Consideration, overseas lenders and home debtors 8 min learn
After numerous rounds of drafts and consultations, on 30 June 2023 the State Financial institution of Vietnam (the SBV) lastly issued the long-anticipated rules on non-government assured cross-border overseas loans below Round No. 08/2023/TT-NHNN (the New Round). This replaces the present Round No. 12/2014/TT-NHNN (the Present Round) from 15 August 2023.
The SBV has reduce on many of the controversial adjustments proposed within the earlier drafts. It has primarily centered on regulating the use objective of overseas loans and the related course of for the borrower to justify, and the SBV to overview, the use objective, to make sure that Vietnamese debtors will use overseas loans for a sound objective and in probably the most environment friendly method. This Perception explains the important thing adjustments below the New Round and their impression on overseas lenders and home debtors.1
Key takeaways
In a welcome transfer, the SBV has determined to not undertake many of the controversial restrictions/necessities proposed within the earlier drafts, together with: a cap on borrowing prices (topic to uncertainty as as to whether the 20% cap on the rate of interest below Vietnamese legislation applies); a cap on complete overseas debt for the borrower’s basic enterprise actions; overseas alternate hedging necessities; and a restriction on utilizing short-term overseas loans for securities/shares buying and selling, actual property acquisition and challenge switch in Vietnam.
The important thing adjustments concentrate on the permitted use objective of overseas loans (which embrace worldwide bonds issued by Vietnamese firms). Typically, the SBV has taken a extra restrictive method on this challenge, with a view to be certain that Vietnamese debtors will solely borrow overseas loans for correct functions, and for legitimate funding initiatives and enterprise actions. Specifically: short-term overseas loans will be taken out to restructure the borrower’s overseas debt (which appears to incorporate overseas loans with all sorts of tenor) and for fee of its short-term payables (excluding onshore mortgage principal); and medium- or long-term overseas loans will be taken out to finance funding initiatives, enterprise plans or different of the borrower’s initiatives solely (not these of different entities wherein the borrower straight invests, as permitted below the present legislation), and for refinancing of the borrower’s present overseas debt.
Underneath the New Round, the borrower should, earlier than borrowing, put together an in depth overseas mortgage utilization plan/debt restructuring plan to justify the permitted objective of a overseas mortgage. This plan have to be submitted to the SBV for overview as a part of the mortgage registration course of to make sure that the borrower’s want for overseas debt is legitimate and cheap.
Limitation on overseas mortgage use functions
Underneath the present legislation:
a short-term overseas mortgage will be taken out for the implementation of enterprise plans and funding initiatives, and for refinancing of the borrower’s overseas debt, and can’t be used for a medium- or long-term objective; and
a medium- or long-term overseas mortgage will be taken out to finance an funding challenge or enterprise/manufacturing plan of the borrower, or of enterprises straight invested in by the borrower; and to refinance an present overseas mortgage of the borrower.
The New Round now solely permits the borrower to take out overseas loans to:
pay its short-term payables and restructure its personal overseas debt; and
implement its personal licensed funding initiatives (ie these granted with funding licences/in-principle funding approvals), and its personal particular marketing strategy and different initiatives (which aren’t required to be licensed below Vietnamese legislation).
Collectively, these are Permitted Exercise.
The borrower is now not permitted to make use of its overseas loans to finance an funding challenge or enterprise/manufacturing plan of an entity it has straight invested in. It isn’t clear whether or not a borrower could downstream proceeds from a overseas mortgage to such entities by way of an funding challenge (eg fairness contribution to such entities) – this can have to be thought of on a case-by-case foundation.
The New Round goes into extra element on the borrower’s overseas mortgage utilization plan/debt restructuring plan to justify the related Permitted Exercise that it’s going to use the overseas mortgage for. This plan have to be authorised by the borrower earlier than the overseas mortgage borrowing, and have to be submitted to the SBV for overview as a part of the mortgage registration course of to make sure that the borrower’s want for overseas debt is legitimate and cheap. This plan should even be adjusted by the borrower if there’s any change within the related circumstances (eg to the quantity or fee date of a short-term payable).
The New Round additional limits the usage of overseas loans by a non-credit establishment borrower, relying on its tenor, as mentioned under.
Brief-term overseas loans
Underneath the New Round, a short-term overseas mortgage can solely be used to:
pay the borrower’s short-term payables : decided based on its accounting requirements arising as a part of its implementation of the Permitted Exercise. Nevertheless, such short-term payables should not embrace principal quantities of the borrower’s present onshore loans (ie a overseas short-term mortgage should not be used to repay principal quantities of onshore loans). The New Round units out the usual type of the record of those short-term payables (together with the particular quantity, supposed fee date and authorized foundation for his or her fee) that’s included within the overseas mortgage utilization plan to be authorised by the borrower earlier than disbursement of the mortgage, and by the SBV (if the mortgage must be registered with it upon extension right into a medium- or long-term mortgage).
