Relaxing bond issuance standards for PPP enterprises proposed

Relaxing bond issuance standards for PPP enterprises proposed

The draft decree no longer emphasises operational time or profitability requirements, but instead focuses on legality of project contracts, loan limits, payment guarantee mechanisms and credit ratings.

The proposal was made in the context of infrastructure projects requiring large capital. — Photo cafef.vn

The Ministry of Finance has proposed relaxing bond issuance standards for public-private partnership (PPP) enterprises in order to suit the specific characteristics of PPP project financing and expand the ability to raise long-term capital for infrastructure.

The proposal was made under the ministry’s draft decree recently submitted to the Government, regulating the public offering of bonds by enterprises investing in projects under the PPP method. 

It has been made in the context of infrastructure projects requiring large capital.

Under the draft decree, issuance conditions have been redesigned to be more suitable for the specific characteristics of PPP enterprises. 

According to the ministry, unlike conventional enterprises, PPP enterprises are established solely for the purpose of signing and implementing project contracts. PPP projects typically have long implementation periods, large initial capital mobilisation and extended payback periods. 

"After the project becomes operational, new revenue will begin to be generated from infrastructure business activities, which makes the application of traditional criteria for business performance inappropriate," the Ministry of Finance said.

The draft decree no longer emphasises operational time or profitability requirements, but instead focuses on controlling factors such as the legality of project contracts, loan limits, payment guarantee mechanisms and credit ratings.

To ensure feasibility and consistency with the provisions of the Investment Law and other related laws, the draft decree regulates that PPP enterprises wishing to issue bonds must have a PPP project contract signed in accordance with the law.

Bonds must also be credit-rated by an independent organisation, except in cases where the full principal and interest are guaranteed by qualified financial or credit institutions. In this case, the organisation providing the payment guarantee must be credit-rated.

Regarding the mechanism for guaranteeing the full payment of interest and principal on bonds, the draft clearly categorises them according to the project status. 

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