Further Update: SBV is to tighten overseas shorterm borrowings by Vietnamese entities

21 June 2022
Nguyen Tuan Minh

#VietnamLaw #BankingLaw #OverseasLoans #StockMarket #RealPropertyMarkets

SBV continues more tighteing of overseas borrowings by Vietnamese entities in its latest draft Circular on overseas borrowings without government guaranty by Vietnamese entities. This Circular shall replace the existing Circular 12/2014/TT-NHNN dated 26 Feb 2014.

As I have mentioned earlier, it is clear of SBV intention trying to help curbing the highly bubble development of the country’s stock and real property markets. The new restrictions imposed in the earlier version of the Draft Circular on short term overseas borrowings for the purposes of :
– payment of loans/borrowings under any other loan or borrowing contract signed by the borrower with any other Vietnamese resident;
– payment of debts or account payables under any transaction of stock trading, acquisition of shares or capital contribution in any other enterprise; acquisition of real property investment or taking transfer of real property projects.
remain the same in this latest draft.

The latest Draft now imposes a few more stringent conditions, including (these are only applicable to borrowers which are not licensed financial institutions and the Circular also provides additional conditions for financial institutions which are not covered here):
(i) ceiling of the total cost of an overseas borrowing:
– in foreign currency of Reference Rate or SOFR Term rate plus 8% pa for a borrowing that applied reference rate or the most recently published 6 Month Term SOFR rate published by CME respectively; or
– in VND of most recently published 10 year term VN government bond rate plus 8%.
(ii) hedging is a must for:
– any short term loan valued of USD 500k or more for at least 30% of any drawdown amount on or prior to such drawdown; and
– any long or medium term loan valued of USD 500k or more for at least 30% of any principal payment amount at least 3 months prior to such principal payment.
(iii) borrowing limits:
– if a borrowing is for implementation of an investment project, the total outstanding long and medium term overseas borrowing balance is not more than the difference of the total investment capital amount and the owner’s capital amount registered in the project investment registration; or
– if a borrowing is for general capital purpose the total outstanding long and medium term borrowing, both domestic and overseas, balance is not more than 3 folds the total owner’s capital amount registered in the entity’s recent audited financial statements.

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