The primary market of corporate bond (“CB”) in 2024 continued its recovery, with a total issuance value of VND 468,618 billion, a 34.6% increase compared to 2023. Of which, private placements accounted for 453 issuances with a total value of VND 435,704 billion (up 40.9%), while public offerings included 22 issuances valued at VND 32,914 billion (down 15.8%). This demonstrates that the CB market continues to affirm its critical role in capital mobilization for businesses in Vietnam. Alongside this, the role of the Bondholder Representative (“BR”) has become increasingly significant, acting as a bridge between the issuing organization and bondholders. In practice, the BR not only facilitates the exercise of bondholders’ rights but also supervises the issuing organization’s activities, protects bondholders’ interests, and promotes the stability of the bond market.

This article analyzes (i) the general role of the BR; (ii) regulations related to the mortgaging of part or all of an investment and construction housing project (“Housing Project”); and (iii) the responsibilities of the BR in receiving and managing collateral.

1. General role of the BR

The BR is defined under Article 3.13 of Decree 155/2020[1] as “a depository member of the Vietnam Securities Depository and Clearing Corporation, or a securities investment fund management company designated or selected to represent the interests of bondholders.” Prior to bond issuance, the BR is appointed by the issuing organization[2]. In cases where bonds are offered to professional individual securities investors[3], the issuing organization must also appoint a BR and include the agreement signed with the BR in the offering dossier to facilitate the offering, trading, and payment of bond principal and interest. In all private CB issuance transactions we have advised on, issuing organizations have appointed securities companies licensed to operate in Vietnam as the BR. In practice, the organization appointed as the BR may also undertake one or more additional roles, such as advising on the offering dossier, acting as an underwriter, advising on centralized bond trading, or serving as a bond depository agent.

Pursuant to the above mentioned provisions of Decree 155/2020, the executed bondholder representative agreement (“BHA”), related provisions in the bond documentations, and the bond purchase agreement (including the bond terms and conditions) signed between the issuing organization and bondholders, we believe there is a reasonable basis to establish that the BR’s representation rights (under bondholders’ authorization) are established in accordance with the provisions of the Civil Code 2015 on authorized representation. Accordingly, when providing bondholder representation services, the BR may, on behalf of bondholders, establish and perform civil transactions and necessary actions within the scope defined in the BHA[4] to achieve the purpose of the representation (specifically, to protect bondholders’ interests).

The rights and responsibilities of the BR are specified in the BHA. However, at a minimum, the BR has the following responsibilities: (a) supervising the issuing organization’s compliance with commitments in the bond offering registration dossier; (b) acting as an intermediary between bondholders, the issuing organization, and other relevant organizations; (c) requesting the payment guarantor to fulfill their obligations when the issuing organization fails to meet or improperly fulfills its obligations to pay bond principal or interest; (d) receiving and managing collateral, and on behalf of bondholders, implementing measures to handle collateral in accordance with the contract terms and applicable laws; and (e) reporting to the State Securities Commission in cases where the issuing organization is found to have violated actions affecting bondholders’ interests[5]. To ensure independence and objectivity in fulfilling the BR’s responsibilities, Decree 155/2020 stipulates that “the BR must not be the payment guarantor of the issuing organization, the owner of the collateral of the bonds, a major shareholder, or a related party of the issuing organization”[6].

The BR is required to submit reports to the State Securities Commission and the Stock Exchange periodically on a quarterly and annual basis. In cases where the issuing organization is found to have violated actions affecting bondholders’ interests, the BR must submit an ad-hoc report to the State Securities Commission within 24 hours from the time of discovery. The BR submits reports in both paper and electronic formats to the State Securities Commission and in electronic format to the Hanoi Stock Exchange for publication on the dedicated corporate bond information portal[7].

Upon the bonds issuance, any change in the BR is subject to the provisions of the BHA and must be approved by bondholders representing at least 65% of the total outstanding bonds of the same type; changes to other terms of the BHA must also be approved by the competent authority of the issuing organization^[8]. Within 24 hours of a change in the BR, the issuing organization must disclose extraordinary information to bondholders and submit the disclosure content to the Hanoi Stock Exchange^[9].

2. Mortgaging Housing Projects for fundraising

For Housing Project, the Housing Law 2023 requires the project investor to mortgage the project along with land use rights[10]. Additionally, mortgaging a Housing Project can only be conducted at credit institutions operating in Vietnam for the purpose of borrowing capital to invest in or construct such Housing Project. At the time of mortgage, the project investor must have the project dossier, approved technical designs, and a land use rights certificate or a decision on land allocation or lease by the competent state authority[11]. Failure to comply with any of these requirements may render the Housing Project mortgage transaction invalid and legally non-binding on the relevant parties.

