Circular No. 12/2014/TT-NHNN dated March 31, 2014 of the Vietnam State Bank regulating on conditions for foreign loans of enterprises without government guarantee

CIRCULAR

Providing conditions on enterprises’ foreign borrowing without government guarantee[1]

Pursuant to June 16, 2010 Law No. 46/2010/QH12 on the State Bank of Vietnam;

Pursuant to June 16, 2010 Law No. 47/2010/QH12 on Credit Institutions;

Pursuant to the National Assembly Standing Committee’s Ordinance No. 28/2005/PL-UBTVQH11 of December 13, 2005, on Foreign Exchange;  

Pursuant to Ordinance No. 06/2013/PL-UBTVQH13 of March 18, 2013, amending and supplementing a number of articles of the Ordinance on Foreign Exchange;

Pursuant to the Government’s Decree No. 156/2013/ND-CP of November 11, 2013, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

Pursuant to the Government’s Decree No. 219/2013/ND-CP of December 25, 2013, on management of borrowing and repayment of foreign loans without government guarantee;

At the proposal of the Director of the Department of Foreign Exchange Management,

The Governor of the State Bank of Vietnam promulgates the Circular providing conditions on enterprises’ foreign borrowing without government guarantee.

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation and subjects of application

1. This Circular provides conditions on foreign borrowing without government guarantee by residents being enterprises, cooperatives, cooperative unions and credit institutions (other than commercial banks being state enterprises) and foreign bank branches lawfully established and operating in Vietnam (below referred to as borrowers), except the cases specified in Clauses 2 and 3 of this Article.

2. Conditions on enterprises’ issue of international bonds without government guarantee must comply with the Government’s regulations on issue of corporate bonds.

3. Conditions on foreign borrowing by commercial banks being state enterprises are provided in separate regulations of the State Bank of Vietnam (below referred to as the State Bank).

Article 2. Interpretation of terms

In this Circular, the following terms and phrases are construed as follows:

1. Self-borrowed and self-paid short-term foreign loan (below referred to as short-term foreign loan) means a foreign loan with a term of up to one (1) year, which is not guaranteed by the Government.

2. Self-borrowed and self-paid medium- or long-term foreign loan ((below referred to as medium- or long-term foreign loan) means a foreign loan with a term of over one (1) year, which is not guaranteed by the Government.

3. Production and business plan using a foreign loan means a production and business plan which proves the borrower’s lawful and reasonable purpose of and demand for a foreign loan and repayment capacity.

4. Investment project means a collection of proposals to spend capital over a medium or long term on investment activities in a specific locality within a given period.

5. Foreign loan cost means the total expense expressed as an annual percentage of the value of a foreign loan, which includes the interest rate of the loan and other expenses related to that loan the borrower must pay to the lender, guarantor, insurer, agents and other related parties.

Article 3. Principles of application of conditions on foreign borrowing

1. Borrowers and foreign loans must satisfy general conditions and additional conditions specifically applicable to these loans.

2. Borrowers shall comply with this Circular and other relevant laws when signing foreign loan agreements and using foreign loans.

3. The State Bank shall supervise borrowers in observing conditions on foreign borrowing through its certification of foreign loan registration. Borrowers of loans not subject to registration with the State Bank shall take responsibility before law for their observance of the conditions provided in this Circular.

Article 4. Inspection and examination of observance of conditions on foreign borrowing

The State Bank shall inspect and examine borrowers in observing the conditions on foreign borrowing provided in this Circular in accordance with law.

Chapter II

GENERAL CONDITIONS

Article 5. Purposes of foreign borrowing

A borrower may take out a foreign loan for the following purposes:

1. To implement a production and business plan or an investment project using a foreign loan of:

a/ The borrower:

b/ An enterprise to which the borrower directly contributes capital (applicable only to medium-or long-term foreign loans). In this case, the ratio of the foreign loan to the total value of loans for the production and business plan or investment project must not exceed the rate of capital contributed to the enterprise by the borrower.

The production and business plan or investment project using a foreign loan specified in this Clause must be approved by a competent authority according to relevant laws of Vietnam and conform with the scope of the enterprise establishment license, enterprise registration certificate, business registration certificate, investment certificate, or cooperative or cooperative union registration certificate of the borrower or of the enterprise to which the borrower directly contributes capital.

2. To restructure foreign debts of the borrower without increasing the loan cost.

Article 6. Foreign loan agreements

1. A foreign loan agreement must be signed in writing before the loan is disbursed and must not be contrary to Vietnamese law, except the case specified in Clause 2 of this Article.

2. For a short-term foreign loan borrowed by a credit institution or foreign bank branch, the loan agreement must be signed in writing before or at the time of disbursement of the loan and must not be contrary to Vietnamese law.

