Abstract: Securitization is a pivotal financial mechanism widely adopted across numerous jurisdictions globally; however, its implementation in Vietnam remains nascent due to substantial regulatory impediments. Given the expansive and specialized nature of this field, this article delineates its research scope to specific theoretical frameworks and positive law provisions that necessitate refinement to facilitate the securitization of financial assets derived from Public-Private Partnership (PPP) transport infrastructure projects. By analyzing the fundamental nature, operational mechanics, and distinct attributes of securitization - alongside the existing legal landscape governing PPP investments in Vietnam - the author identifies critical legislative gaps that must be addressed to integrate securitization into the development of the nation's transport infrastructure.
Keywords: Securitization; Public-Private Partnership (PPP) model; Securities Market; Special Purpose Vehicle (SPV), transport infrastructure, public – private partnership investment form.
1. Theoretical issues concerning securitization, the securitization of financial assets from transport infrastructure PPP projects, and the law on the securitization of financial assets from transport infrastructure PPP projects
1.1. Theoretical issues concerning securitization
a) The concept of securitization
Securitization was first recorded as emerging in the United States in 1970, when Ginnie Mae (Government National Mortgage Association) issued Mortgage-Backed Securities (MBS), that is, the securitization of mortgage debts (home purchase loans)[1]. Since then, securitization has been studied and applied in many countries around the world, mainly in major economies and in most emerging economies with significant capital markets, such as the United States, countries of the European Union, Japan, Canada, Brazil, Russia, India, China, South Africa, the Republic of Korea, Malaysia, Singapore, and Mexico. In Viet Nam, securitization has so far been limited to a number of small-scale academic studies[2] and has not yet been applied in practice.
According to Frank J. Fabozzi and Vinod Kothari, securitization is “a financial technique that pools assets together and, in effect, turns them into a tradable security”.[3]
According to Schwarcz[4], in The Alchemy of Asset Securitization[5], the terms “securitization”, “asset securitization”, and “structured finance” are often used interchangeably, referring to “a company’s use of cash flows from its assets to raise capital.” More specifically, “securitization refers to the issuance of securities backed by those cash flows.” In "Securitization and Structured Finance", he provides a more detailed definition: “Securitization, or as it is spelled in Europe, securitisation, refers to a type of financing transaction in which companies sell the right to receive payments from mortgage loans, receivables, lease payments, or other types of income-generating financial assets to a trust or another special purpose vehicle (SPV). The objective is to isolate these assets from the risks normally associated with the company. The company may then use these assets to raise capital in the capital market at a lower cost than if the company, together with its associated risks, had borrowed funds”.[6]
Through an analysis of the legal and financial characteristics of this activity, the author considers that “securitization is a legal process and a financial engineering technique that creates new securities products based on the transformation of illiquid financial assets into securities that can be traded on the market”.
b) Characteristics of securitization
First, the quality of the underlying assets and the financial structure determines the feasibility, success, and effectiveness of securitization
Securitization is a process of financial structuring in which assets (including financial assets, real assets, or potential future cash flows) are pooled into a portfolio and transferred to a Special Purpose Vehicle (SPV) in order to achieve bankruptcy remoteness, thereby enabling the issuance of securities backed by the cash flows recovered from that portfolio. The level of safety and feasibility of securitization depends not only on the quality of the underlying assets but is also determined by financial structuring techniques such as risk tranching and credit enhancement. In other words, the ability to model cash flows in a scientifically sound manner and the robustness of the legal structure are key factors determining the feasibility of securitization.
Securities issued through the securitization process are not backed by the general creditworthiness of the originator; instead, they are backed by the expected cash flows generated from the pool of underlying assets. This pool of assets has been legally isolated from the originator through a true sale mechanism, whereby the repayment capacity of the securities depends entirely on the performance of the underlying assets (and, accordingly, on the repayment capacity of the SPV based on those assets), independent of the credit risk of the originator. These cash flows consist of receivables arising from a prior transaction that the originator has established in a specific project or transaction, with a clearly defined tenor and scale.
Second, the dual role of financial assets
Financial assets in a securitization transaction play a dual role, serving both as the source of payment and as collateral securing the payment obligations to bondholders.
In traditional capital-raising instruments (such as corporate bond issuance), the source of principal and interest payments derives from the overall business operations and aggregate profitability of the issuing enterprise. In securitization, however, financial assets (such as residential mortgage loans, credit card receivables, and financial lease contracts) inherently contain a defined repayment schedule for both principal and interest. These cash flows are “packaged” and transferred directly to investors. Under the issuance arrangements, investors have recourse solely to the cash flows generated from the specific pool of assets, and where the assets fail to generate sufficient cash flows, investors generally have no right to require the originator to compensate using other assets, unless specific credit enhancement arrangements have been agreed upon.
Third, the issuing entity performs an intermediary function
In securitization, the securities issuing entity (the bond issuer) is not the end user of the raised capital; instead, it merely serves as a special entity that issues bonds to raise funds and remits the proceeds to the originator.
The issuing entity is regarded as an SPV because this legal entity has no employees and does not engage in production or business activities; it is established for a single purpose and is limited to holding assets and issuing securities. This legal entity functions as a “gateway” through which cash flows from the underlying assets flow in and capital from investors flows out. The funds received by the SPV from the sale of securities to investors through securitization transactions are used to pay the originator as part of the asset purchase agreement.
Accordingly, securitization differs from conventional securities issuance in terms of the process of creating securities products, the nature of the underlying assets, and the structure of the financial transaction. Once successfully originated, the bond products created through securitization are distributed in the primary and secondary markets in a manner similar to other securities products.
c) Content of securitization
The content of securitization constitutes a complex financial engineering process, involving multiple steps and the participation of various entities. According to Frank J. Fabozzi and Vinod Kothari in Introduction to Securitization, the securitization process comprises the following steps:
Step one: Identification and selection of the asset pool
The originator determines its capital-raising needs and selects appropriate types of assets (for example, existing assets such as residential mortgage loans, credit card receivables, or future cash flows). Assets included in the pool are selected based on specific criteria such as diversification (by geography and sector), payment history, and the historical performance of the assets. The assets may be structured as either a static pool or a dynamic pool, depending on whether cash flows are reinvested into new assets.
