Circular No. 03/1999/TT-NHNN7 guiding foreign borrowing and repayment by enterprises

CIRCULAR

Guidelines for foreign borrowing and repayment by enterprises

Pursuant to Article 22 and Article 24 of the Regulation on foreign borrowing and repayment issued together with Decree No. 90/1998/NĐ-CP dated November 7, 1998 of the Government, the State Bank of Vietnam (hereinafter referred to as "the State Bank") provides guidelines for foreign borrowing and repayment by enterprises as follows:

Chapter I

GENERAL PROVISIONS

Section I. EXPLANATION OF SOME TERMS

In this Circular, the following terms are understood as follows:

1. Foreign borrowing enterprise (hereinafter referred to as "Enterprise") includes:

a) Enterprises that are not credit organizations operating in Vietnam:

- State-owned enterprises, private enterprises, limited liability companies, joint-stock companies, cooperatives;

- Enterprises with foreign investment (joint ventures, wholly foreign-owned enterprises);

- Branches of foreign companies;

- Foreign parties participating in Business Cooperation Contracts, foreign contractors;

- Other enterprises under all economic sectors as prescribed by law.

b) Enterprises that are credit organizations operating in Vietnam:

- Vietnamese credit organizations: State-owned credit organizations, joint-stock credit organizations of the state and people, cooperative credit organizations;

- Non-bank credit organizations with 100% foreign capital;

- Joint venture credit organizations;

- Branches of foreign banks.

2. Non-resident persons are understood according to the concept of "Non-resident person" as defined in Decree No. 63/1998/NĐ-CP dated August 17, 1998 of the Government on Foreign Exchange Management.

3. Foreign loan contract refers to foreign loan agreements that are legally binding and effective for withdrawal of funds, which stipulate the terms and conditions of foreign loans, such as: deferred payment purchase contracts, credit contracts, financial leasing contracts, and other foreign loan agreements.

4. Registration of foreign borrowing and repayment refers to the act of enterprises registering their foreign borrowing and repayment with the State Bank after signing medium- and long-term foreign loan contracts (or after completing procedures for issuing bonds abroad) in accordance with the provisions of this Circular.

5. Confirmation of registration of foreign borrowing and repayment refers to the act of the State Bank confirming in writing that the enterprise has registered its foreign borrowing and repayment with the State Bank.

6. Authorized bank refers to a bank operating in Vietnam that is permitted to conduct foreign exchange operations, as stipulated in Decree No. 63/1998/NĐ-CP dated August 17, 1998 of the Government on Foreign Exchange Management.

Section II. GENERAL PROVISIONS

1. The foreign borrowing of enterprises includes borrowing in the following forms:

b) Importing goods and services on deferred payment terms through opening letters of credit, collections through authorized banks, or other deferred payment methods;

a) Financial borrowing (in cash);

2. When signing foreign loan contracts, enterprises shall be responsible for the legality, financial capacity, and ability to arrange funds of the foreign lending party.

c) Overseas financial leasing;

d) Issuance of bonds abroad;

e) Other types of foreign borrowing.

3. Enterprises are not required to register with the State Bank when signing foreign loan agreements that are not legally binding for fund withdrawal, such as framework credit agreements, memorandums of understanding, and similar agreements, but the contents of these foreign loan agreements must comply with Vietnamese laws.

Within thirty days from the date of signing these agreements, enterprises must submit the original (or certified copy) and a Vietnamese translation of the signed agreement (with confirmation by the enterprise's head) to the State Bank (Department of Foreign Exchange Management).

4. Requirements and procedures for registering foreign borrowing:

a) For short-term loans: Enterprises are not required to register with the State Bank, but short-term foreign loan contracts must comply with the conditions set out in Section I, Chapter II of this Circular.

b) For medium- and long-term loans: Based on the conditions stipulated in Section II, Chapter II of this Circular, enterprises must sign foreign loan contracts and then register their foreign borrowing and repayment with the State Bank within fifteen days from the date of signing the foreign loan contract and before implementing the withdrawal of funds.

5. In cases where enterprises borrow jointly from credit organizations operating in Vietnam and foreign lending parties, the portion of foreign borrowing must comply with the provisions of this Circular.

