Decision No. 272/2006/QD-TTg Issuing the Regulation on Granting and Managing Government Guarantees for Foreign Loans

REGULATIONS

Issuance and management of Government guarantees for foreign loans
(Annexed to Decision No. 272/2006/QĐ-TTg

dated November 28, 2006 of the Prime Minister)
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PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

These regulations stipulate the procedures for examining and issuing Government guarantees; the organization of managing Government guarantees and the responsibilities of agencies in issuing and managing Government guarantees.

Article 2. Definitions

The following terms shall be understood as follows:

1. Government guarantee for foreign loans (hereinafter referred to as "Government guarantee") is the commitment made in writing by the Government of the Socialist Republic of Vietnam (the guarantor) through the Ministry of Finance to the foreign lender (the beneficiary) to ensure the fulfillment of payment obligations agreed upon in the loan agreement; in case the borrower does not fulfill, fully and timely fulfill the payment obligations agreed upon in the loan agreement, the guarantor will fulfill those payment obligations on behalf of the guaranteed party according to the terms of the guarantee letter. The borrower must have the obligation to compensate the guarantor for the amounts paid on their behalf together with interest and all actual related expenses incurred.

2. Agency issuing Government guarantee is the Ministry of Finance (hereinafter referred to as "issuing agency").

3. Guaranteed party is the enterprise implementing foreign borrowing (the borrower) guaranteed by the Government. The guaranteed party includes (any) transferees, lawful assignees of the borrower approved by the guarantor.

4. Beneficiary is the entity owning part or all of the guaranteed loan. The beneficiary is the lender and (any) lawful transferees, assignees of the lender and is understood to be the lender in loan agreements.

5. Transferee of the guaranteed party or of the beneficiary is the entity receiving all or part of the rights and obligations of the guaranteed party or the beneficiary in the transfer.

6. Assignee of the guaranteed party or of the beneficiary is the entity receiving all or part of the rights and obligations of the guaranteed party or the beneficiary in the assignment.

7. Payment obligations are amounts payable including principal, interest due under the contract, late payment interest, fees and costs, compensation for losses (if any) as specified in the specific loan agreement and accepted in the guarantee letter.

8. Receiving authority for litigation files is the representative authority of Vietnam abroad authorized to receive and confirm receipt of litigation files related to Government guarantees and transfer the entire file to the issuing agency.

Legal opinion is a document issued by the Ministry of Justice in accordance with Vietnamese laws and international financial and credit practices regarding the legal basis for commercial, investment, financial, banking transactions implemented based on Vietnamese law, treaties, international agreements, foreign-related contracts, and other legal documents.  

Article 3. Government guarantee is the highest form of guarantee in Vietnam. The Government guarantee commitment is carried out in the form of a guarantee letter or a guarantee contract (hereinafter collectively referred to as "guarantee letter")

The Government only issues guarantees, not re-guarantees.

Chapter II

RESPONSIBILITIES OF THE AUTHORITIES

IN THE ISSUANCE OF GOVERNMENT GUARANTEES

Article 4. Responsibilities of the issuing agency

The Ministry of Finance, as the Government guarantee issuing agency, is responsible for:

1. Issuing and guiding the procedures for examining, issuing, and managing Government guarantees;

2. Reviewing the financial plan and conditions for issuing guarantees based on the application for issuing guarantees for specific programs and projects submitted to the Prime Minister for decision on the guarantee;

3. Participating in the negotiation process of loan agreements on lending conditions and leading negotiations on the content of the guarantee letter;

4. Directly issuing Government guarantees and organizing the management of foreign loans guaranteed by the Government in accordance with the provisions of Article 6 Clause 1 Point g of Decree No. 134/2005/NĐ-CP dated November 1, 2005 of the Government on the issuance of regulations on managing foreign borrowing and debt repayment;

5. Compiling the total amount of loans from credit institutions requesting Government guarantees, which are reviewed by the State Bank of Vietnam (hereinafter referred to as the State Bank) and submitted to the Prime Minister for decision;

