
Let the individual corporate bond market take an existing position
Regulatory Authority Level
First, continue to "standardize disclosure data according to structure", instead of free PDF disclosure, it should consider requiring the purpose of issuance to attach the program/project code, disbursement milestone, beneficiary, and capital use status; This helps to automatically monitor and detect "deviant" disclosures in the issuance of individual corporate bonds.
Second, impose sanctions according to the degree of impact and damage caused by the violation of information disclosure. For example, the same is "lacking", but lacking another periodic disclosure milestone on the level of danger compared to misinformation about fixed assets, the purpose of issuance, or the ability to repay debts. Decree 65 and Decree 08 show the trend of requesting abnormal disclosure when changing terms and conditions and in payment/negotiation mechanisms with bondholders. In our opinion, this is the right approach, but it is necessary to increase the ability and efficiency of implementation.
Third, management agencies need to interconnect information information data. From the data of secured transaction registration activities to enterprise data, local project data must be interconnected and interconnected. When the connection and connection are good, it will force the cost of "obscuring information" of businesses to increase, which can lead to a decrease in the motivation for violations.
From the issuer's side
Issuers should establish a mechanism of "3 layers of information disclosure control": (i) professional units providing data; (ii) legal/compliance, regulation and form comparison; (iii) the internal audit or the supervisory board/risk committee to confirm the consistency between the issuance plan, contracts, cash flows and periodic reports prior to the issuance of the information to the externally. In addition, enterprises also need to separate the management of bond cash flows with separate accounts/sub-accounts so that the disclosure of capital use has clear bank evidence. This recommendation is in line with the spirit of "using capital for the declared purpose" and reduces the risk of not being proven when the business is inspected/audited.
In general, disclosure violations in the issuance of individual corporate bonds are not simple "procedural errors" but they are the starting point of information asymmetry, distorting risk valuation and can lead to a breakdown of market confidence. Recent decisions of regulatory agencies show that disclosure violations appear at a very high rate in many microfinance groups, and at the same time, there are risks to this activity in practice. Enterprises should not only consider disclosure in the issuance of individual corporate bonds as an obligation, but should also manage and implement these requirements seriously to ensure the prestigious and sustainable business activities of the issuer itself.