6. In cases where short-term foreign borrowing is converted into medium- and long-term foreign borrowing (extension of the loan period by more than one year), enterprises must comply with the provisions of this Circular regarding medium- and long-term foreign borrowing and repayment.

7. Prior to making any changes to the content of the State Bank's confirmation of registration of foreign borrowing and repayment, such as adjusting the loan amount, extending the debt, changing the interest rate, prepayment, changing the bank providing withdrawal and repayment services, and other changes, enterprises must register with the State Bank.

7. Prior to implementing any changes in the Confirmation of Loan Registration, Foreign Debt Repayment document of the State Bank of Vietnam, such as adjusting the loan amount, extending the debt term, changing the loan interest rate, making advance payments, changing the bank providing withdrawal and repayment services, and other changes, the Enterprise must register with the State Bank of Vietnam.

Chapter II

CONDITIONS FOR FOREIGN BORROWING

PART I. CONDITIONS FOR SHORT-TERM FOREIGN LOANS

A business entity shall only enter into a short-term foreign loan contract when it meets the following conditions:

1. The purpose of the short-term foreign loan must be consistent with the scope of operations of the business entity:

a) For business entities that are not credit institutions: The short-term foreign loan shall be used to meet the working capital needs for production and business activities within the scope of operations specified in the Business Registration Certificate; Investment License; or Operating Permit issued by the competent authority;

b) For business entities that are credit institutions: The short-term foreign loan shall be used to supplement short-term credit capital.

2. Meeting the borrowing conditions prescribed by the Governor of the State Bank:

a) The objects of Enterprises eligible for short-term foreign borrowing;

b) The term of the loan and the costs of the short-term foreign loan (including interest rates, fees, and other costs);

c) Deposit guarantee for short-term foreign loans at commercial banks operating in Vietnam.

In each period, the Governor of the State Bank will specify in detail the borrowing conditions set forth in Point 2, Section I, Chapter II of this Circular.

3. For business entities with foreign investment capital, in addition to the conditions stipulated in Point 1(a) and Point 2, Section I, Chapter II of this Circular, during the construction period and before the project commences operation, the short-term foreign loan must ensure that it does not increase the total investment capital.

Once the business entity with foreign investment capital has completed the construction and commenced the project's operation, fulfilled the statutory capital contribution, and utilized the total investment capital, it may borrow short-term foreign loans to supplement working capital in accordance with the provisions of this Circular and unrelated to the total investment capital.

4. Credit institutions, in addition to the conditions stipulated in Point 1(b) and Point 2, Section I, Chapter II of this Circular, must comply with the current regulations of the State Bank regarding limits on borrowing and guarantees for short-term foreign loans.

5. Apart from the conditions stipulated in Points 1, 2, 3, and 4 of Section I, Chapter II of this Circular, the contents of the short-term foreign loan contract and related agreements must be in compliance with the current laws of Vietnam.

PART II. CONDITIONS FOR MEDIUM-TERM AND LONG-TERM FOREIGN LOANS

1. Business entities that are not credit institutions shall only enter into medium-term and long-term foreign loan contracts when they meet the following conditions:

a) The business entity has an investment project or production and business plan approved by the competent authority for investment decisions;

b) The term of the loan, grace period, and costs of the medium-term and long-term foreign loan (including interest rates, fees, and other costs) must be in line with the regulations of the Governor of the State Bank in each period;

c) For business entities with foreign investment capital, in addition to the conditions stipulated in Point 1(a) and 1(b), Section II, Chapter II of this Circular, the medium-term and long-term foreign loan must ensure that it does not increase the total investment capital.

d) State-owned enterprises, in addition to the conditions stipulated in Point 1(a) and 1(b), Section II, Chapter II of this Circular, must obtain written comments from the State Bank on the final draft of the following documents prior to signing the medium-term and long-term foreign loan contract:

- Guarantee letter (in cases where state-owned enterprises are guaranteed by non-residents);

- Medium-term and long-term foreign loan contract.

