Vietnam’s regulations on guaranteed amounts

There are regulations relating to government guarantee in Chapter I of Decree No. 91/2018/ND-CP of Vietnam’s Government. To be specific:

Eligibility requirements for a government guarantee

- An enterprise wishing to get a government guarantee for executing an investment project is required to satisfy all requirements specified in Clause 1 Article 43 of the Law on public debt management of Vietnam. To be specific:

+ It must have a legal status, is duly established under the law of Vietnam and has been continuously operating for at least 03 years before the date of submission of an application for approval for its proposal for government guarantee or an application for issuance of government guarantee;

+ It has not incurred any loss for the last 03 consecutive years according to the auditor’s report, except the loss incurred during the implementation of state policies as approved by a competent authority;

+ It has no overdue debt at the date of application for a government guarantee, including overdue debts owed to institutions under on-lending agreements, overdue debts owed to the Accumulation Fund for Debt Payment, overdue debts owed to lenders of government-guaranteed loans, and those owed to other credit institutions.

+ It has a feasible financial plan which has been duly appraised and submitted by the Ministry of Finance to the Prime Minister for approval as prescribed;

+ Its ratio of owner’s equity to total investment of the project is at least 20% as approved by a competent authority, accompanied by the plan for allocation of owner’s equity according to the progress of the project;

+ In case of bond issuance, the enterprise is also required to meet eligibility requirements for public offering of bonds in accordance with applicable law regulations on securities and securities market.

- A state bank for social policies wishing to get a government guarantee for implementing preferential credit programs must fulfill the eligibility requirements laid down in Clause 2 Article 43 of the Law on public debt management.

Guaranteed amounts

- With regard to a project of which the investment policy is approved by the National Assembly, or the Government, the guaranteed amount equals the loan principal, or the price of bonds issued, but does not exceed 70% of total investment as defined in the investment decision issued by a competent authority.

- With regard to a project in which investment is decided by the Prime Minister, the guaranteed amount equals the loan principal, or the price of bonds issued, but does not exceed 60% of total investment specified in the investment decision.

- The maximum guaranteed amount for bonds issued by a bank for social policies is 100% of the limit on the quantity of government-guaranteed bonds issued with the approval by the Prime Minister.

Letter of guarantee

According to Decree No. 91/2018/ND-CP, letters of guarantee are issued and managed by the Ministry of Finance on behalf of the Government. It should be noted that the Ministry of Finance takes charge of issuing Letters of guarantee but Letters of re-guarantee.

The only letter of guarantee is issued for each loan, or each bond issue, and specifies a guaranteed amount not exceeding the guarantee limit estimated for such loan or bond issue as approved by the Prime Minister. With regard to banks for social policies, the Ministry of Finance shall certify the guaranteed obligations for each quarter according to the quantity of bonds actually issued. The Ministry of Finance issues a specific document to amend or modify a letter of guarantee.

Main contents of a letter of guarantee:

- Borrowed amount and currency of the guaranteed loan;

- The Ministry of Finance’s commitment to the obligee to fulfill its obligations and those of the obligor;

- Rights, benefits and responsibilities of the obligee;

- Effect and revocation of a letter of guarantee;

- Governing laws and in-charge authority, location and language used in solving disputes;

- Place and date of signing the letter of guarantee.

In addition to the above contents, a letter of guarantee may contain other agreements made by the concerned parties in conformity with regulations of Vietnam law.

A letter of guarantee becomes effective from the date of issue until the obligor, or the guarantor, fulfills all of payment obligations towards the obligee according to terms and conditions specified in the loan agreement, or terms and conditions of government-guaranteed bonds.

Government guarantee limits

- Government guarantee limits are determined for enterprises and state banks for social policies for a 05-year period or every year.

- The Ministry of Finance shall take charge of determining specific limits on government guarantees in the 05-year and annual plans for public borrowing and debt repayment, which must be submitted to competent authorities for considering approval in accordance with regulations of the Law on public debt management.

Decree No. 91/2018/ND-CP of Vietnam’s Government takes effect from July 01, 2018.

-Thao Uyen-

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