– Foreign borrowing in Vietnamese Dong is permitted even if a lender disburses and receives payment in foreign currency but the debt obligation is denominated in Vietnamese Dong.
– Foreign borrowing could be used for various purposes, including (i) refinancing of foreign debts; (ii) payment of short-term liabilities (except for principal of domestic debts); (iii) financing of licensed investment projects; and (iv) financing of “production and business plans, business operations, and other projects.”
– Refinancing of domestic debts using foreign borrowing is generally not permitted. It appears that short term borrowing could be used to pay interest and other amount (other than principal) of domestic debts.
– Short-term foreign borrowing for M&A purposes is also not allowed. Medium to long-term foreign borrowing for M&A purposes may be considered on a case-by-case basis, especially for local business investments in a target or subsidiary operating in the same business sector.
– There is no fixed cap on borrowing costs, although the SBV may set a cap from time to time if necessary. If a cap is set in the future, it may impact the parties’ agreement on interest, IRR, fees, and even indemnities.
– The approval mechanism for foreign borrowing largely remains unchanged. Short-term borrowing does not require registration with and approval from the SBV. However, medium to long-term borrowing must be registered with and approved by the SBV. Documents required to be prepared and submitted to the SBV provide information or evidence regarding each permitted purpose of foreign borrowing.
– The applicable exchange rate for calculations involving different currencies is the exchange rate announced by the Ministry of Finance (State Treasury) at the relevant time.
– Borrowers are subject to several obligations which they should be aware of.