The comments of the State Bank serve as guidance for state-owned enterprises during the negotiation process for foreign borrowing and repayment.

e) In addition to the conditions stipulated in Point 1(a), 1(b), 1(c), and 1(d), Section II, Chapter II of this Circular, the following contents of the medium-term and long-term foreign loan contract and related agreements must comply with the current laws of Vietnam:

- The business entity opens an account abroad to facilitate transactions for the loan;

- The foreign lender accepts collateral or mortgage of the business entity's assets;

- The business entity borrows foreign funds to contribute capital to establish a business;

- Transfer or convert debt into shares and other forms of investment;

- Other contents regulated by Vietnamese law.

2. Credit institutions shall only enter into medium-term and long-term foreign loan contracts when they meet the following conditions:

a) The medium-term and long-term foreign loan shall be used to supplement credit capital;

b) For state-owned credit institutions: Conditions stipulated in Point 1(b), 1(d), 1(e), and 2(a) of Section II, Chapter II of this Circular;

c) For other credit institutions: Conditions stipulated in Point 1(b), 1(e), and 2(a) of Section II, Chapter II of this Circular.

Chapter III

DOCUMENTS AND PROCEDURES FOR REGISTRATION OF FOREIGN BORROWING AND REPAYMENT

Section I. DOCUMENTS FOR REGISTRATION OF FOREIGN BORROWING AND REPAYMENT

1. Documents for registering foreign borrowing and repayment for business entities that are not credit institutions include:

a) Application form for foreign borrowing and repayment (according to Form No. 1);

b) Certified copy of the Decision on Establishment, Business Registration Certificate; or Investment License; or Operating Permit, or other relevant documents issued by the competent authority;

c) Certified copy of the document approving the investment project or production and business plan by the competent authority (except for businesses with foreign investment capital);

d) Certified copy of the Decision by the competent authority allowing the enterprise to issue bonds abroad (in case the enterprise issues bonds abroad);

đ) Certified copy and Vietnamese translation of the signed foreign loan agreement (with confirmation by the head of the enterprise).

2. Documents for registering foreign borrowing and repayment for credit institutions include: The documents specified in Point 1(a), 1(d), and 1(e) of Section I, Chapter III of this Circular.

Section II. REGISTRATION DOCUMENTS FOR CHANGES

The documents for registration change (for cases specified in Point 7, Section II, Chapter I of this Circular) include:

1. Application for registration change (according to Form No. 2).

2. Final draft and Vietnamese translation (confirmed by the head of the Enterprise) of the change agreement.

3. Approval document from the Guarantor regarding the changes to the foreign loan of the Enterprise (in case the Enterprise is guaranteed).

After being confirmed by the State Bank for the registration of changes, the Enterprise has the right to sign the change agreement and within thirty days from the date of signing, the Enterprise must send a copy of the signed change agreement and its Vietnamese translation (confirmed by the head of the Enterprise) to the State Bank (Department of Foreign Exchange Management).

Section III. STATE BANK’S CONFIRMATION OF REGISTRATION

1. The State Bank confirms the Registration of foreign borrowing and repayment and the Registration of changes of the Enterprise based on:

a) The annual total foreign borrowing limit plan approved by the Prime Minister;

b) The State’s foreign exchange management policy during each period;

c) Conditions regarding the term of borrowing, grace period, and costs of the loan (including interest rate, fees, and other costs) stipulated by the Governor of the State Bank during each period;

d) Opinions of relevant agencies concerning the foreign loan of the Enterprise when necessary.

2. The State Bank shall notify the Enterprise in writing within fifteen working days from the date of receipt of the complete and valid documents of the Enterprise about:

a) The State Bank's opinion on the content of the Guarantee Letter draft (in case the state enterprise is guaranteed by a non-resident) and the draft of the long-term foreign loan contract of the state enterprise;

b) Confirmation (or refusal to confirm) of the Registration of foreign borrowing and repayment of the Enterprise;

c) Confirmation (or refusal to confirm) when the Enterprise registers changes that arise.

3. In cases where the contents of the foreign loan contract and related agreements (short-, medium-, and long-term) do not comply with the conditions prescribed in Chapter II of this Circular, the Enterprise may only sign the foreign loan contract upon receiving a written permission from the State Bank.