The mortgage of a Housing Project is carried out through the following key steps:

• Step 1 (Signing the mortgage agreement): The project investor signs a mortgage agreement for the Housing Project and has it notarized or certified to ensure legal validity[12]. The notarization or certification date marks the effective date of the mortgage agreement, establishing the legal binding between the parties.
• Step 2 (Mortgaging the project to borrow capital from a credit institution): The project investor must prepare the following documents to submit to the credit institution[13]: (a) the project dossier and approved technical designs; (b) the original land use rights certificate or decision on land allocation or lease by the competent state authority; (c) a mortgage agreement compliant with legal regulations; and (d) other documents (if required).
• Step 3 (Registering the mortgage at the Land Registration Office): Mortgaging a Housing Project requires registration of the security measure under the authority of the Land Registration Office[14]. The project investor must submit the mortgage dossier and register changes in land use rights at the Land Registration Office[15]. Upon receiving the dossier, the Land Registration Office will record the changes in the land use rights certificate[16].

The 2023 Housing Law explicitly stipulates that issuing bonds is one of the permitted forms of capital mobilization for implementing Housing Projects[17]. If the project investor has mortgaged part or all of the Housing Project and registered the mortgage as required but issues bonds to raise capital for the investment or construction of the mortgaged Housing Project, they must complete the procedure to deregister the mortgage or partially withdraw the mortgaged assets in accordance with regulations on registering security measures before issuing the bonds[18].

In previous domestic bond issuance transactions, commercial bank could act as agent managing collateral and sign Housing Project mortgage agreements with the issuing organization (also the project investor)[19]. However, the Law on Credit Institutions 2024, effective from 01 July 2024, stipulates that commercial bank may only act as agent managing collateral for lenders that are international financial institutions, foreign credit institutions, domestic credit institutions, or foreign bank branches[20]. Based on the legal provisions analyzed above, we believe that mortgaging a Housing Project as a security measure for secured bond issuance is only feasible if the commercial bank receiving the Housing Project mortgage is also a bondholder and being authorized by other bondholders to receive and manage the collateral.

3. Responsibilities of the BR in managing collateral

In cases where bonds are secured by collateral, the BR is the organization that receives and manages the collateral, acting on behalf of bondholders to implement measures to handle the collateral in accordance with the contract terms and regulations on security measures for fulfilling civil obligations[21]. If the BR is not permitted to receive the collateral under specialized laws, it must designate a third party to receive the collatera land coordinate with the designated party to manage and implement measures to handle the collateral[22].

Under current regulations[23], the dossier for registering a public offering of bonds secured by assets must include an agreement for the secured obligation between the owner of the collateral, the BR, other recipient of the collateral (if the BR is not permitted to receive the collateral), and the issuing organization; and a document confirming the registration of the security measure for the collateral (if any). The document confirming the registration of the security measure must be submitted to the State Securities Commission before the issuance of the Certificate of Offering Registration.

Decree 21/2021[24] allows the project investor to mortgage their property rights related to the exploitation and management of the investment project and other property rights related to the investment project to secure the fulfillment of obligations (collectively referred to as “Property Right”). Under this regulation, in addition to the investment project, the project investor, acting as the issuing organization, may mortgage Property Right to the BR to secure the full or partial payment of bond principal and interest. The Housing Law 2023 does not specifically regulate the mortgaging of Property Right related to Housing Project, but in practice, Property Right associated with Housing Project may include:

• Project permits, investment rights, management, development, business, and exploitation of the Housing Project;
• The right to receive insurance payments or other benefits that the Housing Project insurer is obligated to pay;
• Profits derived from the business and exploitation of the value of land use rights or assets attached to the land in the Housing Project;
• Receivables and fees collected by the project investor during the investment, business, and development of the Housing Project; and
• Property rights arising from the Housing Project being reclaimed, compensated, or cleared and compensated as required by the competent state authority and in accordance with legal regulations.

