Vietnam: Procedures for issuance of government guarantee for a loan

To be granted a guarantee for a loan, the following steps need to be taken:

Firstly, prepare the application for issuance of government guarantee for a loan:

In addition to the documents required in Article 11 of Decree No. 91/2018/ND-CP of Vietnam’s Government, the borrower that applies for government guarantee for his/her loan must, either directly or by post, submit the following documents to the Ministry of Finance:

- The original copy of the lender’s request for loan guarantee.

- The original copy of the enterprise’s application form for issuance of government guarantee, which includes details of its expected Serving Bank.

- The documents mentioned in Article 11 herein if the submitted ones need to be modified.

- The certified copy of the feasibility study report approved by a competent authority in accordance with regulations of the laws on investment and public investment.

- The original borrowing plan which must be reviewed within 06 months before applying for issuance of government guarantee, include the contents prescribed in Clause 4 Article 11 herein and the following:

+ The summary of value and terms of the loan for which the government guarantee is applied according to the draft loan agreement initialed by the parties and those of other loans (if any);

+ The master plan for quarterly withdrawal of borrowed fund;

+ The decision, made by the Member Board or the Management Board of the obligor, on the allocation of owner’s equity to the project which must be at least 20% of total investment of the project as approved by a competent authority, enclosed with the plan for annual allocation of owner’s equity according to the project's progress.

- The original written approval for the borrowing plan granted the government guarantee, made by the agency representing rights and obligations of state capital owner in enterprise (hereinafter referred to as “representative agency”) if the obligor is an enterprise of which 100% charter capital is held by the State.

- The certified copy of the final draft of the loan agreement initiated by the parties or the signed loan agreement, which specifies the loan amounts and provisions on government guarantee.

- The certified copies of the audited financial statements for the last 03 years preceding the year in which the application for issuance of government guarantee is submitted. If the application is submitted in the second half of a fiscal year, the financial statements for the first six-month period must be also submitted.

- The report given by the National Credit Information Center of Vietnam on the credit status of the enterprise applying for a government guarantee (the written report must bear the seal of the bank providing information).

- The original written commitment to pay debts if the enterprise applying for the government guarantee defaults, which is made according to the Appendix I enclosed herewith and accompanied with the certification of an authorized person of the parent company, an organization or a person holding at least 65% of the enterprise’s charter capital.

- The written commitment made by shareholders or capital contributors individually holding at least 5% of the enterprise’s charter capital on their aggregated holding of at least 65% of the enterprise’s charter capital during the validity of government guarantee, enclosed with the list of these shareholders or capital contributors (if the enterprise is a joint-stock company).

- The documents proving the completion of investment procedures in accordance with regulations of the Law on investment.

Secondly, the stage of appraising the application for issuance of government guarantee for a loan:

- If an application fails to meet all of the requirements as prescribed, the Ministry of Finance shall give a notification thereof to the obligor within 05 working days from the receipt of the application. The obligor is required to supplement documents to the Ministry of Finance within 10 working days from the receipt of notification.

- Within 30 days from the receipt of the application including sufficient required documents, the Ministry of Finance shall appraise the received application and submit a report to the Prime Minister on appraisal results including the following contents:

+ The validity of documents included in the application;

+ The fulfillment of eligibility requirements for government guarantee;

+ The investment funding structure, including the evaluation of funding sources such as owner’s equity and borrowed fund, and terms and conditions of the loan waiting for the government guarantee;

+ The financial capacity of the enterprise applying for a government guarantee (including the debt-to-equity ratio, quick ratio and long-term debt coverage ratio);

+ The financial plan of the project using borrowed fund and the enterprise’s solvency. The financial plan is evaluated by analyzing “Debt-service coverage ratio” to determine the average DSCR within 05 first years (which must be not lower than 1.20 for a project with a off-take agreement, or 1.25 for other projects); analyzing the sensitivity by “Debt-service coverage ratio regarding guaranteed loans”; analyzing the sensitivity by “Revenue”; and analyzing the sensitivity by “production costs/ operating costs”;

+ The suitability (in terms of type, nature and value) of the collateral for the government-guaranteed loan;

+ The project’s risks concerning the government-guaranteed loan; risks concerning the loan; risks of the borrower’s financial capacity and solvency; risks of the borrower’s project implementation and management;

+ Total borrowed amounts and the number of government-guaranteed projects implemented by the enterprise up to the date of appraising this application; the enterprise’s outstanding debt the date of appraising this application;

+ The proposed guarantee fee;

+ Other suggestions and proposals.

- In case the appraisal requires further information, the Ministry of Finance may get opinions about fields of the project from ministries, ministerial-level agencies and relevant sector regulatory authorities, or request the enterprise to supplement documents (such as the approved fundamental design, the off-take agreement, or explanations of technology and equipment). Relevant authorities must give written opinions within 10 working days from the receipt of the written request from the Ministry of Finance.

Thirdly, the Ministry of Finance shall submit contents of the letter of guarantee, accompanied by the report on appraisal results of an application for government guarantee, to the Prime Minister. The Prime Minister shall make a decision on issuance of government guarantee for a loan according to the Government’s working regulation, and send it to relevant authorities. A decision on issuance of government guarantee for a loan includes:

- Approving contents of the letter of guarantee and authorizing the Ministry of Finance to issue the letter of guarantee;

- Approving the guarantee fee;

- Assigning the Ministry of Justice to provide legal opinions as regulated (if any);

- Assigning the Ministry of Foreign Affairs to coordinate with the Ministry of Finance in appointing a qualified overseas Vietnamese representative mission to act as a recipient of documents in legal proceedings against the letter of guarantee (if any);

- Approving other organizations acting as recipients of documents in legal proceedings as regulated in letters of guarantee (if any);

- Other contents.

View more details at Decree No. 91/2018/ND-CP of Vietnam’s Government, effective from July 01, 2018.

-Thao Uyen-

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