Section IV. WITHDRAWAL OF CAPITAL AND REPAYMENT OF FOREIGN DEBT

1. Transactions for withdrawal of capital and repayment of foreign loans of the Enterprise can only be conducted through one Authorized Bank, except for certain transactions (where the Authorized Bank does not guarantee and provide services):

a) Withdrawal of capital for direct payment to foreign beneficiaries for imported goods and services;

b) Withdrawal of capital and repayment through the enterprise's account opened abroad (in cases where the enterprise is permitted to open an account abroad);

c) Withdrawal of capital in the form of delayed import of goods and services, repayment in the form of export of goods and services.

2. In cases where the Enterprise is currently conducting withdrawal of capital and repayment through an Authorized Bank but wishes to switch to another Authorized Bank, it must settle all transactions for withdrawal of capital and repayment at the old bank; If it is a medium- or long-term loan, the Enterprise must register with the State Bank regarding the change of service bank for withdrawal of capital and repayment.

3. When the Enterprise conducts withdrawal of capital and repayment of foreign debt through an Authorized Bank, it must comply with the following provisions:

a) When withdrawing capital:

- For short-term foreign loans, the Enterprise must present to the Authorized Bank where the Enterprise withdraws capital the original Short-Term Foreign Loan Contract;

- For medium- and long-term foreign loans, the Enterprise must present the original confirmation document of foreign borrowing and repayment registration issued by the State Bank;

Additionally, for short-, medium-, and long-term foreign loans, the Enterprise is responsible for presenting other necessary documents and papers when requested by the Authorized Bank.

In cases where the Enterprise does not conduct withdrawal of capital through an Authorized Bank but only repays debt through an Authorized Bank, within five days from the date of withdrawal, the Enterprise must notify in writing to the Authorized Bank where the Enterprise repays debt about the date of withdrawal and the amount withdrawn according to the Foreign Loan Contract.

b) When repaying debt:

The Enterprise must present to the Authorized Bank where the Enterprise repays debt the following documents:

- Original confirmation document of foreign borrowing and repayment registration issued by the State Bank (for medium- and long-term foreign loans);

- Original Foreign Loan Contract (short, medium, and long-term) signed;

- Original or certified copy (confirmed by the head of the Enterprise) of the documents proving the withdrawal of capital according to the Foreign Loan Contract (short-, medium-, and long-term) and other necessary documents and papers when requested by the Authorized Bank;

In cases where the Enterprise has conducted withdrawal of capital through an Authorized Bank but does not repay debt through an Authorized Bank, within five days from the date of repayment, the Enterprise must notify in writing to the Authorized Bank where the Enterprise withdraws capital about the date of repayment and the amount repaid according to the Foreign Loan Contract.

4. The Authorized Bank must comply with the following provisions when conducting withdrawal of capital and repayment of foreign debt for the Enterprise:

a) For short-term foreign loans:

- Conducting withdrawal of capital and transferring funds for repayment of foreign debt for the Enterprise based on the original Short-Term Foreign Loan Contract and the documents proving the withdrawal of capital and repayment presented by the Enterprise;

- Check and compare the documents presented by the Enterprise to ensure compliance with the loan transactions of the Enterprise;

- Statistics on transactions for withdrawal of capital and repayment arising, balances, and other necessary data of short-term foreign loans that the bank has guaranteed and provided services for;

- Retain copies of the necessary documents presented by the Enterprise.

b) For medium- and long-term foreign loans:

- Conduct checks and comparisons of the documents presented by the Enterprise to ensure compliance with the loan transactions registered with the State Bank;

- Conducting transfer of funds for repayment of foreign debt based on the confirmation document of foreign borrowing and repayment registration issued by the State Bank, the Medium- and Long-Term Foreign Loan Contract, and the documents proving the withdrawal of capital and repayment presented by the Enterprise;

- Retain copies of the confirmation registration document for foreign borrowing and repayment issued by the State Bank and copies of other necessary documents presented by the Enterprise;

- Statistics on transactions for withdrawal of capital and repayment arising and balances of each medium- and long-term foreign loan that the bank has guaranteed and provided services for;

c) The Authorized Bank will not conduct withdrawal of capital and transfer of funds for repayment of foreign debt for the Enterprise's foreign loan in the following cases:

- The Enterprise has signed a Short-Term Foreign Loan Contract with contents that do not comply with the conditions prescribed in Section I, Chapter II of this Circular without a written permission from the State Bank;

- The Enterprise's medium- and long-term foreign loans do not have a confirmation document of foreign borrowing and repayment registration issued by the State Bank.

