Circular No. 119/1998/TT-BTC guides the implementation of the Loan Agreement with Belgium to invest in 100 weaving machines for Nam Dinh Textile Company.

CIRCULAR

OF THE MINISTRY OF FINANCE

Regarding the guidance on implementing the Belgium Loan Agreement to carry out
the project of investing in 100 weaving machines for the Nam Dinh Textile Company

Pursuant to Decree No. 87/CP dated August 5, 1997 of the Government promulgating the Regulations on Management and Use of Official Development Assistance (ODA) sources;

Pursuant to Decision No. 708/TTg dated August 30, 1997 of the Prime Minister on the investment in Belgian weaving machines for the Nam Dinh Textile Company (hereinafter referred to as the "Project");

Pursuant to the Preferential Loan Agreement between the Socialist Republic of Vietnam and the Kingdom of Belgium valued at 200 million Belgian Francs (BEF) signed on October 27, 1995 (hereinafter referred to as the "Government Loan Agreement") for 45.77% of the total value of the three Equipment Supply Contracts for the Project (amounting to 110,654,773 BEF);

Pursuant to Circular No. 553/CP-KTTH dated May 21, 1998 of the Government assigning the Ministry of Finance to guarantee the export credit loan under the Credit Agreements signed on July 3, 1998 (hereinafter referred to as the "Credit Agreement") between the Nam Dinh Textile Company, Hanosimex, and Vinatex with General Bank, Belgium (hereinafter referred to as "General Bank") for 54.23% of the total value of the three Equipment Supply Contracts for the Project (amounting to 131,107,895 BEF) and credit insurance fees (amounting to 9,878,980 BEF);

Pursuant to Circular No. 860/CP-QHQT dated July 28, 1998 of the Government approving the mechanism for relending the preferential loan under the Government Loan Agreement.

The Ministry of Finance hereby provides guidance as follows:

I. GENERAL PROVISIONS

1. The preferential loan from the Government of Belgium is a foreign debt of the Government. Therefore, the entire loan amount will be recorded in the state budget. The Ministry of Finance is responsible for repaying the debt to the foreign side when due.

The project owner (Nam Dinh Textile Company) is responsible for using the funds for their intended purpose in accordance with the conditions stipulated in the Government Loan Agreement and returning them to the state budget according to the provisions of the relending contract signed with the Investment Development General Department - Ministry of Finance.

The Investment Development General Department is responsible for implementing the relending and recovering the debt from the project owner and shall enjoy the relending fee for state credit capital according to current regulations.

2. The commercial credit loan from General Bank is a corporate loan (the Nam Dinh Textile Company, Vinatex, and Hanosimex directly borrow from General Bank) under the self-borrowing and self-responsibility repayment principle according to the conditions committed in the Credit Agreement. This Credit Agreement is guaranteed by the Ministry of Finance (government guarantee).

II. SPECIFIC PROVISIONS

The Nam Dinh Textile Company's investment project of importing 100 weaving machines and technology under Contract No. 11563/A/10927 signed on February 11, 1998 between Vinatex and Picanol; Contract No. 11564/A/11247 signed on February 11, 1998 between the Nam Dinh Textile Company and Picanol; and Contract No. 11565/A/11248 signed on February 11, 1998 between Hanosimex and Picanol (hereinafter referred to as the "Contracts"), with a total value of 241,762,668 BEF, will be funded from two sources:

Preferential loan from the Government of Belgium 110,654,773 BEF (45.77%).

Export credit loan from General Bank with a total value of 140,986,875 BEF, including:

131,107,895 BEF (54.23%) borrowed under the conditions of the OECD, with government guarantee to implement the commercial contract;

9,878,895 BEF borrowed to pay for credit insurance fees (7.535% of the value of the export credit loan) to the Belgian Export Credit Insurance Agency (OND).

1. Regarding the Government Loan Agreement:

The conditions for the Government Loan Agreement are as follows:

Loan amount: 110,654,773 BEF. The loan proceeds will be used to pay 45.77% of the Contract value.

Loan term: 30 years, including a 10-year grace period starting from the date of signing the Government Loan Agreement (October 27, 1995).

Interest rate on the loan: 0%/year.

The Ministry of Finance (Investment Development General Department) will re-lend the loan proceeds under the Government Loan Agreement to the Project Sponsor with the following specific conditions:

The Project Sponsor must accept debt from the Investment Development General Department (in BEF) for the entire loan amount under the Government Loan Agreement.

Interest rate on the re-loan: 0%/year.

The re-lending fee collected by the Investment Development General Department system is 0.2%/year.

The Project Sponsor shall directly pay the foreign transaction fees of the domestic bank (if any).

Re-lending term: 20 years, including a 10-year grace period starting from the date of signing the Government Loan Agreement (October 27, 1995).

The late payment penalty interest rate is specified in the re-lending loan agreement signed with the Project Sponsor by the Investment Development General Department, but the delay period cannot exceed six months.

2. For the Credit Agreement guaranteed by the Ministry of Finance:

The conditions for the Credit Agreement are as follows:

Loan amount: 131,107,895 BEF. The loan proceeds will be used to pay 54.23% of the Contract value.

Interest rate on the loan: fixed at 6%/year.