Accordingly, we believe that the BR receiving and managing the Property Right associated with a Housing Project as collateral, signing a Property Right mortgage agreement with the issuing organization (also the project investor), and registering the security measure with the competent authority is compliant with current regulations. Otherwise, the BR receiving a mortgage of Property Rights associated with a Housing Project offers the following advantages:

• Signing a Property Right mortgage agreement does not require notarization or certification;
• Registering the Property Right mortgage transaction is conducted at the National Registration Agency for Secured Transactions under the Ministry of Justice (“NRAST”)[25], without requiring the registration of changes in land use rights as in the case of mortgaging a Housing Project. Additionally, unlike mortgaging a Housing Project, when the Housing Project meets the conditions for selling products, the project investor is not required to mortgage release part of the Housing Project with the Land Registration Office before signing sales and purchase product contract of the Housing Project (previously mortgaged) with buyer.
• After the Property Right mortgage is registered with the NRAST, any third party can easily access information about this security measure on the NRAST system. Circular 26 clearly stipulates that if the project investor has mortgaged Property Right related to Housing Project, they are not permitted to mortgage the Housing Project itself.[26] Therefore, once the Property Right associated with a Housing Project have been mortgaged, we believe it is highly unlikely that the project investor could mortgage the Housing Project to a credit institution in Vietnam.

If you have any questions regarding the article, please contact us via email: tuan.phung@ptnlegal.com or phuong.quach@ptnlegal.com.

Disclaimer: This article was prepared by PTN Law Firm LLC (“PTN Legal”) is for informational purposes only. PTN Legal does not warrant or guarantee the accuracy or completeness of this information. The content of the article may be changed, adjusted, or updated without prior notice. PTN Legal is not responsible for any errors or omissions in this article or damages arising from the use of this article in any case.

[1] Decree 155/2020/ND-CP of the Government on 31 December 2020, detailing the implementation of certain provisions of the Securities Law (“Decree 155/2020”).

[2] Article 24.1 of Decree 155/2020.

[3] Article 12.2 of Decree 153/2020/ND-CP of the Government on 31 December  2020, regulating the offering and trading of privately placed corporate bonds in the domestic market and the offering of corporate bonds in the international market, as amended and supplemented by Decree 65/2022/ND-CP of the Government on 16 September 2022 (collectively referred to as “Decree 153/2020”).

[4] Articles 134, 135, and 141 of the Civil Code 2015.

[5] Article 24.3 of Decree 155/2020.

[6] Article 24.2 of Decree 155/2020.

[7] Article 12 of Circular 76/2024/TT-BTC of the Ministry of Finance on 06 November 2024, guiding the disclosure and reporting regime for the offering and trading of privately placed corporate bonds in the domestic market and the offering of corporate bonds in the international market.

[8] Article 24.4 of Decree 155/2020.

[9] Article 22 of Decree 153/2020.

[10] Article 183.1 of the Housing Law 2023.

[11] Article 184.1 of the Housing Law 2023.

[12] Article 27.3 of the Land Law 2024.

[13] Article 9.1 of Circular 26/2015/TT-NHNN of the State Bank of Vietnam on 09 December 2015, guiding the procedures for mortgaging and releasing mortgages on assets, including housing construction investment projects and future-formed housing (“Circular 26”).

[14] Article 25.1(c) of Decree 99/2022/ND-CP of the Government on 30 November 2022, on the registration of security measures (“Decree 99”).

[15] Article 133.1 of the 2024 Land Law; and Article 21 of Circular 10/2024/TT-BTNMT of the Ministry of Natural Resources and Environment on 31 July 2024, regulating cadastral records, land use rights certificates, and ownership certificates for assets attached to land.

[16] Article 79 of Decree 43/2014/ND-CP of the Government on 15 May  2014, detailing the implementation of certain provisions of the Land Law; and Article 17.1 of Circular 23/2014/TT-BTNMT of the Ministry of Natural Resources and Environment on 19 May 2014, regulating certificates of land use rights, housing ownership, and other assets attached to land (as amended).

[17] Article 114 of the Housing Law 2023.

[18] Article 183.2 of the Housing Law 2023.

[19] Article 19a of Circular 40/2011/TT-NHNN of the State Bank of Vietnam on December 15, 2011, as amended and supplemented, which expired on 01 July 2024.

[20] Article 114.2 of the Law on Credit Institutions 2024.

[21] Article 24.3(d) of Decree 155/2020.

[22] Article 24.3(đ) of Decree 155/2020.

[23] Article 25 of Decree 155/2020.

[24] Decree 21/2021/ND-CP of the Government on March 19, 2021, implementing the Civil Code on securing the performance of obligations (“Decree 21/2021”).

[25] Articles 10.5 and 46 of Decree 99; and Article 5 of Circular 08/2018/TT-BTP of the Ministry of Justice on 20 June 2018, guiding certain issues regarding the registration and provision of information on security measures, contracts, and the exchange of information on the registration of security measures at the National Registration Agency for Secured Transactions (as amended and supplemented).

[26] Article 3.6 of Circular 26.