Failure to comply with the foreign exchange regulations on borrowing funds from offshore or overseas will mean that you will not be able to convert VND to foreign currency and remit funds out of Vietnam to repay the loans.
The good news is that the State Bank of Vietnam (SBV) has made it easier to comply with such formalites via a new circular that just became valid last week, 15 April 2016.
Registration can now be made online. Forms are provided. Clarification are also provided as to what types of loans are to be registered as well as formalities to do so.
Loans include all types of debt instruments such as convertible bonds, etc.
What types of offshore loans have to be registered?
1. Loans with terms of over 1 year (medium/long-term loans)
2. Loans with terms of less than 1 year (short-term loans) that have been extended so that the terms exceed 1 year
3. Loans with terms of less than 1 year that have not been extended, but the principal remains outstanding and unpaid for 1 year, unless such amount is paid within 10 days from such 1-year date.
The term of loans are determined from the date of the first drawdown.
How do you register an offshore loan?
Per the new law, registration can be made online or be submitted in person. The new law also provide forms to facilitate registration.
Loans with principal amounts of less than US$10 million are to be registered at the relevant State Bank branch. Loans of over US$10 million have to be registered with the Foreign Exchange Department of the State Bank of Vietnam in Hanoi.
What can the loans be used for?
Medium/long-term loans can be used to finance projects of the Borrower or its subsidiaries (but if to subsidiaries only up to the amount of the Borrower’s equity interests in such subsidiaries). It is unclear whether loans can be used to purchase shares in subsidiaries. We recommend this be set out in the registration papers submitted to the SBV (among the documents submitted is a plan to use the proceeds as well as the business plan on use of the proceeds).
Medium and long-term loans can also be used to refinance other offshore loans as long as the cost of borrowing is not increased. Note that refinancing of onshore loans is not allowed.
Short-term loans can be used for working capital purposes but not for the same purpose as medium/long-term loans.
What are the other new changes?
1. Formalities to obtain approval to open offshore accounts to service offshore loans are also set out.
2. Procedures to amend the registered loans are also provided for. Any change to the registration certificate from the SBV (such as repayment terms, etc.) will need to be registered.
Exceptions to the above include:
If the repayment or drawdown schedule is carried out and differs from the original schedule by 10 days, the borrower only needs to notify the SBV.
Change to the lenders also require only notice to the SBV. This will facilitate lenders’ sale of participation in the loan to other lenders and is an excellent change.
3. The new law also guides borrowers and lenders on how loan proceeds are to be remitted into Vietnam and how repayment are to be remitted from Vietnam. Any remittance of the loan proceeds in, and any repayment out, of Vietnam must be set out clearly in the remittance advices or instructions to banks.
Circular 03/2016/TT-NHNN dated 26 February 2016 (valid 15 April 2016)
DNLegal, 21 April 2016