Step two: Establishment of the SPV, transfer of assets, and risk isolation
To implement securitization, an SPV is typically established. The role of the SPV is to purchase the asset pool and issue securities. The use of an SPV helps separate the risks associated with the assets from the bankruptcy risk of the project originator.
After the SPV is established, the originator transfers the asset pool to the SPV. Such transfer constitutes a complete and definitive transfer of ownership in order to ensure “bankruptcy remoteness,” meaning that the assets of the SPV are entirely independent of the bankruptcy risk of the originator. Upon completion of the transfer, all ownership relationships between the transferor and the assets are fully terminated, and no party may assert any claims or demands against the assets on the grounds that the transferor continues to owe obligations to that party.
Step three: Structuring and credit enhancement
The SPV divides the debt obligations into multiple classes of securities (tranches) with different payment priorities, including Senior tranches, Mezzanine tranches, and Junior/Equity tranches.
In order to achieve the desired credit rating, the structure incorporates support measures such as interest rate spreads, overcollateralization, or guarantees provided by third parties.
The SPV is required to establish credit facilities or cash reserve funds to address temporary cash flow shortfalls.
Step four: Rating and issuance
The SPV engages a credit rating agency to assess the risk of each tranche based on stress testing results of the asset pool. After the ratings are obtained, the SPV issues Asset-Backed Securities (ABS) to investors in the market.
Step five: Cash flow management and distribution
The SPV either directly performs, or outsources to an independent service provider, the collection of payments from the original obligors. The collected cash flows are distributed in accordance with the “waterfall” principle to pay servicing fees, interest, and principal to the various tranches in the agreed order of priority.
1.2. Theoretical issues concerning the securitization of financial assets from transport infrastructure PPP projects
a) The concept of securitizing financial assets from transport infrastructure PPP projects
According to the interpretation of terms in Article 3 of the Law on Investment under the Public–Private Partnership Method, “Investment under the public–private partnership method (Public–Private Partnership, hereinafter referred to as PPP investment) means an investment method implemented on the basis of time-limited cooperation between the State and private investors through the conclusion and implementation of a PPP project contract in order to attract private investors to participate in PPP projects” (Clause 10), and “A PPP project contract is a written agreement between the contracting authority and the investor or the PPP project enterprise on the State’s grant of rights to the investor or the PPP project enterprise to implement a PPP project in accordance with the provisions of this Law …” (Clause 16).
The PPP method represents a combination of the advantages of the State and those of the private sector in developing public projects that generate benefits for both parties. “The primary objective of governments in implementing PPPs in infrastructure is to achieve value for money (VFM). Value for money means achieving an optimal combination of benefits and costs in delivering the services that users require”.[7] The benefit for the State lies in obtaining infrastructure works to serve public transport objectives and in fulfilling the State’s regulatory and management functions in a context where budgetary resources and managerial capacity are more constrained than those of private enterprises. Meanwhile, the benefits that private enterprises may obtain consist of revenue streams and reasonable profits generated from the operation and exploitation of the invested infrastructure. The right to invest in the construction and operation of public transport infrastructure belongs to the State, and the State grants this right to private enterprises within the framework of PPP projects. On the basis of the PPP project contract, private enterprises contribute capital (with a portion of financial or asset-based support from the State to ensure the feasibility of achieving reasonable revenue and profits) to invest in and construct infrastructure works, and thereafter directly operate and exploit them for a reasonable period as agreed. Upon the expiry of the operation and exploitation period, the investor transfers the PPP project works back to the State in order to establish all-people ownership.
Unlike projects financed by public investment capital, in which the return to the project owner is the use value of the project works enjoyed by society, in transport infrastructure PPP projects, the investor[8] recovers its capital through an investment cost recovery mechanism (in addition to the benefits that society derives from the use of transport infrastructure works). Accordingly, the operating entity collects fees from service users (for example, expressway tolls) in order to recover the invested principal, financial costs, and a reasonable profit. The strength of investment projects implemented under the PPP method lies in their ability to generate financial assets that exist over a long period, with a reliable degree of stability and sustainability, even though infrastructure project assets are long-term assets with low liquidity.
The development of infrastructure projects invariably encounters constraints arising from capital mobilization capacity. Capital for infrastructure projects is constrained not only by the requirement for extremely large amounts but also by the prolonged capital recovery period extending over many years. These constraints discourage private investors and create significant difficulties for the State in seeking funding sources. Expectations of mobilizing capital from private investors and credit institutions for infrastructure projects become increasingly difficult, leading to deadlock for many governments in their efforts to promote the development of public infrastructure. However, in examining securitization, the author observes that the effectiveness of this financial instrument lies in its capacity to resolve the aforementioned constraints. Through securitization, an SPV is able to mobilize the participation of multiple securities investors simultaneously, thereby enabling private investors to recover capital more quickly and efficiently, accelerating the circulation of investment capital in the market and creating differences in investment efficiency. In addition, securitization is capable of dispersing risks through asset tranches that are classified ex ante by design, thereby reducing market “shocks” when a project encounters cash inflow difficulties.
Therefore, the securitization of financial assets in transport infrastructure PPP projects constitutes a process of legal and financial restructuring aimed at transforming the right to future service revenue into debt securities, in which the cash inflows generated from the project serve as the collateral and the direct source of payment to investors.
b) Characteristics of the securitization of financial assets from transport infrastructure PPP projects
As presented in the preceding sections of this article, transport infrastructure PPP projects typically involve large-scale project works and capital recovery periods extending over many years, and each project enterprise usually owns, manages, and operates only a single project. Accordingly, the securitization of financial assets from transport infrastructure PPP projects exhibits distinct characteristics.