Loan term: 10 years, including a 2-year grace period starting from the date

when the Loan Agreement becomes effective.

Commitment fee: 0.2%/year calculated on the undrawn loan amount and starting from the date the Credit Agreement becomes effective, paid quarterly.

Credit insurance fee: 7.535% calculated on the total credit amount and paid once on the date the Loan Agreement becomes effective. The credit insurance fee will be sponsored by General Bank and added to the total loan amount under the above Credit Agreement.

Penalty interest rate: 1.5%/year added to the loan interest rate mentioned above.

3. Guidelines for withdrawing funds and repaying debts:

a. Counterpart funds:

The project falls under the category of re-lending Official Development Assistance (ODA) loan capital from the Belgian Government according to the Prime Minister's Investment Decision (Article 1, Decision No. 708/TTg dated August 30, 1997). Therefore, according to Decree No. 87/CP dated August 5, 1997 of the Government, the Project Sponsor is responsible for self-balancing the annual counterpart fund plan (including the portion of capital for tax payments) to implement the project.

b. Withdrawing Belgian loan capital:

Based on the Government Loan Agreement, the Credit Agreement, and the progress of the Commercial Contract already signed, the Project Sponsor will develop an annual foreign capital withdrawal plan to send to the Ministry of Finance in accordance with Circular No. 81/1998/TTLT-BTC-NHNN dated June 17, 1998 of the Ministry of Finance.

For the portion of the loan under the Government Loan Agreement, the Ministry of Finance will issue a Power of Attorney to withdraw funds from the Vietnam National Bank, which acts as the agency bank to execute foreign services to withdraw funds from the Belgian Government loan.

For the portion of the loan under the Credit Agreement, the Project Sponsor, who is also the Borrower under this Agreement, will send a Letter of Authority to General Bank to make payments to the Supplier according to the Commercial Contract already signed.

Payments to the Supplier will be made from the two sources of loan capital based on the set of documents presented by the Supplier to General Bank as stipulated in the Commercial Contract. According to the Uniform Customs and Practice for Documentary Credits (UCP 500) published in 1993 by the International Chamber of Commerce, General Bank has the responsibility to carefully check the set of documents to ensure they comply with the Commercial Contract before making direct payments to the Supplier from the loan under the Credit Agreement. The specific procedures are as follows:

For advance payment (15% of the Contract value):

The Vietnam National Bank will carry out the necessary foreign procedures with the Belgian national bank to withdraw funds from the Government Loan Agreement for the advance payment when the Supplier presents the following documents:

Original commercial invoice signed by the Supplier.

A copy of the advance payment guarantee issued by General Bank.

The remaining 85% of the Contract value will be paid according to the ratio from the sources of capital under the Credit Agreement and the Government Loan Agreement when the Supplier presents all relevant documents in compliance with the requirements of the Commercial Contracts already signed.

c. Management of re-lending and repayment of government loan capital:

* Responsibilities of the Project Sponsor:

Paying off the debt on time directly to General Bank and strictly adhering to the commitments with the Lender as stipulated in the Credit Agreement.

Signing and implementing the re-lending loan agreement with the Investment Development General Department according to the re-lending conditions stated in point II.1 above.

Reporting to the Ministry of Finance (Investment Development General Department, Foreign Financial Affairs Department), the Ministry of Planning and Investment, and the supervising authority every six months on the situation of receiving, using, and repaying the Belgian Government loan and General Bank loan capital, the project implementation progress, and the financial results of the enterprise.

Providing reports and other necessary documents to the inspection teams of the Ministry of Finance regarding the project implementation situation upon request.

* Responsibilities of the Vietnam National Bank:

The Vietnam National Bank is responsible for carrying out foreign procedures with the Belgian national bank according to the Government Loan Agreement when it receives the power of attorney to withdraw funds from the Ministry of Finance.

Upon receipt of the withdrawal notice from the Belgian national bank, the Vietnam National Bank is responsible for notifying the Ministry of Finance (Foreign Financial Affairs Department, Investment Development General Department) of the actual amount withdrawn.

* Responsibilities of the Investment Development General Department:

The Investment Development General Department is responsible for signing the re-lending loan agreement for the Belgian Government loan capital with the Project Sponsor when the sponsor has completed the domestic investment procedures according to the conditions specified in point II.1 above.

Each time it receives a withdrawal notice under the Government Loan Agreement from the Vietnam National Bank, the Investment Development General Department promptly notifies the Project Sponsor of the actual amount withdrawn, the repayment schedule, and requests the Project Sponsor to sign a promissory note. The date of acceptance of the debt is the date when the Belgian national bank pays the Supplier and is recorded on the withdrawal notice sent by the Vietnam National Bank to the Ministry of Finance.

The Investment Development General Department is responsible for checking the use of loan capital, recovering the re-lent government loan capital, and reporting to the Ministry of Finance on the recovery of the re-lent loan capital.

* Responsibilities of the Foreign Financial Affairs Department:

Monitor and carry out procedures for withdrawing funds from the project.

Repay the debt to the National Bank of Belgium upon maturity.

III. IMPLEMENTATION PROVISIONS

This Circular shall take effect fifteen days from the date of signature. During implementation, if there are any difficulties, the Project Investor and relevant agencies are requested to promptly report to the Ministry of Finance for consideration and resolution.