6. Establishing the limit of Government guarantees to be included in the annual commercial borrowing limit of the Government;

7. Evaluating the implementation of Government guarantees and reporting on disbursement progress, debt repayment, and outstanding foreign debts of loans guaranteed by the Government according to the regulation on collecting, reporting, compiling, sharing, and publishing information on foreign debt;

8. Fulfilling the obligations of the guarantor towards the beneficiary (foreign lender);

9. Applying financial tools and sanctions as prescribed by law to recover the debt and related expenses incurred in paying on behalf of the guaranteed party;

10. Conducting inspections of business operations and the use of foreign loans to monitor the ability of the guaranteed party to repay debts.

Article 5. Responsibilities of coordinating agencies

1. The State Bank shall be responsible for:

a) Reviewing the borrowing plans of credit institutions submitted to the guarantee agency for presentation to the Prime Minister for decision on granting guarantees;

b) Confirming registration of foreign loans guaranteed by the Government;

c) Cooperating with the guarantee agency in inspecting the use of borrowed funds and supervising foreign debt repayment of projects reviewed by the State Bank;

d) Closely cooperating with the guarantee agency in creating conditions for the guarantee agency to fulfill its responsibilities towards the guaranteed party;

2. The Ministry of Justice:

a) Participating in providing opinions on legal issues in loan agreements and government guarantee agreements before presenting them to the Prime Minister for decision; participating in providing opinions on other related legal issues concerning loan and foreign debt repayment documents of domestic enterprises and economic organizations at the request of the borrower and the guarantee agency;

b) Reviewing discrepancies between loan and foreign debt repayment agreements of the Government and domestic laws;

c) Issuing legal opinions on loan agreements, guarantee letters, guarantors, and guaranteed parties;

3. The Ministry of Foreign Affairs: coordinating with the guarantee agency to designate appropriate Vietnamese representative offices abroad authorized to receive litigation files related to government guarantees and transferring all files to the guarantee agency when litigation procedures agreed upon in loan agreements and guarantee letters are court proceedings;

4. Other relevant agencies shall cooperate with the guarantee agency to implement state management over foreign borrowing and debt repayment according to their functions and authorities and as stipulated in this Regulation;

Chapter III

OBJECTS, SCOPE AND CONDITIONS

CONSIDERATION AND GRANTING OF GOVERNMENT GUARANTEES

Article 6.  Objects eligible for government guarantees

The objects eligible for consideration for government guarantees (the guaranteed party) are domestic enterprises, economic organizations, and credit institutions under all forms of ownership directly signing loan agreements with foreign lenders on a self-borrowing and self-responsibility basis for implementing investment programs or credit activities and meeting the conditions specified in Article 8 of this Regulation;

Article 7. Types of foreign loan programs and projects eligible for government guarantees

1. Key investment programs and projects approved by the National Assembly or the Prime Minister for investment orientation;

2. Programs and projects importing high-tech equipment for production and export services and programs and projects in priority investment sectors of the State that have the ability to repay debts;

3. Programs and projects funded by commercial loans accompanying Official Development Assistance (ODA) funds forming hybrid financing sources;

4. Loan programs and projects of credit institutions reviewed by the State Bank and recommended for government guarantees;

Article 8. Conditions for granting guarantees

1. Conditions regarding programs and projects:

a) Programs and projects with financial plans reviewed and determined to be effective and capable of repaying debts by the guarantee agency;

b) Credit institution loan programs and projects with financial plans reviewed by the State Bank and recommended by the State Bank to the guarantee agency for presentation to the Prime Minister for decision on granting guarantees;

c) Approved by the Prime Minister for granting guarantees;

2. Conditions regarding borrowers:

a) Ensuring a minimum of 20% of the total investment capital for each program and project as equity capital;

b) Having complete application documents for government guarantees as stipulated in Article 9 of this Regulation;

c) Engaging in normal business operations without losses in the last three consecutive years and currently having no overdue domestic or foreign loans;

d) Accepting the guarantee fee specified in Article 14 of this Regulation;