First, the specificity of assets and the concentration of single-asset risk
Unlike the securitization of consumer loans, which is based on a diversified pool of assets, the securitization of transport infrastructure is typically based on a single asset with a high degree of specificity in terms of both geography and function. According to Frederic Blanc-Brude and Dejan Makovsek, “construction risk is both endogenous and sufficiently specific to be fully transferable to a third party”[9]; therefore, infrastructure projects involve significant idiosyncratic risks, and the success of cash flows depends entirely on the operational performance of a specific road or bridge. This makes traditional risk diversification techniques through asset pooling less effective.
Second, the structurally stable nature of long-term cash flows
Transport infrastructure PPP projects are characterized by extremely high capital intensity, requiring financial structures that are adapted to capital recovery cycles spanning several decades. The combination of massive investment scale and long operational duration gives rise to a core financial advantage: the ability to generate cash flows that are structurally stable and exhibit low sensitivity to fluctuations in the economic cycle.
The intrinsic nature of transport infrastructure is to provide essential public services, which creates a natural barrier to market entry and sustains stable demand even during periods of economic downturn. Unlike ordinary financial assets that are directly affected by market volatility, the right to receive revenues from PPP projects is often reinforced by long-term legal commitments under PPP contracts and by risk-sharing mechanisms on the part of the State (revenue increase and decrease sharing mechanisms). This sustainability enables PPP project financial assets to function as an effective hedging instrument, assisting institutional investors in portfolio diversification and in addressing the inherent maturity mismatch in infrastructure investment. This constitutes the key prerequisite for securitization, facilitating the shift from short-term credit-based funding sources to longer-term and more sustainable social capital.
Third, depending on credit enhancement mechanisms and State support
In order to create securities instruments that meet investment-grade standards with high credit ratings, the SPV plays a core role in implementing multilayer credit enhancement techniques. However, the distinctive feature of transport infrastructure PPP projects lies in the intersection between the objective of providing essential public services and the profit expectations of the private sector, which makes the financial structure of such projects inseparable from the State’s supporting role. At this stage, the responsibility of the competent State authority becomes a decisive factor through the provision of key financial support mechanisms.
Specifically, measures such as sharing revenue shortfalls, flexible regulation of service fee frameworks, and mechanisms for extending the fee-collection period function as important layers of external credit support. Such support not only helps maintain financial equilibrium in the face of adverse market fluctuations but also directly enhances the quality of the underlying assets, thereby establishing a solid foundation for securitization and attracting long-term capital from institutional investors.
Fourth, asset isolation and mechanisms for the transfer of limited property rights
From a legal perspective, the securitization of transport infrastructure PPP projects does not entail a transfer of material ownership of public assets, but rather constitutes a transfer of economic exploitation rights. Within this structure, the right to collect fees is characterized as a form of property right derived from ownership of the infrastructure works (bearing similarities to a surface right), which gives rise to certain constraints in establishing an absolute separation between the original asset and the resulting economic entitlements.
This interdependence creates an urgent requirement for the design of transaction structures and transfer instruments with a high degree of precision and legal effectiveness in order to satisfy the stringent standards of the “true sale” principle. Ensuring the substantive reality of the transfer is a prerequisite for establishing bankruptcy remoteness mechanisms, fully separating investors’ rights to cash flow benefits from the financial condition of the project enterprise. This, in turn, necessitates a detailed contractual framework that clearly delineates the scope of transferred rights, thereby building robust legal certainty for the long-term capital market.
c) Contents of securitization of financial assets from transport infrastructure PPP projects
The contents and nature of securitization of financial assets from transport infrastructure PPP projects constitute a process of legal and financial restructuring, comprising the following steps:
First step: identification of financial assets
Based on the type of contract, PPP models are classified into the following forms: Build–Operate–Transfer (BOT); Build–Transfer–Operate (BTO); Build–Own–Operate (BOO); Operate and Maintain (O&M); Build–Transfer–Lease (BTL); Build–Lease–Transfer (BLT); and Build–Transfer (BT).
According to the guidance materials of the World Bank [10], based on the source of revenue and the paying entity, PPP models are divided into two basic types, namely: the user-pays mechanism, under which the investor’s revenue is derived from user fees paid directly by individuals and organizations (for example, BOT and BTO contracts); and the government-pays mechanism, under which the State makes payments to the investor based on service quality or asset availability (for example, BTL and BLT contracts). In addition, there is a minimum revenue guarantee mechanism (take-or-pay clause): this mechanism is based on revenues collected directly from service users; however, where actual revenues fall below a predetermined threshold, the competent state authority will compensate for the shortfall.
In current practice in Viet Nam and internationally, transport infrastructure projects implemented under the public–private partnership modality predominantly apply the user-pays mechanism. Accordingly, for transport infrastructure PPP projects, the assets to be securitized are not the physical works (road surfaces, bridges), but rather the property rights arising from the right to collect fees under the PPP Contract. In addition, depending on the specific provisions of the PPP Contract, the financial assets used for securitization purposes may also include other receivables, such as compensation payments or budgetary support committed under the PPP Contract.
Although the “pooling of assets” into a portfolio composed of multiple financial assets is often mentioned as an important component of securitization, this technique does not necessarily exist in all cases; securitization of financial assets from transport infrastructure PPP projects is a typical example. A PPP project enterprise is established to act as the project company responsible for investing in, constructing, and operating a transport infrastructure PPP project; therefore, the financial assets generated from such a PPP project are limited in number and primarily exist in the form of the right to collect fees under the PPP Contract.
Second step: identification of the SPV and risk isolation
For the purpose of investing in, constructing, and operating transport infrastructure PPP projects, investors may carry out these activities directly; however, in practice, they usually establish a PPP project enterprise to do so. Depending on the type of PPP contract, the PPP project enterprise may assume different roles. Under a BOT contract, the PPP project enterprise is the owner of the transport infrastructure project works and holds the right to collect user fees for transport infrastructure services during the term of the PPP project contract. Under a BTO contract, because ownership of the project works must be transferred to the State immediately after the works are accepted, handed over, and put into operation, the PPP project enterprise retains only the ownership of the right to collect fees for the use of transport infrastructure services.
