A convertible bond is the hybrid instrument investors favour when entering a Vietnamese company they do not yet trust enough to buy shares in outright, yet whose growth they do not want to miss: the investor puts money in as a creditor earning interest, while keeping the right to swap the debt into shares once the company proves its value. It sounds simple, but in Vietnam this instrument touches bond law, enterprise law, foreign loan management and foreign ownership conditions at conversion, all at the same time.
The Legal Framework You Need
Convertible bonds in Vietnam are issued mainly by joint stock companies through private placement, under the Law on Securities 54/2019/QH14 and Decree No. 65/2022/ND-CP amending Decree No. 153/2020/ND-CP on privately placed corporate bond offerings and trading. A private placement may be offered only to professional securities investors, and the issuer must satisfy conditions on issuance plan approval authority, financial statements, use of proceeds and information disclosure. The right to convert into shares and the conversion conditions must be stated clearly in the issuance plan and the bond terms from the outset.
Two further constraint layers appear when the bondholder is foreign. First, the money used to buy the bonds from offshore may carry the nature of a foreign loan depending on structure, and must be considered under the State Bank rules on foreign borrowing and repayment, including possible registration of a medium or long term loan. Second, at conversion the investor becomes a shareholder, so the entire set of conditions on sector foreign ownership ratios, room, and capital contribution registration under the Law on Investment 143/2025/QH15 applies exactly as in an ordinary share purchase. The conversion right is therefore never an unconditional right standing outside investment law.
Applying the Rules to a Real Deal
The benefit of the structure is its sequenced two-sidedness. Before conversion, the investor earns a fixed coupon, is protected by financial covenants and a put right if the company breaches them, and ranks above shareholders in the payment order if the company enters bankruptcy under the Law on Recovery and Bankruptcy 142/2025/QH15. Once the company hits agreed growth milestones, the investor converts at a preset ratio and joins the upside that a plain loan never offers. The Vietnamese company, in exchange, receives long-term funding without immediate shareholder dilution, and usually pays a lower coupon than on straight bonds thanks to the value of the conversion option.
The point needing the hardest negotiation is the conversion mechanics: a fixed conversion ratio or a formula linked to valuation at conversion, anti-dilution adjustment if the company later issues cheap shares, and which events trigger mandatory conversion or a put. The foreign investor must also solve the conversion-day legal equation in advance: if by then the room is full or the sector ceiling would be breached, what is the fallback, extending the bond, cash redemption, or transferring the conversion right to an eligible third party. Writing these scenarios into the bond terms on issuance day is far cheaper than renegotiating them after they happen.
Illustrative example: A European family office subscribed for convertible bonds of a Vietnamese edtech company with a three-year term and conversion linked to the next equity round price at a discount. When the next round arrived at a valuation below the level the office had underwritten, the discount formula still delivered a stake within its risk limits, and because counsel had pre-checked the education sector access conditions and registration path, conversion and the capital increase completed in the same filing cycle as the new round.
Procedure and Documents to Prepare
First: confirm the bondholder professional securities investor status and the issuer approval authority for the issuance plan. Next: draft the issuance plan and bond terms: coupon, tenor, conversion ratio or formula, and early redemption events. After that: assess the foreign loan character of the bond purchase money flow and any loan registration duty. Then: model the conversion moment: room, sector ownership ceiling and capital contribution registration applying at that time. Finally: complete the issuance, register the bond depository as required and set up tracking for conversion and put milestones.
- confirm the bondholder professional securities investor status and the issuer approval authority for the issuance plan.
- draft the issuance plan and bond terms: coupon, tenor, conversion ratio or formula, and early redemption events.
- assess the foreign loan character of the bond purchase money flow and any loan registration duty.
- model the conversion moment: room, sector ownership ceiling and capital contribution registration applying at that time.
- complete the issuance, register the bond depository as required and set up tracking for conversion and put milestones.
Common Risks and How to Prevent Them
The first risk is assuming conversion is always executable, while at conversion time room or the sector ceiling may block it. The second risk is ignoring that the bond purchase money may be treated as a foreign loan requiring registration, entangling cash flows and conversion in exchange control. The third risk is a conversion formula with no anti-dilution adjustment, letting later cheap issuances erode the option value. The safeguard is scenario-based bond terms, including a fallback when conversion is blocked and a clear cash redemption clause.
A good convertible bond has already priced in the worst case: a fallback arrangement if conversion is blocked, and a cash redemption clause clear enough that it never needs renegotiating. Do not let an equity option quietly turn into an option to walk into a dispute.
Frequently Asked Questions
How do convertible bonds for foreign investors work?
A convertible bond works in two phases. In phase one, the investor buys bonds privately placed by a joint stock company under the Decree No. 65/2022/ND-CP framework, receives periodic interest and holds creditor rights, including a put if the company breaches covenants. In phase two, when agreed conditions occur, such as a revenue milestone or the conversion date, the investor exchanges the bonds for shares at the preset ratio or formula, becomes a shareholder, and the corresponding debt is extinguished. That conversion must fully satisfy foreign investor ownership conditions just like a share purchase.
What is the benefit of lending while holding a share purchase right?
The benefit is combining a creditor safety floor with a shareholder growth ceiling. If the company performs poorly, the investor keeps creditor status, ranking ahead of shareholders for payment, and can demand bond redemption. If the company grows well, the conversion right lets the investor join the value increase at a price locked in advance, instead of buying shares at the then market price. For a Vietnamese company without a long credit history, the structure also lets both sides share valuation uncertainty: a high valuation is proven by real results before the investor becomes a shareholder.
What are the conditions for issuing convertible bonds?
The main issuance conditions are: the issuer is a joint stock company with an issuance plan approved by the competent body under its charter and the Law on Enterprises 59/2020/QH14; the private placement targets only professional securities investors under securities law; the issuer meets conditions on audited financial statements, lawful use of proceeds and not falling into prohibited issuance cases; and the bond terms must state clearly the conversion right, ratio and timing. With a foreign bondholder, the issuer and investor must additionally resolve foreign loan registration where applicable and the investment law conditions for converting into shares.