đ) Accepting sanctions implemented by the guarantee agency including freezing accounts to enforce financial compensation obligations carried out by the guarantee agency;

3. Conditions regarding loans:

a) The value of the loan must fall within the annual limit of commercial foreign borrowing of enterprises and organizations in the public sector and projected private sector borrowing approved by the Prime Minister;

b) A minimum equivalent to 10 million USD, except for loans for programs and projects mentioned in Clause 3 of Article 7 of this Regulation;

c) A minimum term of 10 years;

d) The currency of the loan must be freely convertible;

đ) Interest rates, fees, and costs consistent with current international market conditions;

đ) The terms and conditions in loan agreements must comply with Vietnamese law and international practices.

Article 9. Application for GuaranteeDocuments for application for guarantee shall be submitted to the guarantee-granting authority including:

1. The formal request from the foreign lender requesting the government guarantee and the formal request from the borrower;

2. Legal documents summarizing the business history of the enterprise that is the project investor;

3. Investment decision along with the project dossier in accordance with current regulations;

4. Financial plan demonstrating the ability to repay the loan, specifying (i) sources of investment capital (including own capital and borrowed capital); (ii) feasibility of the loan under borrowing conditions; (iii) project repayment capacity;

5. Loan offers accompanied by draft loan agreements;

6. Audited financial reports of the three most recent years or reports approved by competent authorities. In cases where enterprises have not been operating for at least three years, financial reports of the parent company or strategic shareholders must be provided, along with a commitment letter from the superior management agency or parent company, strategic shareholder ensuring debt repayment capability;

7. A commitment letter accepting the guarantee fee as stipulated by the guarantee-granting authority.

Guarantee Amount

Article 10. 1. The guarantee amount shall not exceed eighty percent (80%) of the total investment value of the program or project, including insurance premiums and interest during construction;

2. The guarantee amount must fall within the annual guarantee limit calculated by the Ministry of Finance based on the annual commercial foreign limit of the enterprise and organization in the public sector and the forecasted annual foreign borrowing of the private sector approved by the Prime Minister.

PROCEDURE FOR GRANTING GOVERNMENT GUARANTEE

Chapter IV

Procedure for Reviewing and Granting Government Guarantee

Article 11. The procedure for reviewing and granting government guarantee is as follows:

1. Reviewing the financial plan and repayment capacity of the project

Within thirty (30) working days from the date the guarantee-granting authority receives a complete and valid application for guarantee from the borrower, the guarantee-granting authority reviews the financial plan according to the conditions and application for guarantee with the following contents:

a) Reviewing the project type and form to ensure compliance with the provisions of Articles 6 and 7 of this Regulation;

b) Reviewing the financial plan and repayment capacity of the project. The review method is detailed in Appendix I attached to this Regulation;

c) After the review, the guarantee-granting authority must submit a report on the review content to the Prime Minister for decision.

For credit organizations with foreign loan programs and projects, enterprises prepare a financial plan for the State Bank to review. Within thirty (30) working days, the State Bank organizes the review of the financial plan and sends a formal letter to the guarantee-granting authority along with the review report. Upon receiving the State Bank's proposal, within ten (10) working days, the guarantee-granting authority is responsible for submitting to the Prime Minister for consideration and decision on granting the government guarantee for the loan.

2. Approval by the Prime Minister

After receiving the proposal from the guarantee-granting authority, the Office of the Government is responsible for submitting to the Prime Minister for approval of the guarantee or rejection of the guarantee as the basis for the guarantee-granting authority, project investors, and related agencies to implement.

