The State Bank of Vietnam has issued Circular 08/2023/TT-NHNN on conditions for borrowing foreign loans not guaranteed by the Government, replacing Circular No. 12/2014/TT-NHNN effective from August 15, 2023.
Despite the concerns of banks that the revised lending regulations could significantly disrupt offshore lending, the new Circular still contains less stringent regulations than anticipated. These changes appear to be intended to recognize the important role that foreign capital can play in the current economic turmoil.
The new circular separates the borrowing purposes for short-term loans and medium/long-term loans.
Short-term foreign loans are used as follows:
- restructuring the borrower’s existing foreign debt (there is no restriction on the term of the restructured debt, which means that the short-term loan can even be used to refinance the medium/long-term loans); or
- payment of short-term payables (excluding principal of domestic loans, which indicates that financing interest payments may be allowed) arising from the implementation of investment projects, business plans other business, or projects of the borrower and measured in accordance with applicable accounting regulations.
Medium and long-term foreign loans are used as follows:
- restructuring the Borrower’s existing foreign debt;
- financing the implementation of the borrower’s investment project; or
- financing the implementation of the borrower’s business plan or other project.
The new circular no longer allows the borrowing of foreign capital to implement the investment project or business plan of the company receiving the borrower’s investment capital.
The new circular explicitly allows borrowing capital to implement:
- “investment project”, is defined as a project licensed for investment and;
- “other project”, means any other project that does not fall within the definition of an “investment project”.
This formulation is therefore broader than that defined in recent iterations of the new Circular in draft form. Although the new Circular does not mention whether the injection of share capital (for example, capital contribution or registration to purchase shares) is an acceptable purpose for generating foreign loans. This looser wording seems to imply that the SBV could adopt a more relaxed approach to financing projects not specifically related to investment licenses, although this still requires guidance from the SBV.
The borrower must prepare a detailed plan for the use of foreign loans or debt restructuring – which needs to be approved by the borrower’s competent business authority (and adjusted if there are any changes) to demonstrate the purpose of the loan. purposes of foreign loans, excluding borrowing to implement the borrower’s investment project. In case the loan must be registered with the SBV, the plan must be submitted to the SBV as part of the loan registration application.
The new circular also clearly stipulates the loan limit for each specific purpose.
- Implementation of business plans and projects: According to current regulations, the total outstanding balance of medium and long-term loans for the implementation of business plans and projects must not exceed the internal needs of the borrower (approved by the borrower). approved in the plan of using foreign loans).
- Implementation of investment projects: According to current regulations, the total outstanding balance of all medium and long-term loans must not exceed the total loan capital (which is the difference between the total investment capital and the equity capital to implement the project). projects specified in the Investment License). According to the New Circular, only the principal amount (excluding interest and fees) of medium/long-term loans is included in this ceiling, which seems to offer more flexibility.
- Restructuring existing foreign debts: The new circular stipulates that the loan principal of a new refinance loan must not exceed the total outstanding balance of principal, interest, fee of the refinance loan, and fee of the refinancing loan. new funding determined at the time of debt restructuring. day. This resolves the ambiguity about the new loan condition not to incur additional borrowing costs under current regulations.
Furthermore, in the case of medium/long-term loans, the borrower must repay the refinance loans within five business days of the refinance loan withdrawal date, to ensure compliance with the refinancing limits. loan pursuant to paragraphs (1) and (2) above, as applicable. This requirement is an improvement over current regulations as the timing is not clear; and the SBV’s general interpretation is that the refinancing loan needs to be repaid on the same day as the new loan is disbursed.
Vietnamese law generally requires foreign loans to be disbursed in foreign currencies, as loans in VND are only permitted in limited circumstances (e.g. a foreign-invested company borrowing money from profits of foreign shareholders divided in VND, or the borrower is a microfinance institution).
The new circular currently allows parties to agree on foreign loans in VND, but the disbursement and repayment of debts are made in foreign currencies at the exchange rate of a credit institution agreed upon by the parties.