Foreign borrowing activities are becoming increasingly popular in the context of capital needs of enterprises and economic groups in Vietnam increasing rapidly in scale. The borrowing of foreign currency by domestic enterprises from abroad is subject to legal regulations in the field of foreign exchange management and is subject to supervision by the State Bank of Vietnam (“SBV”). Currently, medium and long-term loans (specifically loans with a term of over 12 months) must be registered with the SBV before disbursement in accordance with relevant regulations in Circular No. 12/2022/TT-NHNN of the SBV dated September 30, 9 (“Circular 22“).
To receive large foreign loans, one of the prerequisites that the borrowing enterprise must meet is to have collateral with high value and good liquidity. Common security measures accepted by foreign lenders include:
- Bank accounts (including all balances in the account);
- Shares of listed companies;
- Capital contributions and shares in enterprises with assets;
- Receivables/benefits of the collateral provider under contracts/agreements with third parties;
- Guarantee issued by the enterprise;
- Issued underwriting by a domestic bank; and
- The asset is real estate (less common as it would have to be done indirectly through some special transaction structure).
To ensure the right of foreign lenders to receive proceeds from the handling of secured assets (through money transfer transactions from Vietnam to foreign countries conducted by credit institutions licensed to operate in Vietnam) when the borrowing enterprise violates its payment obligations in the foreign loan contract, the borrowing enterprise will be required to register with the State Bank, in addition to the main information related to the foreign loan, the following contents:
- Bank providing account services for foreign loans;
- Security measures applied;
- Collateral management agent (if applicable, the party entering into the collateral contract with the collateral providers, having the right to hold, manage and dispose of the collateral); and
- The bank serving the secured transaction is a credit institution or foreign bank branch in Vietnam that provides money transfer services to perform the guarantee obligation, transfer money to handle secured assets related to foreign loans.
For transactions securing foreign loans, the State Bank requires the borrowing enterprise and related parties to be responsible for complying with the provisions of current laws on secured transactions and other relevant provisions of law when signing and implementing transactions securing foreign loans. When confirming the registration of a foreign loan, the State Bank will review and record based on the information in the loan registration dossier prepared by the borrowing enterprise and commit to the accuracy of this information.
In the process of providing services to customers, we have encountered practical cases where although the borrowing enterprise has signed a foreign loan contract, it cannot immediately sign the agreed security contracts with the lender until it completes the conditions prescribed by law or an agreement with a third party. In this case, the borrowing enterprise will not be able to immediately register the foreign loan with the State Bank if the foreign loan contract does not contain provisions on applicable security measures or can choose to register early (excluding contents related to security measures) and register changes after these contracts are signed. In addition to the above reasons, in order to minimize the number of documents (including translations) required to be provided in the foreign loan application, we also recommend that our clients, during negotiations with the lender, stipulate a specific provision on the applicable security measures and the designation of the bank serving the security transaction in the foreign loan contract to ensure a quick and convenient foreign loan application.
Phung Anh Tuan
Managing Attorney – PTN Legal