Written by: Truc Nguyen
Current laws of Vietnam have allowed a Vietnamese enterprise to borrow capital loan from an overseas enterprise though such loan is not secured by the Government. It however should be noted that such activity is strictly controlled by the State Bank of Vietnam (“SBV”) pursuant to Ordinance on Foreign Exchange Control 2005 (as amended on 2013).
By this article, BLawyers Vietnam would like to raise some notes on challenges from the SBV when the related parties apply for a foreign loan.
Pursuant to Circular No. 03/2016/TT-NHNN (“Circular 03”) providing the instructions on enterprise’s foreign borrowing and foreign debt repayment, there are 03 following types of the foreign loans requiring registration with the SBV:
- Medium-term and long-term foreign loan with the loan term being more than 12 months from the date of withdrawing loan amount;
- Short-term loan, which is renewed to have the total loan terms being more than 12 months; or
- Short-term loan with the outstanding principal not fully paid after 01 year from the loan withdrawal date and having no agreement on extending the loan term, excepting for case that the borrower fully paid the outstanding principal within 10 days since the date of fully 01 year from the withdrawal date.
(In the context of this article, we will refer them as “medium-or-long-term foreign loan” or “MLT Loan”.)
A Vietnam-based borrower shall proceed the registration for the MLT Loan at the SBV with the detailed procedure as follows:
1. Application dossier
Main documents for an application dossier for foreign loan registration shall include: (i) Application for MLT Loan registration; (ii) Agreement recording the MLT Loan and all its appendices (if any); (iii) Documents proofing the borrowing purposes, which are usually the plans to use the foreign loan for the borrower’s operation such as production and business plans, investment projects or the plan on restructuring the foreign debts of the borrower; and (iv) Certificate on establishment or confirming the business registration of the borrower.
If a MLT Loan is converted from a short-term foreign loan, the borrower should additionally submit (i) the report on using the loan amount; and (ii) a written confirmation on the status of foreign loan withdrawal and repayment of the commercial bank at which the account on foreign borrowings and debt repayment is opened.
Besides the above-mentioned documents, the SBV could require some additional documents if the foreign loan is the secured one or the borrower is state-owned enterprises, credit institutions or foreign bank branches.
2. Timeline for registration and authority for settling
The duration for the SBV to issue an official approval or rejection of confirmation of loan registration is 12 or 15 working days from the date receiving a full and valid application dossier, subject to the manner of submission which is made via online or direct submission.
The central SBV (i.e. the Department of Foreign Exchange Administration) shall confirm on the foreign loan registration with the loan amount more than USD10 million (or the other currencies having the equivalent amount). For the loan amount up to USD10 million (or the other currencies having the equivalent amount), the provincial-level SBV shall take charge in examine the application dossier for foreign loan registration of the borrower.
Which matters could be practically challenged by the SBV?
Firstly, the SBV could challenge the applicant about the purpose of MLT Loan. What such borrower uses the loan for? Pursuant to Circular No. 12/2014/TT-NHNN of the SBV, the borrower is only allowed to use the foreign loan for:
(i) Implementing the business plans or investment projects of the borrowers and/ or the enterprise(s) to which the borrowers make the direct capital contribution; or
(ii) Restructuring the foreign debts incurred by the borrower without increasing the loan expenses. To prove for this purpose, a written confirmation of the commercial bank on the incurred foreign debts and a plan for foreign debt restructure are required for the SBV’s assessment on the dossier of MLT registration.
We experienced that if a MLT Loan is converted from a short-term one, the purpose of the loan is determined based on the purpose of expenses using the loan amount. Thus, the applicant must be very careful when using the short-term loan to avoid violating the loan purpose as above-mentioned. If the SBV found that a borrower’s use of foreign loan is improper with regulations of Vietnam law, such borrower could be fined up to VND400 million (~USD17,100).
Secondly, a borrower should submit the application dossier for MLT Loan registration within a maximum duration of 30 days from the date on which the MLT Loan agreement or the agreement on loan term extension was made. The delay of submission after such prescribed period can lead the borrowers to a fine up to VND60 million (~USD2,500).
Finally, the SBV could not approve the MLT registration if the borrower could not state that it is able to repay the principal of the loan amount and its interest within the loan term. A cash-flow plan stating the ability to make loan and interest repayment is a ground for the SBV’s assessment on the application dossier for MLT Loan registration.