The PPP project enterprise directly undertakes, or hires contractors to undertake, the construction of the PPP project works; therefore, accounts receivable and payable may arise during the construction and building phase. This reality runs counter to the operating principle of a special purpose vehicle (SPV), which should be established solely for the purpose of acquiring financial assets and issuing securities backed by those financial assets. Accordingly, the PPP project enterprise cannot assume the role of an SPV in the securitization process. Instead, the project enterprise participates in the securitization as the originator.
In this context, it is necessary to establish another SPV that is independent from the PPP project enterprise. This SPV may take the form of a legal entity established by the PPP project enterprise, either as a single-member company or as a joint-stock company in which the PPP project enterprise holds a portion of the shares; alternatively, it may be a legal entity that is entirely independent from the PPP project enterprise in terms of ownership and management.
To ensure the “true sale” mechanism, the PPP project enterprise transfers the right to receive cash inflows (revenue streams) to the SPV. Upon such transfer, the financial assets are no longer recorded on the balance sheet of the PPP project enterprise, thereby enabling bankruptcy remoteness and isolating the project cash flows from the insolvency risk of the project sponsor.
Third step: credit enhancement
In order to transform “drip-fed” and risk-exposed receivables (such as those affected by traffic volume shortfalls) into debt securities with high credit ratings, the relevant parties must implement a range of credit enhancement measures, including, inter alia, the structuring of securities into tranches, typically comprising Senior and Junior classes. In addition, guarantees provided by international financial institutions or infrastructure credit guarantee funds may be employed to protect investors against policy risks or force majeure events.
Credit enhancement is intended to ensure that cash inflows derived from user-fee revenues remain stable and continuous in accordance with the financial plan approved and agreed upon by the parties under the PPP contract. While credit enhancement plays a pivotal role in safeguarding the stability of cash flows envisaged in the financial model of the PPP contract, internal structuring techniques such as risk tranching reveal significant limitations in the transport infrastructure sector. Unlike diversified asset portfolios, transport PPP projects are highly idiosyncratic and asset-specific, rendering the cash flows of the entire securitization structure fully dependent on the operational performance of a single underlying asset. Consequently, the application of traditional asset pooling techniques is unlikely to generate effective risk-offsetting effects, thereby requiring securitization structures to place primary reliance on external credit enhancement mechanisms and on risk-sharing commitments undertaken by the State in order to ensure overall feasibility.
Fourth step: issuance of asset-backed securities
Upon completion of the transfer of financial asset rights from the Originator (the PPP project company) through a true sale mechanism, the SPV enters the pivotal stage of the financial structuring process. At this stage, the SPV performs the function of transforming future cash flow entitlements - assets that are long-term in nature and characterized by low liquidity - into standardized debt securities. Specifically, the SPV applies techniques to divide the value of these asset rights into specialized debt instruments (typically in the form of asset-backed securities (ABS)) with different levels of risk and yield, which are offered to investors on the primary capital market. This process not only enables the SPV to obtain an immediate lump sum from the transfer of future rights to collect user fees for transport infrastructure services - thereby offsetting the costs incurred in acquiring the financial assets from the PPP project company - but also expands access to financial resources from society at large and disperses risks arising from market fluctuations as well as policy and legal changes. Through the distribution of these financial products, the securitization structure establishes an effective risk-sharing mechanism, while simultaneously enhancing transparency and dynamism in capital flows directed toward transport infrastructure investment.
Fifth step: cash flow management and distribution
At this stage, the PPP project company carries out the collection of user fees for transport infrastructure services; however, the revenues collected must be transferred to the SPV (or to an appointed asset management service provider). The SPV (or the asset management service provider) is responsible for managing these revenues and distributing payments to the beneficiaries in accordance with a waterfall structure, based on a pre-established order of priority. Typically, the payment priority sequence is as follows: operating and maintenance costs; taxes; principal and interest payments to senior securities investors; and residual returns to the project sponsors.
1.3. Theoretical legal issues concerning the securitization of financial assets from PPP transport infrastructure projects
a) Legal concept of the securitization of financial assets from PPP transport infrastructure projects
The securitization of financial assets from PPP infrastructure projects has multidimensional impacts on the economic order and social interests in two principal respects. First, this instrument creates a stable capital mobilization channel, enabling enterprises to optimize resources for infrastructure investment. Although capital mobilization is not the sole core objective, the ability to convert illiquid assets into marketable securities helps relieve banks’ balance sheets. This, in turn, creates additional credit capacity, ensures systemic safety, and promotes the development of national infrastructure. Second, the trading of these products on the primary and secondary markets directly affects financial security and the interests of investors. Therefore, establishing a comprehensive legal framework for the securitization of PPP assets is an urgent requirement to ensure transparency and sustainability for the economy.
Law is the primary instrument for regulating social relations, realizing the objectives of state management, and protecting the lawful rights and interests of the people, the State, and the general public order. The State’s enactment and use of law to manage activities related to the securitization of financial assets from PPP transport infrastructure projects reflects its regulatory function over the market and the economy. Through various methods and instruments, the State establishes standards, procedures, rights and obligations of participating entities, limits on risks and risk governance, as well as measures for handling violations in securitization. Such regulations constitute a system of general rules of conduct of a normative nature, possessing mandatory binding force on any organization or individual participating in securitization.
On the basis of the above concept of the securitization of financial assets from PPP transport infrastructure projects, the law on the securitization of financial assets from PPP transport infrastructure projects may be understood as a system of legal norms promulgated and enforced by the State to regulate the relationships arising in the process of legal and financial restructuring aimed at transforming rights to future revenue streams from PPP transport infrastructure projects into debt securities.
b) Legal characteristics of the securitization of financial assets from PPP transport infrastructure projects
The first characteristic is that the securitization of financial assets from PPP transport infrastructure projects is interdisciplinary and complex in nature.