3. Negotiating the terms of the loan agreement, the guarantee letter, and legal opinions

a) After obtaining the Prime Minister's approval for granting the government guarantee, the guaranteed party conducts negotiations on the loan agreement with the participation of the guarantee-granting authority and the Ministry of Justice. At least three (03) working days before negotiating the loan agreement, the guaranteed party provides the guarantee-granting authority and the Ministry of Justice with the following documents: draft loan agreement; signed commercial contract (in the case of EPC investment); draft guarantee letter and draft legal opinion;

The guarantee-granting authority leads the negotiation of the guarantee letter content and the Ministry of Justice leads the negotiation of the legal opinion content. The content of the guarantee letter, once agreed upon, must be submitted by the guarantee-granting authority to the Prime Minister for approval.

b) Signing the loan agreement: after negotiating and agreeing on all contents in the loan agreement, the guaranteed party submits it for approval by the competent authority and proceeds to sign the loan agreement;

c) Completing the guarantee application dossier: after signing the loan agreement, the guaranteed party provides the guarantee-granting authority with the signed loan agreement and a commitment letter confirmed by the superior management agency (if applicable) in accordance with the model at Appendix II attached to this Regulation to complete the guarantee dossier.

4. Approval by the Prime Minister

After receiving the report from the guarantee-granting authority, the Office of the Government submits to the Prime Minister:

a) Approving the content of the guarantee letter and instructing the Ministry of Finance to issue the guarantee;

b) Instructing the Ministry of Justice to provide legal opinions on the loan agreement, guarantee letter, guarantor, and guaranteed party;

c) Instructing the Ministry of Foreign Affairs to coordinate with the guarantee-granting authority to designate an appropriate representative office of Vietnam abroad authorized to act as the Representative to receive litigation documents in the event that litigation procedures are agreed to be court proceedings.

5. Issuing the guarantee letter, legal opinion, and registering the loan

a) Issuing the guarantee letter: after completing the entire guarantee application dossier, within ten (10) working days, the guarantee-granting authority will issue the guarantee letter. The guarantee letter is issued in four (04) original copies, the guarantee-granting authority retains one (01) copy, the guaranteed party retains one (01) copy, the Ministry of Justice retains one (01) copy, and one (01) copy is transferred to the lender through the guaranteed party. Simultaneously, the guarantee-granting authority sends a letter along with the officially signed guarantee letter to the Ministry of Justice for issuance of a legal opinion on the contents decided by the Prime Minister;

b) Registering the loan: after issuing the guarantee letter, the guaranteed party registers the loan with the State Bank in accordance with Article 6 of Decree No. 134/2005/ND-CP dated November 1, 2005, on the Management of Foreign Borrowing and Repayment.

b) Registering the loan: After the issuance of the letter of guarantee, the beneficiary shall register the loan with the State Bank in accordance with Article 6 of Decree No. 134/2005/NĐ-CP dated November 1, 2005, on the Regulations on Foreign Borrowing and Debt Repayment.

c) Confirm the Representative for receiving litigation documents: In cases where the litigation procedures are stipulated in the loan agreement and guarantee letter as court proceedings, the guarantor agency shall cooperate with the Ministry of Foreign Affairs to designate an appropriate Vietnamese representative office abroad authorized to act as the Representative for receiving litigation documents on behalf of the beneficiary and the guarantor agency;

Based on the unified opinion of the Ministry of Foreign Affairs and pursuant to the power of attorney document submitted by the guarantor agency, the authorized Vietnamese representative office shall sign to confirm the document agreeing to act as the Representative for receiving litigation documents to be transferred to the beneficiary and sent a copy to the guarantor agency;

d) Issue legal opinions on guarantees and loan agreements: Within ten working days, based on the request from the guarantor agency, the Ministry of Justice shall issue two (02) original copies of the legal opinion, one (01) copy to be sent to the beneficiary and one (01) copy retained by the Ministry of Justice;

6. For special projects of significant importance to the national economy designated by the Prime Minister to provide guarantees and exempted from review, commercial loans accompanying non-repayable aid or ODA loans to form mixed credit financing sources (projects already designated according to accompanying funding sources), the procedures for reviewing guarantees shall be carried out in accordance with the provisions from Clause 3 to Clause 5 of Article 6 of this Law;

Article 12. Contents of the Government Guarantee Letter

1. The mandatory contents in the Government Guarantee Letter include:

a) The Guarantor;

b) The Beneficiary;

c) References to relevant trade contracts and loan agreements;

d) The amount of guarantee required and the currency of the loan;

đ) The commitment of the guarantor agency to the beneficiary regarding the obligations of the beneficiary and the guarantor agency;

e) Rights and responsibilities of the beneficiary;

g) The validity period and revocation of the guarantee letter;

h) Governing law and jurisdiction, venue, and language used in adjudication when disputes arise;

i) Place, date, month, and year of issuance of the guarantee letter.

