1. Definitions

Private placement of securities is another popular form, chosen by businesses to raise capital. The characteristic of private placement of securities is a form of enterprise offering securities to special customers, which is not popular among the public. Private issuers of securities are usually not public companies. The target audience of the company can be 100 strategic investors or professional investors.

In addition, the provisions of the Law on Securities in 2019 have also governed the private placement of securities by issuers that are not public companies.

2. Forms of private placement of securities

First, private placement of shares, individual convertible bonds, bonds with individual warrants of public companies

The private placement of shares, individual convertible bonds, bonds with individual warrants of public companies is specified in Clause 1, Article 31 of the Law on Securities 2019, including:

• Private placement of securities needs to pass the decision of the General Meeting of Shareholders approving the plan to issue and use the proceeds from the offering; Besides, the criteria and number of investors must be clearly defined.
• Participants in the securities offering are less than 100 investors and only include strategic investors, professional securities investors.
• The time limit for transferring shares for private placement, convertible bonds for private placement, bonds with warrants for private placement is limited to at least 03 years for strategic investors and at least 01 year for professional securities investors from the date of completion of the offering. For transfers between professional securities investors or carried out pursuant to judgments, court decisions that have taken legal effect, arbitral decisions or inheritances as prescribed by law, there is no time limit.
• The time for conducting private placements of shares, individual convertible bonds, bonds with individual warrants must comply with the specific time, the offerings must be at least 06 months apart from the date of completion of the last offering.
• The transfer of rights through offering and selling shares, converting bonds into shares must meet the regulations on the ownership ratio of foreign investors as prescribed by law.

Second, the private placement of bonds by a public company does not fall into the first case mentioned above.

• First, there must still be a decision of the General Meeting of Shareholders or the Board of Directors approving the plan to issue and use the proceeds from the offering; clearly define criteria, quantity, investors.
• The difference between this form and the above-mentioned form is that participants in the offering only include professional securities investors.
• Except in the case of execution according to a legally effective court judgment, decision, arbitral decision or inheritance as prescribed by law, the transfer of private placement bonds is normally only made between professional securities investors.
• To choose the term of payment of principal and interest for creditors being financial institutions, while in other cases, it is necessary to fully pay both principal and interest of the offered bonds or fully pay the debts due in 03 consecutive years before the bond offering (if any).
• There must be financial statements of the preceding year of the year of issuance audited by an approved auditing organization.
• It is necessary to meet the financial safety ratios and operational safety ratios as prescribed by law (if any).

Third, the form of private placement of bonds of securities companies, securities investment fund management companies that are not public companies – There is a decision of the General Meeting of Shareholders or the Board of Directors or the Board of Members or the company owner to approve the plan to issue and use the proceeds from the offering; determination Clear criteria, number of investors and some conditions on participants, subjects to be transferred, have financial statements, ensure financial safety ratio according to the second item in the article.

3. Conditions for private placement of securities

• There has been a decision of the General Meeting of Shareholders, approving the information: Issuance plan, plan to use the proceeds, determination of objectives, specific number of investors.
• Subjects of offering include: Strategic investors and professional investors.
• The private transfer of securities will have a time limit: 3 years for strategic investors and 1 year for professional investors, calculated from the date of completion of the offering.
• Private placements of securities must be spaced at least 6 months apart.
• The transfer, conversion or offering for sale must comply with regulations on the ratio with foreign investors.

4. Some advantages and drawbacks

• Regulations and conditions for private placement of securities are simpler and more suitable for some small enterprises that do not meet the requirements for public offering of securities.
• Cost-effective, less sequential, and less subject to stringent scrutiny than offering securities to the public. The solution is suitable for large and public enterprises with the need to mobilize small capital, in a short time.
• Private placement of securities serves objectives such as: Strengthening the relationship between the issuer and strategic customers and shareholders in the company.
• The offering procedure is simple. However, the issuer must still ensure to provide full information about the offering organization, the type of securities to be offered for sale, etc.
• Offering securities in private form will not bring high efficiency for promoting images and advertising for businesses. Because private placement of shares is only done with a few strategic customers. At the same time, this form will not bring the ability to raise high capital for the company.

The private placement of securities plays a role in supplying goods to the market, creating a basis for trading activities, helping to raise capital and solve a difficult problem of capital sources, perfecting financial and accounting regimes, etc create conditions for investors to make more profits. The private placement of securities chosen by enterprises can be for a number of reasons such as the enterprise is not qualified to issue to the public; enterprises need to mobilize small, for the purpose of choosing private placement to reduce costs; issuing to officers and employees of the company or only issuing shares for the purpose of maintaining relationships system in business. At the same time, this is also a condition for building a safe, public and efficient stock market. However, offering securities in private form will not bring high efficiency for image promotion and advertising for businesses. Because private placement of shares is only done with a few strategic customers. At the same time, this form will not bring the ability to raise high capital for the company.

The above is KALF’s advice on Private placement of securities and some related legal issues. All of our above advice opinions are based on applicable legal provisions. If you have any questions or requests about legal issues, please contact us for timely answers.