The law on the securitization of financial assets from PPP transport infrastructure projects does not constitute an independent branch of law capable of being governed by a single, separate statute; rather, it is an applied legal field of an interdisciplinary and cross-sectoral character.
The legal aspects of securitization in this field intersect with multiple areas of law, such as the Law on Investment in the Form of Public–Private Partnership, the Law on Securities, the Law on Credit Institutions, and the Civil Code. The relevant regulations must be harmonized to govern a continuous chain of conduct, from project formation and the creation of underlying assets to the issuance and trading of securities on the market.
The second characteristic is that the object of regulation is "property rights" formed in the future
Unlike conventional securitization, the underlying asset in the securitization of financial assets from PPP transport infrastructure projects is the right to receive future service revenues (for example, the right to collect road tolls). This right constitutes a form of property right derived from infrastructure exploitation rights, possessing a certain degree of legal independence but being closely linked to obligations relating to the operation and maintenance of the project facility. As a result, the transfer by the PPP project enterprise of such property rights without transferring ownership of the facility to the SPV gives rise to legal challenges. This issue becomes particularly significant and prone to dispute in circumstances where the holder of the toll collection right is a legal entity independent from the owner of the asset. During the operation and exploitation of transport infrastructure, toll collection may be affected, interrupted, or adjusted, thereby impacting the stability of cash inflows and, consequently, directly affecting the ability to pay principal and interest on the issued securities.
The third characteristic is that a key actor in securitization is the Special Purpose Vehicle (SPV), with a special scope of activities
There are multiple participants involved in securitization, each with different roles and scopes of responsibility, among which the SPV is a special entity that acts as an intermediary “legal shell,” whose sole function is to acquire assets and issue securities, and which does not engage in other business activities in order to minimize potential risks. The SPV carries out the issuance of securities; however, the SPV itself has no business operations, no other projects for capital raising purposes, and its capacity and creditworthiness are entirely dependent on the quality of the financial assets it acquires to implement the securitization of financial assets from PPP transport infrastructure projects.
This characteristic necessitates a separate and specific legal regime for this type of entity, governing its legal status, conditions for establishment, and operating mechanisms.
The fourth characteristic is that the law on the securitization of financial assets from PPP transport infrastructure projects imposes strict and high requirements on information transparency and credit rating
This characteristic is reflected in the fact that credit rating is mandatory for the issuance of securities through securitization, including the disclosure of information relating to the securities products, collateral assets, original assets, implementation procedures and processes, as well as the responsibilities of the parties involved.
In addition, credit rating is conducted with respect to the financial assets rather than the issuing entity. This is a mandatory requirement, because the SPV itself does not have other significant business activities apart from performing the function of acquiring financial assets from PPP transport infrastructure projects for the purpose of issuing securities, and therefore does not meet the conditions to be rated in the same manner as in ordinary securities issuance procedures. The separation between the capacity of the issuing entity and the quality of the assets owned by that entity requires strict and complex legal regulation; if this requirement is not ensured, securitization risks degenerating into a form of ordinary corporate securities issuance.
2. Current status of the law governing the securitization of financial assets from PPP transport infrastructure projects
2.1. Provisions of the Civil Code
In order to carry out the securitization of financial assets from PPP transport infrastructure projects, a prerequisite is that a clear legal basis must be established for the transfer of the right to collect fees from the project enterprise (in its capacity as the originator) to the SPV. Such a legal basis is reflected in two aspects, including: (i) the right to collect fees constitutes a type of asset (a property right); and (ii) the transfer of the right to claim payment of service usage fees from the project enterprise to the SPV must reach a state in which the project enterprise is completely divested of such rights and the relationship between the right to claim payment of service usage fees and the project enterprise is fully terminated..
Clause 1, Article 105 of the Civil Code 2015 stipulates that “Assets include objects, money, valuable papers, and property rights.” Article 115 of the Civil Code 2015 provides that “Property rights are rights that can be valued in money, including property rights to intellectual property objects, land use rights, and other property rights”. However, the Civil Code 2015 and related legal instruments do not provide an explanation of what constitutes “other property rights” or the criteria for their determination.
Accordingly, the core difficulty lies in the absence of a sufficiently certain legal basis to determine whether the right to collect fees is recognized as a property right and whether such right may be transferred (sold outright) to another legal entity. This constitutes a highly significant legal issue, because in order to use the right to collect fees as a financial asset for securitization purposes, the bundle of rights of the relevant holder must be clearly, rigorously, and definitively established, with sufficient legal grounds to draw a clear and independent boundary between the underlying asset and the property rights derived from that original asset.
Under international structured finance practice, courts commonly examine eight factors in assessing the risk of recharacterization, including: (1) the language used in the transaction documents and the conduct of the parties; (2) recourse to the seller; (3) the seller’s retention of servicing functions and/or commingling of collections; (4) the purchaser’s failure to investigate the debtor’s creditors (in the case of the purchase of receivables); (5) the seller’s right to any excess proceeds; (6) the purchaser’s unilateral right to modify pricing terms; (7) the seller’s unilateral right to modify or compromise the terms of the underlying assets; and (8) the seller’s retention of a repurchase right[11]. Specifically, where the originator retains recourse when the underlying assets encounter distress, or retains the right to benefit from residual cash flows, a court may have grounds to conclude that the transaction merely constitutes a secured financing rather than a true sale. If the transaction is recharacterized, the securitized assets will be consolidated into the originator’s bankruptcy estate upon its insolvency, thereby eliminating legal protection for ABS investors and nullifying the principle of asset isolation.
The Civil Code 2015 constitutes the foundational and fundamental legal instrument governing specialized areas of law, including finance. The absence of a legal framework that quantitatively specifies these criteria represents the most significant technical barrier, not only rendering securitization infeasible in practice but also causing major financial institutions - particularly foreign institutions - to hesitate in participating in Viet Nam’s securitization market due to unquantifiable legal risks.
