Counsel Than Trong Ly - J.A Le Thi Dung

DIMAC LAW FIRM

As you may know, Circular No. 08/2023/TT-NHNN stipulating requirements for foreign loans without the Government’s guarantee (“Circular 08”) will officially take effect as from 15 August 2023. This Circular replaces Circular 12/2014/TT-NHNN (“Circular 12”) with salient points as follows:

1.     Specifying 03 cases where foreign loans in VND is permitted

Article 10.2 specifically stipulates that only three (03) following cases are allowed to borrow foreign loans in VND:

a.     The borrower is a microfinance institution;

b.   The borrower is a foreign direct investment enterprise borrowing from profits earned from direct investments in the territory of Vietnam by the lender being a foreign investor making a capital contribution to the borrower; and

c.     The borrower withdraws loan capital and pays debts in foreign currency, and the debt obligation of the loan is determined in VND.

Previously, Circular 12 only stipulates two cases (a) and (b) above where foreign loans in Vietnam dong are allowed. Other cases will be considered by Governor of the State Bank based on the actual situation to decide whether borrowings in VND is permissible or not.

2.     Specifying regulations on loan purposes and limit of foreign short-term loans for borrowers being credit institutions, foreign bank branches

As prescribed in Article 14 and 15 of Circular 08, the borrower being a credit institution, foreign bank branch may borrow short-term, medium and long-term foreign loans for the following purposes: (1) Supplementing capital for credit extension activities according to growth credit of the borrower; and (2) Restructuring the foreign debt of the borrower but must satisfy the limit for short-term foreign loans as of December 31 of the year preceding the date of the loan

a.     30% for commercial banks; and

b.     150% for foreign bank branches, and other bank credit institutions.

However, it is noted that the regulations on short-term loan limits applicable to commercial banks, foreign bank branches, and other credit institutions will only take effect from 1 January 2024.

3.     Specifying foreign loan purpose of the borrowers being credit institutions, foreign bank branches

For short-term loans

According to Article 17 of Circular 08, the borrower who is not a credit institution or foreign bank branch is entitled to get short-term loans to (1) Refinance foreign debts (regardless of short-term loans, medium or long-term loans) and (2) Pay for short-term liabilities in cash (but excluding principals of domestic loans) of the borrower. Short-term liabilities are understood as debts incurred during the implementation of investment projects, production and business plans and other projects of the borrower and are determined according to the regulations on corporate accounting regime. Thus, a welcome move is that Circular 08 has removed the previous regulation in Circular 12 that prohibits short-term borrowing to pay debts arising from the implementation of investment projects, production and business plans or other long-term project of the borrower.

In addition, the borrower who must ensure financial safety criteria according to specialized laws is allowed to use short-term foreign loans to serve the borrower's professional activities with a limited term of use of the capital no more than 12 months from the time of withdrawal of foreign loans.

For medium and long term loans

Borrowers may only borrow medium- and long-term foreign loans for the following purposes: (i) Implementation of the borrower's investment projects; (2) Implementation of the production, business plans and other projects of the borrower; and (3) Restructuring the borrower's foreign debt.

The borrower must prove the purpose of foreign borrowing through documents such as (i) Investment certificate, Investment registration certificate or written approval of investment policy in accordance with the law on investment and relevant laws; (ii) The utilization plan of foreign loans in case of conducting the borrower's plan of production, business and other projects of the borrower; or (iii) Debt restructuring plan in case of foreign debt restructuring.

4.     Supplementing regulations on foreign loan limit for borrowers other than credit institutions and foreign bank branches

According to Article 18 of Circular 08, foreign loan limit for borrowers other than credit institutions and foreign bank branches will be applied to the following cases corresponding to each loan purpose:

a.    Case 1: borrowing to implement an investment project

In this case, the sum of outstanding principal amounts of the borrower’s medium/long-term domestic and foreign loans (including extended short-term loans and overdue short-term loans to medium/long-term) serving an investment project must not exceed the loan limit of the investment project.

In which, the loan limit of the above investment project is the difference between the total investment capital of the investment project and the investor's contributed capital recorded in the Investment Certificate, Investment Registration Certificate, and investment policy approval document.

b.    Case 2: borrowing to implement business plans or other projects of the borrower

For this case, the sum of outstanding debts of the borrower’s medium/long-term domestic and foreign loans (including extended short-term loans and overdue short-term loans to medium/long-term loans) shall not exceed total loan demand in the utilization plan of foreign loan approved by competent authorities in accordance with the law.

c.    Case 3: borrowing to refinance foreign debts

For this case, the maximum foreign loan amount for the purpose of restructuring foreign debt shall not exceed the total value of the outstanding principal, unpaid interest, and relevant expenses of the existing foreign debt and the expenses associated with the new loan determined at the time of restructuring.

In case the new foreign loan is a medium/long-term loan, within five (05) working days from the date of withdrawal of the new loan, the borrower shall repay the existing foreign loan so that after this 05-day period, the borrower can ensure the loan limit.

5.     Foreign loans in the form of imported goods with deferred payment are not subject to foreign loan conditions

As prescribed in Article 5 of Circular 08, foreign loans in the form of import of goods with deferred payment are not required to comply with the foreign loan conditions without Government’s guarantee but need to comply with regulations on (i) Management of foreign exchange for borrowing and paying foreign debts by enterprises; (ii) Regulations on commercial law, foreign trade management; and (iii) Other relevant provisions of law.