New Regulations on Conditions of Non-government Guaranteed Foreign Loans (Vietnam)

Lending purposes

Short-term foreign loans

Circular 08 is the first legal instrument that sets out the purposes for which short-term foreign loans (i.e., loan having a term of one year or less) may be used. Accordingly, Article 17.1 of Circular 08 only allows borrowers to use short-term foreign loans for restructuring their foreign debts and paying other due short-term debts, excluding outstanding principal amounts of domestic loans. Short-term debts are those incurred by the borrowers during the implementation of investment projects and business plans and/or other projects. In addition, borrowers are also required to ensure the satisfaction of prudential financial indicators (if any) applicable to their business.

Medium/long-term foreign loans

Borrowers may only use a medium/long-term loan (i.e., loan having a term of more than one year) for the following purposes:

• (a) Implementing their investment projects;
• (b) Implementing their business plans or other projects; and
• (c) Restructuring their foreign debts.

The usage of foreign loans for the above purposes must be consistent with (i) their licenses, approvals, certificates or equivalent documents issued by governmental authorities or (ii) the relevant regulations applicable to the establishment and operation of borrowers.

In case a foreign loan amount has been withdrawn but has not been used for the above lawful purposes, the borrower may deposit the loan amount at a credit institution or foreign bank branch operating in Vietnam provided that the term of each deposit does not exceed 1 month.

Foreign loan restrictions

Depending on the purposes of loans, Article 18 of Circular 08 sets out the following restrictions:

• (1) If the foreign loan is used for implementing an investment project, the sum of outstanding principal amounts of the borrower’s medium/long-term domestic and foreign loans (including short-term loans that become medium/long-term loans, but excluding short-term loans) used for the investment project cannot exceed the limit on borrowing capital of that investment project. The limit on borrowing capital of an investment project is the difference between the total investment capital and contributed capital as specified in the investment registration certificate or the in-principal investment policy of that project. If the currency of the loan is different from the one specified in the investment registration certificate or the in-principal investment policy, the foreign exchange rate promulgated by the Ministry of Finance at the time of execution of the loan agreements (or amendments to loan agreements) will be used to calculate the limit of borrowing capital.
• (2) If the foreign loan is used for implementing business plans or other projects of the borrower, the sum of the borrower’s medium/long-term domestic and foreign loans used for this purpose cannot exceed total borrowing capital specified in its plan for use of foreign loan capital approved by the authorized authority. If the currency of the loan is different from the one specified in the business plan, the foreign exchange rate promulgated by the Ministry of Finance at the time of preparation of the business plan will be used to calculate the total borrowing capital.
• (3) If the foreign loan is used for restructuring foreign debts of the borrower, the foreign loan amount shall not exceed the sum of outstanding principal, unpaid interests and relevant expenses of the existing foreign loans, and expenses associated with the new loan arrangement. If the new foreign loan is a medium/long-term foreign loan, the borrower must repay the existing foreign loans within five working days from the day on which the new loan is withdrawn. If the currencies of the loans are different, the foreign exchange rate promulgated by the Ministry of Finance at the time of preparation of the loan restructuring plan will be used to calculate the new loan amount.

It is noted that short-term foreign loans are not subject to foreign loan limit requirements under (1) and (2) above.

Transitional Provision

Borrowers entering into loan agreements before the effective date of Circular 08 (i.e., 15 August 2023) shall be allowed to comply with terms and conditions of the signed agreements and the registrations with the State Bank of Vietnam (if any) until the termination of such loans. However, any subsequent revisions to these agreements must be consistent with the provisions of Circular 08.