: decided based on its accounting requirements arising as a part of its implementation of the Permitted Exercise. Nevertheless, such short-term payables should not embrace principal quantities of the borrower’s present onshore loans (ie a overseas short-term mortgage should not be used to repay principal quantities of onshore loans). The New Round units out the usual type of the record of those short-term payables (together with the particular quantity, supposed fee date and authorized foundation for his or her fee) that’s included within the overseas mortgage utilization plan to be authorised by the borrower earlier than disbursement of the mortgage, and by the SBV (if the mortgage must be registered with it upon extension right into a medium- or long-term mortgage). restructure the borrower’s overseas debt: the New Round typically refers to ‘overseas debt’ of the borrower, which appears to suggest {that a} short-term overseas mortgage will be taken out to repay all sorts of the borrower’s overseas loans (together with short-term, medium- or long-term overseas loans) and their associated charges and bills. This interpretation is supported by the removing of the restriction below the Present Round that short-term overseas loans can’t be used for medium- or long-term capital functions. Nevertheless, this needs to be additional clarified with the SBV.
(Notice that the restriction on refinancing mentioned within the under part about medium- or long-term overseas loans would additionally apply on this case.)
Medium- or long-term overseas loans
Underneath the New Round, a medium- or long-term overseas mortgage can solely be used for the next three functions, topic to sure restrictions for every:
financing for the borrower’s licensed funding initiatives : equally to below the Present Round, the borrower could solely borrow cash as much as the mortgage capital of the licensed funding challenge – being the distinction between the borrower’s contributed capital within the challenge and the overall funding capital specified within the challenge’s related regulatory approval. Nevertheless, below the New Round, solely the excellent principal quantities (and excluding pursuits and costs, as below the Present Round) below the borrower’s present onshore and offshore medium- or long-term loans (together with prolonged or overdue short-term loans) used for the licensed funding challenge can be counted in the direction of this borrowing restrict.
: equally to below the Present Round, the borrower could solely borrow cash as much as the mortgage capital of the licensed funding challenge – being the distinction between the borrower’s contributed capital within the challenge and the overall funding capital specified within the challenge’s related regulatory approval. Nevertheless, below the New Round, solely the excellent principal quantities (and excluding pursuits and costs, as below the Present Round) below the borrower’s present onshore and offshore medium- or long-term loans (together with prolonged or overdue short-term loans) used for the licensed funding challenge can be counted in the direction of this borrowing restrict. financing for the borrower’s enterprise plans or different initiatives : the overall excellent quantity (which appears to incorporate principal, curiosity and costs on this case) below the borrower’s present onshore and offshore medium- or long-term loans (together with prolonged and overdue short-term loans) used for the related marketing strategy or different challenge should not exceed the plan/challenge’s complete mortgage capital as specified within the borrower’s overseas mortgage capital use plan for the plan/challenge. This plan have to be submitted to the SBV as a part of the mortgage registration software.
: the overall excellent quantity (which appears to incorporate principal, curiosity and costs on this case) below the borrower’s present onshore and offshore medium- or long-term loans (together with prolonged and overdue short-term loans) used for the related marketing strategy or different challenge should not exceed the plan/challenge’s complete mortgage capital as specified within the borrower’s overseas mortgage capital use plan for the plan/challenge. This plan have to be submitted to the SBV as a part of the mortgage registration software. refinancing of the borrower’s present overseas loans: the Present Round requires the refinancing mortgage’s borrowing prices to not exceed these of the refinanced mortgage. The New Round is extra restrictive, and requires that the refinancing mortgage’s principal not exceed the excellent principal, curiosity and costs of the refinanced mortgage, and the charges of the refinancing mortgage decided on the refinancing date. The borrower should submit an in depth debt restructuring plan to the SBV as a part of the registration course of.
To cope with the double-counting challenge debtors have usually confronted to date, the New Round now supplies that if the refinancing mortgage is a medium- or long-term mortgage, the borrower should repay the refinanced mortgage inside 5 enterprise days from the drawdown date of the refinancing mortgage, in order that after such reimbursement it’ll adjust to the borrowing limits mentioned above.
Borrowing prices
The proposed cap on borrowing prices within the authentic draft round was of specific concern to overseas lenders and Vietnamese debtors. In a welcome transfer, the New Round has eliminated this cover.
Nevertheless, as an alternative of the prevailing wording below the Present Round, permitting the events to agree on the borrowing prices, the New Round typically requires them to adjust to the related legislation on overseas mortgage curiosity and costs. As such, it’s unclear whether or not the SBV’s intention is to use the 20% cap on the rate of interest below the Vietnamese Civil Code, which applies to lending actions by non-credit establishments. This challenge needs to be additional clarified with the SBV.
VND-denominated overseas mortgage
Constantly with the Present Round, overseas lenders are nonetheless permitted to lend in VND in restricted circumstances (eg if the borrower is a micro-finance firm). In apply, these loans usually are not frequent.
Nevertheless, the New Round permits, for the primary time, overseas loans to be disbursed and repaid in a overseas foreign money however for the debt to be recorded in VND, as per the events’ settlement. Such a mortgage can be handled as a VND mortgage by a overseas lender. No additional steering is supplied below the New Round however this alteration appears to permit events extra flexibility to construction their cross-border loans.
Software to present overseas loans
The borrower could proceed to carry out overseas mortgage agreements executed earlier than the efficient date of the New Round (ie 15 August 2023) till their termination, in accordance with the outdated rules and the related SBV registrations. Nevertheless, any modification to such agreements after 15 August 2023 should adjust to the New Round.
If in case you have any questions concerning the New Round or would love a replica of its English translation, please don’t hesitate to contact any of the individuals under.
