Vietnam: Draft of the Circular replacing Circular 03 on offshore loans

In brief

The State Bank of Vietnam (SBV) recently released a draft circular providing several instructions on foreign exchange administration in respect of foreign borrowing and foreign debt repayment of enterprises ("Draft Circular") to gather public opinion. The Draft Circular, when issued, will replace Circular No. 03/2016/TT-NHNN ("Circular 03") and will introduce a number of changes to the existing regulations under Circular 03.

In depth

The Draft Circular introduces some key changes as follows:

• More time to arrange the repayment of short-term offshore loans that are overdue
• New circumstances under which enterprises are not required to register for the changes to registered offshore loans
• Express inclusion of security measures other than guarantee
• A new provision on the agent for the enforcement of security property
• Changes to frequency and method of the report on the implementation status of offshore loans

In more detail

1. Repayment of short-term offshore loans before registration is required

Currently, a short-term offshore loan that is not fully paid on the date falling 10 days after the first anniversary of its first drawdown must be registered with the SBV.¹ This means that the borrower of a short-term offshore loan has a grace period of 10 days from the first anniversary of its first drawdown to make repayment before such loan must be registered with the SBV. The Draft Circular has extended this timeline from 10 days to 30 days.² The Draft Circular has also extended the timeline to register such loan, from 30 days³ from the first anniversary of its first drawdown to 45 days⁴ from the first anniversary of its first drawdown.

If the parties want to extend the tenor of the short-term offshore loan to more than one year, the extension agreement must be executed within one year from the first drawdown date.⁵

2. Changes to the circumstances under which an amendment registration to a registered offshore loan is not required

Currently, all changes to the content of an offshore loan as registered with the SBV must be reregistered with the SBV, except under certain circumstances. Where there is a change to the drawdown, repayment and payment of fee schedule, and such change is less than 10 days, a borrower is only required to notify the account bank (i.e., registration with the SBV is not required).⁶

The Draft Circular has slightly amended this requirement. The Draft Circular provides that if there is a change to the principal drawdown and repayment schedule, and such change (i) is less than 10 working days and (ii) does not require an agreement between the parties, the borrower must notify such change with the account bank (and registration with the SBV is not required).⁷ With respect to interest and fee, if there is a change to the registered payment schedule of interest and fee of the offshore loan but there is no change to the principle or method of determining such interest and fee, the borrower is only required to notify the SBV.⁸

Further, under the Draft Circular, if the actual principal drawdown or repayment for a particular period (of one month/quarter/year) is less than the amount on the registered schedule and such change does not require an agreement between the parties, the borrower can draw down or repay such lesser amount for that particular period. Nonetheless, the borrower is still required to reregister the drawdown/repayment schedule with the SBV for the remaining amount of that period.⁹

3. Inclusion of security measures other than guarantee and the concept of Security Agent

The scope of security measures currently regulated under Circular 03 refers only to guarantee. For example, a component of the registration application dossier is a copy and Vietnamese translation of the guarantee document,¹⁰ and security documents are not expressly required. The Draft Circular has amended most reference of 'guarantee' to 'security', thereby extending the scope to other security measures instead of just guarantee as under Circular 03.¹¹ Further, if any amendment to the offshore loan requires an approval or no-objection from the third-party security provider, such approval or no-objection must be included in the amendment registration dossier.¹²

4. Recognition of security agent for a bilateral loan

Vietnamese regulations currently only provide for the concept of security agent in the context of a syndicated loan with one onshore lender. The Draft Circular for the first time provides for this concept in the context of an offshore loan. Specifically, the Draft Circular provides that the borrower, lender, and securing party in an offshore loan can authorize an agent for enforcement of security asset ("Agent") to do the works arising from enforcement of the secured assets, such as receiving the proceeds from enforcement of the secured assets and transferring such amount to the lender. Under the Draft Circular, the Agent does not need to be a commercial bank; however, it must be an organization with legal entity status established and operating under the laws of Vietnam.¹³

The Draft Circular also focuses on the foreign exchange administration relating to the cash flow in case the security is enforced. Under the Draft Circular, the Agent must use a payment account opened at a commercial bank in Vietnam to transfer the money relating to the enforcement of the security to the lender.¹⁴ The bank providing the payment account service related to the enforcement of the security shall have an obligation to check and archive all documents stipulated under the Draft Circular before making a remittance.¹⁵

5. The obligation to report on the implementation status of the offshore loans

The Draft Circular requires the borrower to report on the implementation status of its offshore loans to the SBV on a monthly basis¹⁶ instead of a quarterly basis as required under Circular 03.¹⁷ Besides, under the Draft Circular, the report must be sent to the SBV via an official website¹⁸ and the borrower shall not have the right to choose the way of physical submission.