What are preventive measures against risks regarding government-guaranteed loan or bond issue in Vietnam?

What are preventive measures against risks regarding government-guaranteed loan or bond issue in Vietnam?

Pursuant to Article 37 of the Decree 91/2018/NĐ-CP stipulating preventive measures against risks regarding government-guaranteed loan or bond issue in Vietnam as follows:

1. The Ministry of Finance shall periodically classify and consolidate debts of government-guaranteed loans or bond issues into the debt classification table of the program for management of public debt risks on the basis of the obligor's fulfillment of debt payment obligations as follows:

a) Group 1: Loan or bond issue of which debts are paid in full and on schedule;

b) Group 2: Loan or bond issue of which debts (interest or principal, or both principal and interest) are paid with money borrowed from the Accumulation Fund for Debt Repayment for 01-03 repayment terms, and there is no outstanding debt owed to the Accumulation Fund for Debt Repayment;

c) Group 3: Loan or bond issue of which debts are paid with money borrowed from the Accumulation Fund for Debt Repayment for 01-03 repayment terms, and there is an undue outstanding debt owed to the Accumulation Fund for Debt Repayment;

d) Group 4: Loan or bond issue of which debts are paid with money borrowed from the Accumulation Fund for Debt Repayment for more than 03 repayment terms, and there is an overdue debt owed to the Accumulation Fund for Debt Repayment;

dd) Group 5: Loan or bond issue of which debts owed to the Accumulation Fund for Debt Repayment cannot be collected or are unlikely recoverable.

2. An obligor whose debt is classified in group 3, group 4 or group 5 must bear the financial supervision of the Serving Bank in terms of Project Account’s monthly cash flow so as to manage risks.

3. The obligor shall implement measures for preventing risks such as setting aside of provisions for risks, formulation and selection of suitable risks handling plans and instruments, and purchase of credit risk insurance.

4. The obligor shall bear the inspection by competent authorities with the aims of risk prevention and during the process of handling risks.

What are methods for handling risks regarding government-guaranteed loan or bond issue in Vietnam?

Pursuant to Article 38 of the Decree 91/2018/NĐ-CP stipulating methods for handling risks regarding government-guaranteed loan or bond issue in Vietnam as follows:

1. The Ministry of Finance shall adopt the following risk management methods:

a) Not to consider issuing guarantee to an obligor who has outstanding debts with the Accumulation Fund for Debt Repayment, or a parent company whose subsidiary has debts classified in group 4 or group 5 as prescribed in Clause 1 Article 37 herein until debts owed to the Accumulation Fund for Debt Repayment and debts of government-guaranteed loans have been fully paid;

b) Exercise rights to dispose the collateral and collect debts from obligors as regulated herein so as to collect debts in full;

c) Suspend the issuance of bonds by an enterprise that fails to comply with the bond issuance plan approved by the Prime Minister and the bond issuance notice granted by the Ministry of Finance; or adopts an interest rate exceeding the interest bracket announced by the Ministry of Finance; or issues bonds in excess of the limit approved by the Prime Minister.

2. The following risk management methods shall apply to obligors having debts classified in group 4 or group 5:

a) Group-4 debts: The obligor must submit monthly report to the Ministry of Finance and its governing body (if any) on the enterprise’s cash flows;

b) Group-5 debts: The obligor shall formulate the debt restructuring scheme and adopt methods for handling debts upon the approval by the Prime Minister, including the disposal of collateral (if any) for debt recovery.

3. The Accumulation Fund for Debt Repayment shall annually make plan for and set aside provisions from collected guarantee fees for repayment of debts of government-guaranteed loans classified in group 4 or group 5 in the principle of ensuring that the minimum balance of the Accumulation Fund for Debt Repayment is maintained equal to at least the total amount payable during the year.

What are regulations on reporting regarding government-guaranteed loan or bond issue in Vietnam?

Pursuant to Article 39 of the Decree 91/2018/NĐ-CP stipulating reporting regarding government-guaranteed loan or bond issue in Vietnam as follows:

1. On quarterly, biannual and annual basis, the obligor that is an enterprise having investment project shall submit to the Ministry of Finance the following reports, which are prepared according to the form and contents regulated by the Ministry of Finance:

a) Quarterly report on fund withdrawal and debt repayment: Within the 10 first days of a quarter during the fund withdrawal period, the obligor shall provide the Ministry of Finance particulars of each withdrawal of funds, debt repayment and payment of undue debts; withdrawal of funds and debt repayment or repurchase of guaranteed bonds issued in the previous quarter;

b) Biannual report on project execution: Within the 10 first days of January and the same of July every year, in addition to the contents of a quarterly report prescribed in Point a Clause 1 of this Clause, the obligor shall submit reports on the project execution during the fund withdrawing period, the project’s operation and business activities until the end of the government-guaranteed loan term;

c) Reports on construction completion: Within 06 months after the date on which the project commissioning report is completed and certified, the obligor shall submit a report on the completion of construction works to the Ministry of Finance;

d) Report on termination of loan agreement: After paying debts in full, the obligor shall submit a report to the Ministry of Finance, accompanied by the quarterly reports on fund withdrawal and debt repayment;

dd) Financial statements: Within 10 days after the official issuance of annual financial statements (which have been duly audited and certified by the State Audit Office or an independent audit firm) of the obligor, and of the enterprise which is established to manage and operate the Project (if any), the obligor shall submit certified copies of audited financial statements to the Ministry of Finance as regulated;

e) Reports on withdrawal period and debt rescheduling: The obligor shall submit an application for extension of withdrawal period or debt rescheduling, supported by explanations thereof, to the Ministry of Finance at least 30 days before the final withdrawal date as prescribed or the following debt repayment date.

2. Within 10 days from the occurrence of any changes or events which may cause adverse influence on the project execution and debt repayment, the obligor must submit a report, which specifies the event, actual state, reasons and solutions for handling the case, to the Ministry of Finance. Cases where reporting is compulsory:

a) The project is deferred for 06 months and above against the plan for withdrawal of funds;

b) The allocation of owner's equity is deferred for 06 months against the date specified in the financial plan which is submitted when applying for a government guarantee (because shareholders of a joint-stock company fail to make capital contribution as regulated or the parent company fails to allocate funding to its subsidiary being a single-member limited liability company);

c) The project only achieves 50% of expected capacity in the first operating year;

d) The quantity of products sold during a year only achieves 50% of the planned one, resulting in adverse influence on the enterprise’s revenues as well as sources of funding for repaying debts of a government-guaranteed loan;

dd) There will be significant changes in majority shareholder, founding shareholder or model of the enterprise as decided by the Management Board or the governing body;

e) Issues relating the collateral of a loan occur;

g) Other events occur and lead to adverse influences as specified in the loan agreement.

3. Ad hoc reports: The Ministry of Finance has the right to request the obligor to submit ad hoc reports on the status of project, enterprise or loan or bond issue guaranteed by the government if it deems necessary. Within 5 working days from the receipt of the written request from the Ministry of Finance, the obligor must submit the requested report to the Ministry of Finance by post.

4. Reports on insolvency: If the obligor encounters financial difficulties and is likely unable to pay due debts of the government-guaranteed loan, or bond issue, or a forced loan from the Accumulation Fund for Debt Repayment or state budget, the obligor shall submit a report to the Ministry of Finance at least 45 days before the due date.

5. The Ministry of Finance shall provide guidance on specimens, forms and contents of reports for obligors as regulated herein.

Best regards!