Effective from 15 May 2014, Circular No. 12[1]  introduces new conditions for residents, enterprises, co-operatives, co-operative unions, credit institutions (except for commercial banks being state-owned enterprises), and branches of foreign banks established and operating in Vietnam (Borrower), in regards to obtaining offshore loans without government guarantee. Accordingly, these new conditions will replace the current conditions as provided in Circular No. 09[2]. Under Circular No. 12, in order to obtain offshore loans without government guarantee, Borrowers must meet the general and supplemental conditions applied to each type of offshore loan. Some key points under Circular No. 12 are as follows:

Loan Purpose

As a general condition, Circular No. 12 provides that Borrowers may borrow loans for the following purposes:

  1. To implement the production and business plans or the investment projects (Plans) of the Borrowers or of the enterprises in which the Borrowers are the shareholders or have contributed capital to; or
  2. To re-structure the Borrowers’ offshore loans without increasing the cost of borrowing.

The issue of borrowing to re-structure Borrower’s offshore loans is newly addressed by Circular No. 12.

Circular No. 12 seems to provide that if Borrowers obtain offshore loans to implement the Plans of the enterprises that they are the shareholders of or have contributed capital to, then such loans may only be used to increase their shareholdings or capital contribution in such enterprises in an amount equivalent to the offshore loan. In other words, Borrowers are not allowed to use the offshore loans to re-finance to such enterprises

Loan Currency

For the first time, Circular No. 12 allows offshore loans to be obtained in the Vietnamese Dong. Under Circular No. 12, the loan currency may be:

  1. Foreign exchange; or
  2. Vietnamese Dong

Accordingly, Borrowers may obtain offshore loans in the Vietnamese Dong provided that they are:

  1. Microfinance institutions;
  2. Enterprises in which foreign investors are shareholders or have contributed capital to in the form of direct investment. In this case, the loan amount in Vietnamese Dong may be the profit amount that the foreign investor(s) have obtained from the direct investment in the enterprises; and
  3. Other cases approved by the Governor of the State Bank of Vietnam.

Borrowing limit

Circular No. 12 keeps the current provision of Circular No. 09 that in the case where the Borrower has an investment certificate for a project that utilizes the loan proceeds, the maximum amount that the Borrower may borrow as medium and long term loans for that project may not exceed the difference between the investment capital and the equity capital provided under the relevant investment certificate. Circular No. 12 further provides that for projects that do not have an investment certificate, the maximum amount that the Borrower may borrow as medium and long term loans may not exceed the total projected loan capital under the business or investment plan approved in accordance with law. These maximum limits are for domestic loans as well.

Circular No. 12’s transition clause provides that offshore loans which take effect prior to 15 May 2014 may continue to be implemented according to their original terms. However, any amendments or supplements made to these agreement after 15 May 2014 may only take effect if such amendments and supplements meet these new conditions.