2.2. Provisions of the Law on PPP
The legal foundation for the formation of underlying assets (fee-collection cash flows) in transport infrastructure projects is primarily prescribed in the Law on Investment in the Form of Public–Private Partnership 2020 (amended in 2024 and 2025) (the Law on PPP Investment 2020). Clause 8, Article 3 of the Law on PPP Investment defines a “PPP project enterprise” as “an enterprise established by an investor for the purpose of entering into and performing a PPP project contract.” The PPP project enterprise is the legal entity that directly generates, owns, and manages cash flows arising from project operation.
The above-referenced legal provisions indicate that the project enterprise is the owner of inbound cash flows formed from fee-collection rights (from service users directly or from the State) and possesses the full bundle of ownership powers to possess, use, and dispose of such inbound cash flows. These inbound cash flows constitute receivables with a high degree of stability, regularity, and relatively clear temporal determination. This is regarded as the first and most important legal and economic basis ensuring the feasibility of securitization.
Through the PPP contract entered into with the competent state authority, the PPP project enterprise is granted lawful ownership of all revenues generated from the operation and business of the facility (BOT fees) throughout the contract term. Such cash flows, after deduction of operating and maintenance costs and other financial obligations, constitute the underlying “asset” that may be securitized.
However, a core legal issue arises regarding the nature and transferability of this “fee-collection right,” because the Law on PPP Investment and relevant implementing instruments currently lack clear provisions as to whether the PPP project enterprise may freely transfer all or part of this right to a third party (such as an SPV), and if so, under what conditions and subject to what approvals from state authorities. This lack of clarity creates a legal gray area, posing a latent risk to any securitization transaction.
2.3. Provisions of the Law on Enterprises 2020
The SPV constitutes the central and indispensable element in a securitization transaction under international practice. The special nature of this legal entity is reflected not only in its single-purpose function - namely, to acquire financial assets and issue securities - but also in its legal status, organizational structure, and operational modalities, all of which must satisfy two fundamental legal principles: the bankruptcy remoteness principle and the “true sale” principle. Under the bankruptcy remoteness principle, the SPV must be structured as a legal entity that is entirely independent, both legally and financially, from the Originator[12]. This ensures that, in the event of the Originator’s insolvency or bankruptcy, its creditors may not have recourse to the pool of assets that the Originator has transferred to the SPV. The assets of the SPV may be used solely for the purpose of satisfying the claims of investors who have purchased the securities issued by the SPV itself. Under the “true sale” principle[13], the transfer of assets from the Originator to the SPV must constitute a genuine, final sale transaction, rather than a secured loan. Such a transaction must ensure that the transferred assets are removed from the Originator’s balance sheet, thereby separating the risk associated with the assets from the credit risk of the Originator.
Vietnamese law currently does not recognize a distinct concept or provide a specific legal framework for an “SPV” or a “Special Purpose Company” (SPC). Under the Law on Enterprises 2020 (Law No. 59/2020/QH14), an SPV established in Viet Nam would have to be registered as one of the conventional forms of enterprise, such as a limited liability company or a joint stock company. The Law on Enterprises is designed to govern companies engaging in diversified profit-making activities and does not contain special provisions to ensure bankruptcy remoteness or to restrict an SPV’s activities exclusively to the scope of a specific securitization transaction.
In relation to the PPP project enterprise, it is necessary to make a clear distinction: the “PPP project enterprise” as defined under the Law on PPP Investment is, in substance, the Originator in a securitization structure, rather than the SPV. The PPP project enterprise is the entity that directly implements the project and bears all operational and business risks; as such, it cannot satisfy the requirement of bankruptcy remoteness.
Accordingly, although the Law on Enterprises serves as the principal statute governing the establishment, organization, and operation of enterprises in general, it does not contain specific provisions that could serve as a legal basis for the establishment, organization, and operation of SPVs. This gap necessitates the adoption of supplementary legal regulations to enable the formation of SPVs and the implementation of securitization transactions.
2.4. Law on Securities No. 54/2019/QH14 and its implementing guiding instruments
The legal framework governing the issuance and trading of securities in Viet Nam is currently regulated primarily by the Law on Securities 2019.
Article 4 of the Law defines “securities” as assets, including such types as shares, bonds, fund certificates, warrants, and derivative securities. Notably, the Law on Securities 2019 and its implementing guiding instruments do not provide a separate definition of, or specific legal provisions governing, securitization.
In the absence of a separate category, any securities issued from a securitization transaction (for example, by an SPV) would have to be classified under one of the existing categories, with the most likely classification being “corporate bonds”. The application of the general regulatory regime for corporate bonds to asset-backed securities (ABS) may fail to accurately reflect the specific nature of this product. The risk profile of ABS is linked to a specific, segregated pool of underlying assets, whereas the risk of conventional corporate bonds is tied to the issuer’s overall business operations and its general capacity to repay.
The Law on Securities and implementing instruments such as Circular No. 96/2020/TT-BTC prescribe stringent conditions for public offerings of securities (for example, requirements relating to charter capital, profitable business operations, and a feasible issuance plan), as well as periodic and ad hoc disclosure obligations. However, applying these requirements to securitization transactions reveals significant shortcomings. The current disclosure regime is designed for ordinary operating enterprises and focuses on financial statements, business performance, and the corporate governance structure of the issuing entity itself. In an ABS transaction, by contrast, the issuer is the SPV - a legal entity with no business operations, no employees, and established solely to serve as a financial intermediary. As a result, the financial statements of an SPV carry limited substantive meaning.
The most critical information for ABS investors, however, concerns the quality and performance of the underlying asset pool, such as historical data and forecasts on traffic volume, toll revenue, operating costs, expected default rates, and the macroeconomic assumptions used in valuation models. The current legal framework does not provide standardized templates or specific disclosure requirements tailored to this type of asset.