- Foreign medium and long-term loans of Enterprises have changes arising but the Enterprise has not yet submitted a registration confirmation document for such changes to the State Bank.

d) Guide Enterprises to comply with current regulations on foreign borrowing and repayment; promptly report to the State Bank in case of discovering that an Enterprise violates current regulations on foreign borrowing and repayment.

5. The Authorized Bank shall be responsible for implementing the provisions of this Circular regarding the withdrawal of capital and repayment of foreign debt for its own foreign loans.

Chapter IV

REGIME OF REPORTING, INSPECTION WORK AND VIOLATION HANDLING

Section I. REGIME OF REPORTING

1. Periodically, the Authorized Bank must report to the State Bank according to current regulations on data related to short-, medium-, and long-term foreign loans that the bank borrows, guarantees, and provides services for withdrawal and repayment.

2. Periodically, Enterprises (including credit organizations that are not Authorized Banks) must report to the State Bank according to current regulations on data related to:

a) Short-term foreign loans of Enterprises that do not withdraw funds and repay debts through Authorized Banks (cases mentioned at Points 1(a), 1(b), 1(c) of Section IV, Chapter III of this Circular).

b) Medium and long-term foreign loans of Enterprises.

3. When necessary, Enterprises (including credit organizations), Branches of the State Bank in Provinces and Cities directly under the Central Government must report on the situation of foreign borrowing and repayment as required by the State Bank.

Section II. INSPECTION WORK AND VIOLATION HANDLING

1. Periodically or when necessary, the State Bank and relevant agencies will conduct inspection work on the situation of foreign borrowing and repayment of Enterprises. Enterprises are responsible for providing all necessary documents for timely and effective inspections.

2. The State Bank will not confirm the Registration of foreign borrowing and repayment (including confirmation of change registration) of Enterprises in the following cases:

a) An Enterprise has signed a foreign medium and long-term loan contract with contents inconsistent with the conditions stipulated in Section II, Chapter II of this Circular without a permit from the State Bank.

b) An Enterprise has agreed to changes in the cases mentioned at Point 7, Section II, Chapter I of this Circular without a confirmation registration document from the State Bank.

3. Any violation of this Circular, depending on the degree of violation, will be handled according to current laws.

Chapter V

IMPLEMENTING PROVISIONS

1. This Circular takes effect 15 days from the date of signing and replaces the following documents:

a) Circular No. 07/TT-NH7 dated March 26, 1994 of the Governor of the State Bank, guiding the management of foreign borrowing and repayment of Enterprises;

b) Decision No. 161/QĐ-NH7 dated June 8, 1996 of the Governor of the State Bank on supplementing and amending some points of Circular No. 07/TT-NH7 dated March 26, 1994 guiding the management of foreign borrowing and repayment of Enterprises;

c) Some related contents in Directive No. 06/CT-NH7 dated June 6, 1996 of the Governor of the State Bank on strengthening the management of foreign borrowing and repayment.

2. For foreign loans signed before the effectiveness of this Circular and currently in the process of withdrawing funds and repaying debts, Enterprises shall proceed as follows:

a) For short-term foreign loans: Enterprises (including Authorized Banks) shall implement reporting according to the provisions of this Circular;

b) For medium and long-term foreign loans already confirmed by registration documents from the State Bank: Enterprises (including Authorized Banks) shall continue to implement according to those confirmation documents and the provisions of this Circular.

3. Any amendments or supplements to this Circular shall be decided by the Governor of the State Bank.

4. The Director of the Office, the Inspector General of the State Bank, Heads of units under the State Bank, Directors of branches of the State Bank in Provinces and Cities directly under the Central Government, General Managers (directors) of credit organizations within their functional scope shall be responsible for organizing guidance, implementation, and enforcement of this Circular.

5. Ministries, Departments, and management agencies of Enterprises according to their functions and tasks shall coordinate in directing the implementation of this Circular.