The State Financial institution of Vietnam (SBV) has launched its long-awaited round No. 08/2023/TT-NHNN (New Round) on circumstances for borrowing non-governmental assured overseas loans, changing round No. 12/2014/TT-NHNN with impact from 15 August 2023.
Regardless of banking group issues that the revised lending laws would considerably disrupt offshore lending, the ultimate model of the New Round is considerably much less stringent than anticipated from earlier draft variations – maybe recognising the numerous position that offshore capital can play throughout such a turbulent financial panorama as is now being navigated.
Borrowing Functions
The New Round individually stipulates borrowing functions for short-term loans and medium/long-term loans. Specifically:
Brief-term overseas loans could also be used as follows:
restructuring present overseas money owed of the borrower (with no restriction on the tenor of the restructured debt, which appears to suggest that short-term mortgage might even be used to refinance medium/long-term loans); or paying short-term payables (excluding principal of onshore loans, which appears to recommend that financing curiosity funds could also be permissible) arising from implementation of an funding undertaking, marketing strategy or different undertaking of the borrower, and decided pursuant to relevant accounting laws.
Medium/long-term overseas loans could also be used as follows:
restructuring present overseas money owed of the borrower; financing implementation of the borrower’s funding undertaking; or financing implementation of a marketing strategy or different undertaking of the borrower.
The New Round not permits borrowing overseas loans for implementation of funding initiatives or enterprise plans of an investee firm of the borrower. This will have a big affect on so-called “Holdco financings” during which a prime stage firm would borrow funds to push all the way down to the subsidiary stage to fund the subsidiary’s marketing strategy or undertaking.
The New Round expressly permits borrowing for implementation of an (a) “funding undertaking”, outlined as a undertaking issued with an funding license, and (b) “different undertaking”, which refers to every other undertaking that doesn’t fall inside the definition of an “funding undertaking”.
Consequently, this formulation is broader than outlined beneath latest iterations of the New Round in draft kind. Whereas the New Round stays silent as as to if fairness injection (e.g., capital contribution or share subscription) is a suitable function for incurrence of an offshore mortgage, this looser wording appears to suggest that the SBV could also be taking a extra relaxed strategy with respect to funding initiatives that aren’t particularly linked to funding licences, although this may nonetheless require additional steering from the SBV.
The borrower is required to arrange an in depth plan for overseas mortgage utilization or debt restructuring – requiring approval from the competent company physique of the borrower (and adjusted if there are any adjustments) to justify the aim of the overseas mortgage, aside from borrowing to implement the borrower’s funding undertaking. If the mortgage must be registered with the SBV, such plan have to be submitted to the SBV as a part of the mortgage registration utility.
Borrowing Limits
The New Round supplies clarifications on the borrowing limits for every particular function.
Implementation of enterprise plans/initiatives: In line with present laws, the full excellent stability of all medium/long-term loans borrowed for implementation of a marketing strategy or undertaking should not exceed the borrower’s inner necessities (as authorised beneath the overseas mortgage utilization plan).
Implementation of funding initiatives: Beneath present laws, the full excellent stability of all medium/long-term loans should not exceed the full mortgage capital (being the distinction between whole funding capital and fairness for implementation of the undertaking as specified on the funding licence). Beneath the New Round, solely principal quantities (excluding pursuits and costs) of medium/long-term loans are counted in the direction of this cover, which seems to supply larger flexibility.
Restructuring present overseas money owed: The New Round clarifies that the mortgage principal of the brand new refinancing mortgage should not exceed the combination of the excellent principal, pursuits, charges of the mortgage to be refinanced, and costs of the brand new refinancing mortgage as decided on the restructuring date. This addresses ambiguity with respect to the situation that the brand new mortgage should not incur extra borrowing prices beneath present laws.
Moreover, in case of borrowing medium/long-term loans, the borrower should repay the refinanced money owed inside 5 enterprise days upon drawdown of the refinancing mortgage, to make sure compliance with the borrowing limits beneath paragraphs (1) and (2) above, as relevant. This requirement is an enchancment over present laws as this timeline was not clear; and customarily the SBV’s interpretation was that the refinanced mortgage wanted to be paid inside the similar day as drawdown of the brand new mortgage.
VND-denominated Loans
Vietnamese regulation usually requires offshore loans to be disbursed in overseas forex, since VND-denominated loans are solely permitted in restricted circumstances (e.g., a foreign-invested firm borrows cash from its overseas shareholder’s income that are distributed in VND, or the borrower is a micro-finance establishment).
The New Round now permits the events to agree on a overseas mortgage denominated in VND, although disbursements and repayments are made in overseas forex on the trade charge of a credit score establishment agreed by the events.
This shall be a welcome change – specifically for numerous lenders expressing curiosity in artificial VND-denominated loans.