The Law on Securities 2019 (as amended and supplemented) has made significant progress in tightening regulations to protect investors, particularly bond investors. These measures include clarifying the responsibilities of intermediaries (such as advisory firms and auditors), strengthening the supervisory role of the State Securities Commission, and introducing mechanisms to safeguard market safety and stability. Nevertheless, these mechanisms are primarily designed to protect investors against risks arising from the issuing entity. By contrast, the principal risks associated with ABS stem from the underlying assets themselves. Accordingly, there is a need for asset-specific investor protection mechanisms, such as clear regulations on the role, responsibilities, and operational standards of the Trustee, who represents investors’ interests in supervising the assets and related cash flows.
3. Some proposals for improving the legal framework
From the foregoing analysis, it can be seen that the application of securitization to transport infrastructure investment in Viet Nam is facing systemic legal and practical barriers. These barriers include the absence of structural elements such as a dedicated legal framework for special purpose vehicles (SPVs), specific regulations on asset-backed securities (ABS) regarding offering conditions, disclosure obligations, and tailored investor protection mechanisms, as well as infrastructural factors such as the underdevelopment of the credit rating market.
Given these legal obstacles, solutions to improve the legal framework for applying securitization to transport infrastructure projects under the public–private partnership (PPP) model cannot be limited to isolated amendments to the Law on Investment under the Public–Private Partnership Method or the Law on Enterprises 2020. Rather, they require a more universal and comprehensive regulatory adjustment. The author argues that Viet Nam currently lacks a coherent legal framework on securitization. Therefore, in order to apply securitization to transport infrastructure investment under the PPP model in particular, and to the financial market in general, it is necessary to implement comprehensive research programs and projects, both theoretical and practical, drawing on international experience, so as to propose a legal framework that is specific and suitable to the Vietnamese context. On that basis, the following legal issues should be considered for amendment and supplementation within the existing legal system:
- Clearly establishing the “true sale” principle, in order to ensure that financial assets transferred from PPP project enterprises to SPVs no longer retain any legal or economic linkage with the originator. It is necessary to introduce clearer and more robust provisions in civil law governing the separation between the originator and the SPV, so as to ensure the principle of bankruptcy remoteness, preventing any legal connection between the originator and the SPV in cases where the originator becomes insolvent or is subject to lawsuits or civil claims relating to obligations existing prior to the transfer of financial assets to the SPV for securitization purposes. In addition, a legal corridor should be established to allow creditors to transfer financial assets (together with rights to manage and enforce collateral, where applicable) to SPVs. For example, banks should be entitled to transfer their rights to recover debts arising from credit contracts entered into with customers, or PPP project enterprises should be entitled to transfer toll collection rights from PPP projects to SPVs. Such transfers should be effective against third parties on the basis of an approval document issued by the State Securities Commission, without requiring the written consent of such third parties.
- Securities law should permit the assessment and credit rating to be conducted with respect to the financial assets used by the SPV for securitization, rather than with respect to the SPV itself. This would necessitate the promulgation of a dedicated legal framework governing credit assessment and rating activities for securitization, including regulations on procedures, dossiers, information provision, and transparency. New rules should be developed on disclosure obligations, issuance dossiers, and related procedures, focusing on the financial assets themselves, without requiring information on the issuing entity or using such information as a condition for securities issuance. It is also necessary to establish a specialized authority on securitization, under the State Securities Commission, to monitor, supervise, and address issues arising in the securitization market, including the securitization of financial assets derived from PPP transport infrastructure projects.
- Improving enterprise law to establish a legal framework for the formation and operation of SPVs, which may be organized in the form of limited liability companies or joint stock companies, but with functions and business lines strictly limited to securitization activities.
As the Vietnamese legal system is heavily influenced by the civil law tradition, the absence of regulations, or the existence of regulations that are insufficiently detailed or clear, tends to generate hesitation and concern in the execution of transactions, particularly complex financial transactions such as securitization. The promulgation of new legal instruments or amendments to existing ones must therefore ensure the establishment of a sufficiently clear and detailed legal framework, so that relevant stakeholders have the confidence and determination to implement such transactions.
4. Conclusion
Vấn đề cốt
lõi của chứng khoán hoá tài sản tài chính từ dự án PPP hạ tầng giao thông là
chuyển hoá khả năng sử dụng dòng tiền tương lai có khả năng thu về từ chính dự
án PPP để huy động vốn phục vụ cho hoạt động đầu tư, xây dựng của chính nó.
Giải pháp này không chỉ giúp giảm áp lực lên nguồn vốn đầu tư công, huy động sự
tham gia tích cực của kinh tế tư nhân vào thực hiện các nhiệm vụ và chức năng
kinh tế của Nhà nước mà còn góp phần tạo nên sự năng động và đa dạng của thị
trường tài chính, thu hút nhà đầu tư trong và ngoài nước.
REFERENCES
1. Research articles:
1.1.
Frank J. Fabozzi, Vinod Kothari (2008),
Introduction to securitization, ISBN 978-0-470-37190-9.
1.2.
Frederic Blanc-Brude, Dejan Makovsek (2013),
“Construction Risk in Infrastructure”, EDHEC Business School.
1.3.
He, J. (2019) When PPP Meets Asset
Securitization—The First PPP Experience Enlightenment Project of Asset-Backed
Special Programs. Open Journal of Social Sciences, 7, 120-131.
https://doi.org/10.4236/jss.2019.712010
1.4.
Lewis S. Ranieri (1996), “The Origins of
Securitization, Sources of Its Growth, and Its Future Potential, ISBN
electronic: 9780262276986.
1.5.
Nguyen Kim Phuoc (2019), “Real Estate Securitization: Theory and Practice”, Ho Chi Minh City Open University Journal of Science – Conference Proceedings; “Intellectual Property Securitization: A New Solution for Commercialization and Capital Mobilization”, Banking Journal
1.6.
