Introduction
Narrowing scope of application
Significant revisions to conditions for appraisal and approval of foreign loans
Simplifying procedures for appraisal and in-principle approval of foreign loans
Abolishing reporting mode
On 14 February 2022, the Ministry of Finance issued Circular No. 09/2022/TT-BTC (Circular 09), amending the regulation attached to Circular No. 153/2014/TT-BTC dated 20 October 2014 on the assessment, examination and approval of self-borrowing and self-payment foreign loans of enterprises where the state holds at least 50% of the charter capital of such enterprises (Circular 153).
The contents of Circular 09 follow two main principles. Firstly, enterprises shall bear all risks and take responsibility before the law in the process of mobilising, managing and using self-borrowing and self-payment foreign loans. Secondly, the Ministry of Finance shall appraise and approve the foreign loan policy based on the project investment decision of the competent authority and the request of the owner's representative agency.
This article highlights some notable points in Circular 09, which will come into effect on 1 April 2022.
Narrowing scope of application
Circular 153 stipulates the assessment, examination and approval by the Ministry of Finance and the reporting and supervision regime for self-borrowing and self-repayment mid-term and long-term foreign loans for investment projects of enterprises where the state holds at least 50% of the charter capital of such enterprises.
Circular 09 now regulates the appraisal and in-principle approval by the Ministry of Finance for self-borrowing and self-repayment foreign loans in the form of loan contracts associated with investment projects of enterprises in which 100% of charter capital is held by the state (state-owned enterprise). The reporting mechanism is abolished from the application scope.
Circular 09 also states that for foreign loans which are not within the aforementioned application scope (ie, enterprises whose state capital accounts for 50% to 100%), the owner's representative agency shall actively consider and decide according to its competence in accordance with the regulations of law on management and use of the state capital and the enterprise's charter. The Ministry of Finance does not appraise and approve these foreign loans.
Significant revisions to conditions for appraisal and approval of foreign loans
Revisions in favor of state-owned enterprises
Circular 09 removes the requirement to obtain the State Bank's confirmation that self-borrowing and self-repayment foreign loans are within the limit approved annually by the prime minister. It should be noted that foreign loans made by state-owned enterprises must still be within the limit approved annually by the prime minister.(1) But with such an amendment of Circular 09, no separate confirmation needs to be obtained from the State Bank for the purpose of appraisal and approval. State-owned enterprises shall register the mid-term and long-term foreign loans with the state bank before withdrawing funds and repaying debts as other enterprises,(2) and this is in line with the principle that the State Bank shall supervise the borrowers' fulfilment of requirements for taking foreign loans by verifying the registration of foreign loans.(3)
Under Circular 153, state-owned enterprises must obtain a capital use plan approved by a competent authority. This is no longer required under Circular 09.
New conditions for appraisal and approval of foreign loans
Circular 09 now stipulates that projects funded by foreign loans must:
- serve production and business activities in the main business lines of state-owned enterprises;
- be owned or developed by enterprises; and
- be included in the five-year investment and development plans, the production and business plans of enterprises.
This is much more restrictive than the purposes of foreign loans allowed for borrowers that are not state-owned enterprises. In particular, such borrowers can take foreign loans to:
- implement the business plans or projects of investment funded by foreign loans of the borrower or of the enterprise to which the borrower is the direct capital contributor; or
- restructure the foreign loan incurred by the borrower.(4)
Simplifying procedures for appraisal and in-principle approval of foreign loans
The procedures for appraisal and in-principle approval of foreign loans under Circular 09 only stipulate the rules regarding the procedures from the stage at which the Ministry of Finance conducts the appraisal and in-principle approval. Circular 09 does not mention the prior step – that is, the internal procedure of the state-owned enterprise and the owner's representative agency. The silence on the internal procedure allows the state-owned enterprises to have more autonomy in internal procedures, provided that such internal procedures are conducted in line with the applicable laws.(5)
Circular 09 provides that the Ministry of Finance will send the in-principle appraisal results to the owner's representative agency within 15 working days from the date of full receipt of the dossier provided by the owner's representative agency. This timeline is the same as in the old regulations. Under Circular 09, the appraisal must include the following:
- a fulfilment of the conditions for appraisal and in-principle approval of foreign loan;
- a complete dossier;
- the financial situation of the state-owned enterprise at the time of appraisal;
- the plan to balance the reciprocal capital of the state-owned enterprise; and
- the ability to repay foreign loans according to the policy approved by the owner's representative agency at the time of appraisal.
Circular 09 does not require state-owned enterprises to make periodic reports or irregular reports on the use of foreign loans and the repayment of foreign loans to the owner's representative agency and the Ministry of Finance. Still, state-owned enterprises shall report on the foreign loans to the State Bank as other enterprises.(6)
For further information on this topic please contact Thanh Minh Vu or Nguyen Dieu Quynh at LNT & Partners by telephone (+84 28 3821 2357) or email ([email protected] or [email protected]). The LNT & Partners website can be accessed at www.lntpartners.com.
Endnotes
(1) Article 20, Decree No. 91/2015/ND-CP.
(2) Article 31, Circular No. 03/2016/TT-NHNN.
(3) Article 3.3, Circular No. 12/2014/TT-NHNN.
(4) Article 5, Circular No. 12/2014/TT-NHNN.
(5) Law No. 69/2014/QH13 on Management and Utilisation of State Capital Invested in the Enterprise's Manufacturing and Business Activities; Decree No. 91/2015/ND-CP; Decree 32/2018/ND-CP; and other regulations regarding the use and management of state capital invested in enterprises.