The State Bank of Vietnam (SBV) released a draft circular on conditions for enterprises’ offshore loans without government guarantee (“Draft Circular“), which aims to replace Circular No. 12/2014/TT-NHNN dated 31 March 2014 (“Circular 12“). The Draft Circular tightens the control on offshore loans to tackle the risk of excess national foreign debt quota and to promote the onshore loan market. Borrowers are now expected to meet additional conditions to borrow offshore loans without government guarantee.
Notable points of the general and specific conditions applicable to borrowers under the Draft Circular are as follows:
- General conditions:
- Appointing an onshore enforcement agent with regards to Vietnamese-located collaterals;
- Imposing a ceiling on borrowing costs applicable to offshore loans; and
- Using foreign currency derivatives to hedge exchange rate risk.
- Particular conditions:
- Changes to loan purposes;
- Imposing a borrowing limit applicable to an enterprise; and
- Imposing a borrowing limit applicable to credit institutions and foreign bank branches.
Further details regarding these are addressed in the client alert here, along with other new additional points of the Draft Circular.