2. Other contents agreed upon by the parties but shall not affect the rights of the guarantor agency, the beneficiary, and shall not contravene Vietnamese laws.

Article 13. Revocation of Government Guarantee

The Government Guarantee Letter shall be revoked when all guaranteed debt obligations have been fulfilled.

Chapter V

GUARANTEE FEES

Article 14. Guarantee Fees

The guarantor agency shall base the specific fee rate for each program or project on the financial assessment results of the project, taking into account the level of risk, but not exceeding 1.5% per annum on the outstanding balance of the guaranteed debt. The specific rate of guarantee fees is detailed in Appendix III of this Regulation.

Article 15. Collection of Guarantee Fees

1. Guarantee fees are calculated in the foreign currency borrowed and collected every six months on the same date as the interest payment date for the foreign currency loan, or in Vietnamese dong converted at the official selling rate published by the Vietnam Commercial Joint Stock Bank at the time of paying the guarantee fee.

2. Guarantee fees shall be deposited into the Foreign Debt Repayment Reserve Fund in accordance with the guidelines of the Ministry of Finance.

3. In case of late payment of guarantee fees, the beneficiary must bear interest on the overdue guarantee fee amount. The interest rate applied shall be 150% of the average interest rate for six-month term deposits of four (04) commercial banks (including the Vietnam Commercial Joint Stock Bank, the Vietnam Investment and Development Bank, the Vietnam Industrial and Commercial Bank, and the Vietnam Agricultural and Rural Development Bank) multiplied by the number of days overdue.

Chapter VI

COLLATERAL FOR LOANS

GUARANTEED BY THE GOVERNMENT

Article 16. Collateral

1. Assets formed from foreign loans guaranteed by the Government shall be used as collateral to secure the performance of the borrower's obligations to the guarantor agency in proportion to the capital forming such assets.

2. Assets formed from guaranteed funds shall not be used to secure the performance of other civil obligations.

3. Collateral assets may not be sold or exchanged without the consent of the guarantor agency. If collateral assets are sold, the proceeds or assets formed from such proceeds shall become substitute collateral for the sold assets.

Registration of Collateral: After issuing the guarantee letter, the beneficiary shall register the collateral to secure the Government Guarantee in accordance with the law on registration of secured transactions.

Article 17. Disposal of Collateral

1. In cases where the beneficiary fails to perform or fully perform their debt repayment obligations and the guarantor agency has fully performed the debt repayment obligations on behalf of the beneficiary, and the beneficiary is unable to repay the guarantor agency, the collateral assets shall be disposed of to ensure recovery of the debt for the guarantor agency.

2. The method of disposing of collateral shall be carried out in accordance with the law on secured transactions.

Article 18. Release of Mortgage

Mortgaged properties shall be released in accordance with the provisions of the law on secured transactions.

Chapter VII

IMPLEMENTATION OF GOVERNMENT GUARANTEE

Article 19. For the guarantee issuing authority

When the debt repayment deadline arrives, if the guaranteed party does not fulfill or fulfills incompletely its debt repayment obligation, the guarantee issuing authority must make payment according to the commitment stated in the guarantee letter. The guaranteed party is responsible for repaying the entire amount that the guarantee issuing authority has paid on its behalf plus all actual costs incurred related to such payment to the guarantee issuing authority.

