Background
On 30 August 2011, the Vietnamese Government issued Decree No. 75/2011/ND-CP (Decree 75) on State investment and export credit. Of note, the maximum loan in Vietnamese Dong, subject to single borrower limit of not exceeding 15% of the paid-in equity capital of the Vietnam Development Bank of Vietnam (as lender) as recorded in its most recent financial statements, to an investment project will be 70% of its total investment capital and to an export or import contract, 85% of the total value of such contract.
The main contents of Decree 75 are discussed below.
Scope of Decree 75
Decree 75 provides for:
- investment credit, including investment loans and post-investment support; and
- export credit, including export loans (for Vietnamese exporters and overseas importers).
and applies to:
- enterprises, economic organisations and revenue-generating non-business units having projects entitled to investment credit (hereinafter called "investors");
- domestic enterprises and economic organisations having export contracts or foreign organisations importing goods entitled to export credit; and
- the Vietnam Development Bank (VDB) and other organisations and individuals involved in the provision of investment credit and export credit.
Principles on investment credit and export credit
The Government will issue a list of projects eligible for investment credit and a list of goods eligible for export credit. Borrowing projects or export/import contracts must be efficient and solvent and must have financial plans and loan repayment plans appraised by the VDB.
Investors, importers or exporters that borrow capital or are provided with guarantees or post-investment supports must (i) use the borrowed capital for proper purposes; (ii) repay both loan principals and interests under the signed credit contracts; and (iii) fulfil the commitments in guarantee or post-investment support contracts as well as the provisions of Decree 75.
State investment credit
Eligible borrowers are investors having investment projects on the list of projects eligible for investment credit, including investment projects on building:
- works to supply clean water for production and daily-life activities, to treat wastewater and garbage in urban areas, industrial parks, economic zones, export-processing zones, hi-tech parks, hospitals and craft-village industrial complexes;
- houses for lease to students and workers in industrial parks and houses for low-income earners in urban areas under the Prime Minister's decisions.
Investors must have equity capital contributed to projects representing at least 20% and have sufficient capital for project implementation and satisfy specific financial conditions for the investment capital amount in addition to the State investment credit amount.
The loan duration will be based on the capital recovery capacity of the project and the investor's solvency but must not exceed 12 years.
The loan interest rate must not be lower than the average interest rate for capital mobilisation from different sources plus operating expenses of the VDB. The general director of the VDB will calculate the average interest rate for capital sources and operating expenses and report to the Chairman of the Council of Management of the VDB for further submission to the Ministry of Finance (MOF) to announce investment credit interest rates.
Export credit
A loan amount must not exceed 85% of the value of (i) a signed export/import contract or (ii) the value of a letter of credit in case the loan is provided prior to goods delivery or (iii) the value of a lawful bill of exchange in case the loan is provided after goods delivery.
Decree 75 further stipulates that the loan amount for an exporter or overseas importer should not exceed 15% of the paid-in equity capital of the VDB.
The loan duration will be based on the capital recovery capacity of the project and the investor's solvency but must not exceed 12 months.
The loan interest rate must not be lower than the average interest rate for capital mobilisation from different sources plus operating expenses of the VDB. The general director of the VDB will calculate the average interest rate for capital sources and operating expenses and report to the Chairman of the Council of Management of the VDB for further submission to the MOF to announce investment credit interest rates.
Loan security
As a condition precedent for enjoying State investment credit or export credit, investors or exporters must provide assets as security for repayment of the loans. The security may be in the form of pledge of assets, mortgage of assets, use of future assets and other measures (if any) under regulations on security transactions.
The VDB is entitled to: (i) dispose the security assets pursuant to legislation on security transactions; (ii) repair and upgrade assets for sale, lease or operation; or (iii) contribute security assets as joint-venture capital to economic institutions pursuant to legislation on debt recovery.
Effectiveness
Decree 75 took effect as from 20 October 2011 and replaced Decree No. 151/2006/ND-CP (Decree 151) on State investment credit and export credit and Decree No. 106/2008/ND-CP amending and supplementing a number of articles of Decree 151.
Projects with investment credit, investment credit guarantee or post-investment interest-rate support for which contracts are signed with the VDB prior to 20 October 2011 and contracts on export credit, export credit guarantee, and contract performance guarantee, all of which were signed with the VDB prior to 20 October 2011, may continue to be implemented under contractual commitments.
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