Article 7. Currency of foreign loans

1. A foreign loan shall be borrowed in a foreign currency.

2. A foreign loan may be borrowed in Vietnam dong only in the following cases:

a/ The borrower is a micro-finance institution;

b/ The borrower is a foreign-invested enterprise which takes out the loan in Vietnam dong from the shared profits from direct investment activities of the lender being a foreign investor contributing capital to the borrower;

c/ Other cases considered and approved by the State Bank Governor based on the practical situation and necessity of each case.

Article 8. Security transactions for foreign loans

1. Security transactions for foreign loans must not be contrary to relevant laws of Vietnam.

2. The use of shares, stocks or capital contributions of Vietnamese enterprises or convertible bonds issued by Vietnamese enterprises as collateral for non-residents being foreign lenders or involved parties must comply with regulations on securities, rates of foreign holding in Vietnamese enterprises and/or other relevant laws.

Article 9. Foreign loan cost

1. The foreign loan cost shall be agreed by the borrower, the lender and involved parties.

2. In order to administer the limit of self-borrowed and self-paid foreign loans, when necessary, the State Bank Governor may decide on application of conditions on foreign loan cost; and set and announce the cap of foreign loan cost in each period.

Chapter III

ADDITIONAL CONDITIONS

Article 10. For borrowers being credit institutions and foreign bank branches

1. Conditions on borrowing of short-term foreign loans:

a/ Credit institutions and foreign bank branches must comply with the State Bank’s regulations on safety ratios in banking operations except in case the non-compliance with the law on safety ratios has been approved by the Prime Minister or the State Bank Governor in accordance with law;

b/ Credit institutions and foreign bank branches may borrow short-term foreign loans only for supplementing short-term credit capital.

2. Conditions on borrowing of medium- and long-term foreign loans:

Credit institutions and foreign bank branches may only borrow medium- and long-term foreign loans when complying with the State Bank’s regulations on safety ratios in banking operations, except in the following cases:

a/ The non-compliance with the law on safety ratios has been approved by the Prime Minister or the State Bank Governor in accordance with law;

b/ The medium- or long-term foreign loan is eligible for being accounted as tier-2 capital of the credit institution or foreign bank branch and such loan helps the credit institution or foreign bank branch satisfy regulations on safety ratios.

Article 11. For borrowers other than credit institutions and foreign bank branches

1. Conditions on borrowing of short-term foreign loans

a/ The borrower may not borrow a short-term loan for medium- or long-term use;

b/ For a borrower being a state enterprise, the state enterprise’s short-term foreign loan must be approved in principle, appraised and accepted by competent authorities in accordance with the law on assignment and decentralization of the performance of state owners’ rights, responsibilities and obligations for state enterprises and state capital invested in enterprises.

2. Conditions on borrowing of medium- and long-term foreign loans:

a/ For a borrower being a state enterprise, the state enterprise’s medium- or long-term foreign loan  must be approved in principle, appraised and accepted by competent authorities in accordance with the law on assignment and decentralization of the performance of state owners’ rights, responsibilities and obligations for state enterprises and state capital invested in enterprises.

b/ For a borrower other than a state enterprise:

(i) For a borrower with an investment project using a foreign loan which has been granted an investment certificate, the borrower’s outstanding medium- and long-term loans (including domestic loans) for that project must not exceed the difference between the total investment capital and the contributed capital stated in the investment certificate;

(ii) For a borrower that borrows a foreign loan to implement a production and business plan or an investment project without an investment certificate, the borrower’s outstanding medium- and long-term loans (including domestic loans) for that project must not exceed the total loan demand for that plan or investment project approved by competent authorities in accordance with law.

Chapter IV

IMPLEMENTATION PROVISIONS

Article 12. Implementation provisions

1. This Circular takes effect on May 15, 2014.

2. The provisions of Chapter II of the State Bank’s Circular No. 09/2004/TT-NHNN of December 21, 2004, guiding enterprises’ foreign borrowing, are hereby annuled.

Article 13. Transitional provisions

Foreign loan agreements that take effect before the effective date of this Circular may be further implemented. Amendments and supplements made to those loan agreements from the effective date of this Circular must comply with this Circular.

Article 14. Organization of implementation

The Chief of the Office, the Director of the Foreign Exchange Management Department, heads of units of the State Bank, directors of provincial-level branches of the State Bank, chairpersons of the Boards of Directors, chairpersons of the Members’ Councils and general directors (directors) of credit institutions and foreign bank branches shall organize the implementation of this Circular.- 

For the State Bank Governor
Deputy Governor
DAO MINH TU