Schwarcz, Steven L., Securitization, Structured
Finance, and Covered Bonds (December 14, 2012). Available at SSRN:
https://ssrn.com/abstract=2182597 or http://dx.doi.org/10.2139/ssrn.2182597
1.7.
Schwarcz, Steven L., The Alchemy of Asset
Securitization. Stanford Journal of Law, Business, and Finance, Vol. 1, p. 133,
1994, Available at SSRN: https://ssrn.com/abstract=868520
1.8.
Tran Quoc Trung, Truong Thi Thuy Trang (2018), “Accessing Capital through Securitization: Regulatory Landscape in China and Policy Implications for Vietnam”; “Securitization: International Implementation Experience and Several Recommendations for Viet Nam”, Banking Journal.
1.9.
ran Thi Van Anh (2019), “Banking Non-Performing Loan Securitization: International Experience and Lessons for Viet Nam”, Scientific Research Project at Vietnam National University, Hanoi.
2. Newspaper and journal articles:
2.1. Article "Securitizing Project Finance
Loans: Are PF CLOS Poised for a Comeback?", The Journal of Structured
Finance) https://www.milbank.com/a/web/14883/Securitizing_Project_Finance_Loans.pdf .
2.2.
Article “Assessing Value for Money of the PPP
published on https://ppp.worldbank.org/assessing-value-money-ppp. Accessed on 2 November 2025.
2.3.
Article “Asset-Backed Securities” published on (https://www.sec.gov/spotlight/dodd-frank/assetbackedsecurities.shtml). Accessed on 2 November 2025.
2.4.
Article “Federal Support for Financing State
and Local Transportation and Water Infrastructure (Congressional Budget Office
- CBO) published on https://www.cbo.gov/system/files/2018-10/54549-InfrastructureFinancing.pdf. Accessed on 2 November 2025.
3.
Legal documents:
3.1.
Civil Code 2015 (Law No. 91/2015/QH13);
3.2.
Law on Enterprises 2020 (Law No. 59/2020/QH14);
3.3.
Law on Investment in the Form of Public–Private Partnership 2020 (Law No. 64/2020/QH14);
3.4.
Law on Securities 2019 (Law No. 54/2019/QH14).
[*] Lawyer, PhD Candidate (Cohort 27), Hanoi Law University; Email: hahuyphong@gmail.com; approved for publication on 31 December 2025.
[1] The Origins of
Securitization, Sources of Its Growth, and Its Future Potential, 1996, ISBN
electronic: 9780262276986.
[2] Some representative works include: Tran Thi Van Anh (2019), “Securitization of Non-Performing Loans of Banks: International Experience and Lessons for Vietnam”, Scientific Research Project at Vietnam National University, Hanoi; Nguyen Kim Phuoc (2019), “Real Estate Securitization: Theoretical Foundations and Practical Implementation”, HCMCOUJS – Conference Proceedings; “Securitization of Intellectual Property Assets – A New Solution for Commercialization and Capital Mobilization”, Banking Review; Tran Quoc Trung, Truong Thi Thuy Trang (2018), “Accessing Capital through Securitization: Regulatory Landscape in China and Policy Implications for Vietnam”; “Securitization: International Implementation Experience and Several Recommendations for Vietnam”, Banking Review; Ha Huy Phong (2021), “Legal Regulations and Practical Application of Financial Mechanisms in BOT Projects in the Transport Infrastructure Sector in Vietnam”, Proceedings of the Conference “BOT Contracts in the Laws of Certain Countries and Lessons for Vietnam”, Hanoi Law University.
[3] Frank J. Fabozzi, Vinod Kothari (2008),
Introduction to securitization, ISBN 978-0-470-37190-9.
[4] Professor of Law and Business at Duke University School of Law (United States), https://law.duke.edu/fac/schwarcz/ - accessed at 09:00 on 24 December 2025.
[5] Schwarcz, Steven L., The Alchemy of Asset
Securitization. Stanford Journal of Law, Business, and Finance, Vol. 1, p. 133,
1994, Available at SSRN: https://ssrn.com/abstract=868520
[6] Schwarcz, Steven L., Securitization, Structured
Finance, and Covered Bonds (December 14, 2012). Available at SSRN:
https://ssrn.com/abstract=2182597 or http://dx.doi.org/10.2139/ssrn.2182597
[7] Assessing Value for Money of the PPP (https://ppp.worldbank.org/assessing-value-money-ppp) - accessed at 09:00 on 24 December 2025.
[8] Pursuant to Point (c), Clause 2, Article 7 of the Law on Construction 2014 (as amended and supplemented in 2025), “For investment projects implemented under the public–private partnership modality (hereinafter referred to as PPP projects), the investor shall be the PPP project enterprise established in accordance with the law on investment under the public–private partnership modality”.
[9] Frederic Blanc-Brude, Dejan Makovsek (2013),
“Construction Risk in Infrastructure Project
Finance”, EDHEC Business School (https://chaire-eppp.org/files_chaire/blanc-brude-makovsek.pdf), accessed at 15:30 on 26 December 2025.
[10] Structuring the PPP Contract, https://ppp.worldbank.org/structuring-ppp-contract - accessed on 24 December 2025.
[11] True Sale? Or Not True Sale? That is the
Question - Hunton Andrews Kurth LLP, accessed on 22 October 2025. (https://www.hunton.com/insights/legal/true-sale-or-not-true-sale-that-is-the-question)
[12] Bankruptcy Remote, Glossary, Thomson Reuters
Practical Law (https://uk.practicallaw.thomsonreuters.com/8-386-1827?transitionType=Default&contextData=(sc.Default)&firstPage=true#:~:text=Term%20used%20to%20describe%20an,and%20sponsors%20using%20this%20technique.
[13] True Sale? Or Not True Sale? That is the
Question - Hunton Andrews Kurth LLP, accessed on 22 October 2025 (https://www.hunton.com/insights/legal/true-sale-or-not-true-sale-that-is-the-question)
