The distinct roles of law firms and securities companies in the private placement of corporate bonds

In recent years, corporate bonds, particularly privately placed corporate bonds, have emerged as a vital capital mobilization channel for Vietnamese enterprises. However, this process is not merely a financial transaction but a legally and technically complex procedure requiring the involvement of various professional entities, among which law firms and securities companies play prominent roles.

Although both accompany the enterprise throughout the bond issuance process, law firms and securities companies have entirely distinct functions, complementing but not substituting one another. This article provides a detailed analysis of the differences in roles, responsibilities, scope of work, and the value these two types of entities bring to a bond issuance transaction.

1. The role of securities companies

Securities companies, with expertise in financial and securities markets, act as “organizers” and “bridges” between enterprises and investors. Their role primarily focuses on financial, market, and issuance technical aspects.

Financial advice and issuance planning

The securities company supports enterprises to develop a bond issuance plan based on capital needs and market conditions. Specifically, tasks such as: (1) Determining the issuance scale. Determine the number and value of bonds in accordance with the financial capacity of the business and the needs of investors. (2) Interest rate and term advisory. The securities company will propose a competitive interest rate and term in accordance with the market trend and demand at the time of issuance of the enterprise. (3) Consultation on the time of issuance. With its market experience and practice, the securities company will also advise businesses on the optimal time to issue, based on the interest rate situation, investor sentiment, and economic fluctuations so that businesses can decide and choose.

Underwriting organization

In many cases, securities companies act as underwriters, responsible for:

Underwriting. The securities company commits to buy part or all of the bonds if they do not sell them out, helping to ensure that the business mobilizes enough capital.

Distribution organization. As an underwriter, securities companies are obliged to find and introduce bonds to potential investors, especially professional securities investors on behalf of businesses.

Manage the release process. The securities company will coordinate activities between businesses, investors, and stakeholders such as the Vietnam Securities Depository (VSD) or payment banks.

Business assessment and appraisal

Securities companies also conduct financial and operational due diligence to evaluate the issuer’s debt repayment ability, thereby structuring appropriate bond terms. As professional bond issuance consultants, they provide reliable information to investors, enhancing trust in the issuance process.

Connect with investors

With a network of customers and an understanding of the market, securities companies act as a bridge between businesses and investors. Securities companies will help businesses.

First, determine the list of potential investors, including financial institutions, investment funds, or individuals capable of purchasing bonds.

Second, organize roadshows or meetings to introduce bonds and answer investors' questions.

Third, the securities company will support negotiating terms with investors, ensuring the best agreement for the business.

Technical support and depository services

The securities company supports enterprises in the technical stages of the issuance process, including:

• Registration and depository: The securities company supports enterprises to complete registration documents at VSD and carry out bond depository.
• Payment and transfer coordination: The securities company will coordinate with the payment bank to ensure that the payment of interest and bond principal takes place smoothly.
• Bondholder management: The securities company will help the issuer track the list of bondholders and transactions related to bonds.

Post-release management consulting

After the issuance, the securities company continues to support the enterprise in (i) Monitoring the payment of bond interest and principal, ensuring that the enterprise complies with its obligations to bondholders; (ii) Advising on bond repurchase or debt restructuring strategies if the market or the financial situation of the enterprise changes; (iii) Provide market information for enterprises to adjust their capital mobilization strategies in the future.

2. The role of law firms

Law firms act as "legal gatekeepers", ensuring that the entire bond issuance process complies with applicable legal regulations and protects the interests of businesses as well as investors. Specific roles include:

Comprehensive legal advisory

Law firms guide enterprises through the legal requirements for privately placed bonds, from issuance conditions to identifying eligible investors and fulfilling disclosure obligations before, during, and after issuance.

Drafting and reviewing legal documents

One of the important tasks of a law firm is to draft and review legal documents related to the issuance. The main documents of an issuance such as:

Information disclosure: This document ensures that the content of the announcement is transparent, complete, and complies with the provisions of Decree 153/2020/ND-CP.

Bond issuance contract: This contract includes terms on interest rates, terms, payment methods, and security conditions (if any).

Contracts with third parties: These contracts can include an agent contract, a depository contract, or a guarantee contract.

Minutes of the General Meeting of Shareholders/Board of Directors: This is a necessary document to approve the bond issuance plan, if required by law.

Law firms in the process of providing services will have to carefully check each clause to ensure legality, avoid legal risks such as contract disputes or violations of information disclosure obligations.

Ensure compliance with legal process

The law firm supports businesses to carry out the necessary legal procedures from (1) Registration for issuance. In this process, the law firm will prepare a registration dossier with the SSC, ensuring that the dossier is complete and on time (within 7 working days from the completion of the issuance). (2) Depository of bonds. The law firm will advise and support issuers to register for depository registration at the Vietnam Securities Depository (VSD). (3) Periodic information disclosure. As an issuance consultant, the law firm will guide businesses to fulfill their obligations to disclose post-issuance information, such as reporting on the payment of bond interest and principal.

Negotiation and transaction structure

Law firms may engage in negotiations with investors, underwriters, or stakeholders to ensure fair and appropriate terms of bond issuance agreements. This unit will also advise on the bond structure so that the issuer can choose the type of bond (e.g., bonds with collateral, convertible bonds, bonds without collateral), term, and interest rate in accordance with the needs of the business and the market. In the case of bonds with collateral, law firms can assist in drafting mortgage contracts, pledges, or other security agreements.

Legal risk management

Law firms help businesses assess and mitigate legal risks for businesses. From risks ranging from regulatory violations, disputes, to the risk of changing the law. The law firm in its role will conduct advice to ensure that the business does not violate regulations on offering, disclosure, or use of capital, as well as anticipate and handle potential disputes with investors or related parties. At the same time, update and advise on changes in policies and regulations related to bond issuance so that businesses can promptly grasp and come up with appropriate response strategies.

Post-release support

After issuance, law firms in many cases continue to support businesses in resolving arising issues, such as disputes with investors or requests for adjustment of bond terms, advising on early bond redemption or debt restructuring if necessary.

3. Coordination between law firms and securities companies

In order to have a visual and clear view of the role of law firms and securities companies in the process of supporting the issuance of private bond placements, we will provide the following information table so that readers can easily visualize the roles that are both different and reciprocal between these two units.

Despite their differences, law firms and securities firms often work closely together to ensure a successful private placement of bonds. Law firms have a solid legal foundation, while securities firms deliver financial and market performance.

In the process of providing this service to businesses, both law firms and securities companies need to have a highly specialized team with a deep understanding of law, finance, and markets. Close coordination between the two parties is a key factor to ensure that the bond issuance process goes smoothly and achieves the capital mobilization goals of enterprises.

In short, private bond issuance is a complex activity, requiring the participation of many parties in a specialized role. Law firms and securities firms, with separate but complementary functions, play an indispensable role in this process. Law firms ensure legitimacy and mitigate risks, while securities firms provide financial efficiency and market connectivity. The close coordination between these two entities not only helps businesses successfully raise capital but also contributes to building a transparent and sustainable bond market in Vietnam.