Article 20. For the Guaranteed Party

1. The guaranteed party shall have the following obligations:

a) To provide the guarantee issuing authority with the application for government guarantee and necessary documents for the guarantee issuing authority to review and request the Prime Minister to decide on the guarantee;

b) To perform the borrower's obligations under the loan agreement and the obligations of the guaranteed party towards the guarantee issuing authority as stipulated in this Regulation;

c) To register mortgaged property in accordance with the law on registration of secured transactions;

d) To provide the guarantee issuing authority periodically and when necessary with audited financial reports or reports confirmed by higher-level state financial management agencies; plans, withdrawal of loans, repayment of debts, outstanding debts; reports on the implementation of programs and projects and special situations affecting the implementation of programs and projects and the ability to fulfill payment obligations under the loan agreement, in accordance with the requirements and regulations of the guarantee issuing authority;

đ) To facilitate the guarantee issuing authority's inspection of program and project implementation when necessary;

e) To promptly and fully pay the guarantee fee as prescribed in this Regulation;

g) To strictly and fully fulfill the obligations committed to the guarantee issuing authority in the commitment letter according to the model attached as Appendix I to this Regulation.

2. When the debt repayment deadline arrives, if the guaranteed party does not fulfill or fulfills incompletely its debt repayment obligation, the guaranteed party must notify the guarantee issuing authority in writing at least 45 days before the due date, clearly stating the reasons for inability to fulfill the debt obligation and committing to repay the amount that the guarantee issuing authority will pay on its behalf plus all actual costs incurred related to such payment.

3. After making the payment on behalf of the guaranteed party, the guaranteed party must enter into a mandatory loan agreement under the following specific conditions:

a) Regarding interest rate: at a rate higher than two rates: (i) the interest rate specified in the Loan Agreement; (ii) the LIBOR/6-month rate for the currency of the Loan Agreement plus 2%/year. Interest calculation period starts from the day the guarantee issuing authority pays on behalf of the guaranteed party until the day the guarantee issuing authority recovers the amount.

b) Regarding the term of the mandatory loan: the term of the mandatory loan will be considered based on the repayment capacity of each project, but not exceeding 5 years at most.

c) The source of the mandatory loan will be from the Foreign Debt Repayment Reserve Fund.

4. In case the guaranteed party breaches the commitments in the mandatory loan agreement twice consecutively, in addition to the mortgaged property specified in Article 16 of this Regulation, the guaranteed party must open a "special account" and all revenue of the guaranteed party must be transferred to this account to ensure priority payment for the repayment of foreign debt guaranteed by the Government. The minimum balance in the special account equals 100% of the amount payable for the next installment and must be maintained for a consecutive year. After this period, if the guaranteed party fulfills its commitments, the application of this account will be removed.

Article 21. Transfer and Assignment of Guaranteed Obligations

The transfer or assignment related to government guarantees must be approved by the guarantee issuing authority. The transferee or assignee of the guaranteed party shall have obligations towards the guarantee issuing authority corresponding to the scope of the transferred or assigned obligations from the guaranteed party.

Chapter VIII

REPORTING AND MONITORING REGIME

Article 22. Reporting System

The guaranteed party shall implement the reporting regime in accordance with the provisions of Decree No. 134/2005/NĐ-CP dated November 1, 2005 on the Regulations on Borrowing and Repaying Foreign Debts, specifically:

1. Reporting on the withdrawal situation (date and value of each withdrawal) according to the guaranteed loan.

2. Periodic reporting on the progress of withdrawal and repayment of the guaranteed loan quarterly in the form prescribed in Appendix IV attached hereto.

3. Periodic reporting on the repayment status of the guaranteed loan quarterly.

4. Annual report on the implementation of the project.

5. Post-project evaluation report after the completion of the project.

Article 23. Inspection and Supervision

1. The guarantee issuing authority is responsible for regularly monitoring the performance of the obligations of the guaranteed party;

2. In case the guaranteed party is unable to repay the debt as stipulated in Article 20 of this Regulation, the guarantee issuing authority will conduct a financial review of the project, determine the cause of the inability to pay, and report to the Prime Minister for measures to address the situation.

Chapter IX

HANDLING VIOLATIONS

Article 24. Organizations and individuals violating the provisions of this Regulation shall be subject to administrative penalties or criminal liability, and compensation for damages in accordance with current regulations, depending on the nature and severity of the violation./.