VIETNAM

LAW AND PRACTICE: p.3

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 Law and Practice VIETNAM

Law and Practice

Contributed by YKVN Lawyers

Contents
1. Loan Market Panorama p.4 6. Enforcement p.10
1.1 Impact of Regulatory Environment and 6.1 Enforcement of Collateral by Secured Lenders p.10
Economic Cycles p.4 6.2 Foreign Law and Jurisdiction p.10
1.2 The High-yield Market p.4 6.3 A Judgment Given by a Foreign Court p.10
1.3 Alternative Credit Providers p.5 6.4 A Foreign Lender’s Ability to Enforce Its
1.4 Banking and Finance Techniques p.5 Rights p.11
1.5 Legal, Tax, Regulatory or Other Developments p.5 7. Bankruptcy and Insolvency p.11
2. Authorisation p.5 7.1 Company Rescue or Reorganisation
2.1 Authorisation to Provide Financing to a Procedures Outside of Insolvency p.11
Company p.5 7.2 Impact of Insolvency Processes p.12
3. Structuring and Documentation Considerations p.6 7.4 Concept of Equitable Subordination p.13
3.1 Restrictions on Foreign Lenders Granting 7.5 Risk Areas for Lenders p.13
Loans p.6 8. Project Finance p.13
3.2 Restrictions on Granting Security to Foreign 8.1 Introduction to Project Finance p.13
Lenders p.6
8.2 Overview of Public-Private Partnership
3.3 Restrictions and Controls on Foreign Transactions p.13
Currency Exchange p.6
8.3 Government Approvals, Taxes, Fees or Other
3.4 Restrictions on the Borrower’s Use of Proceeds p.6 Charges p.14
3.5 Agent and Trust Concepts p.7 8.4 The Responsible Government Body p.15
3.6 Loan Transfer Mechanisms p.7 8.5 The Main Issues When Structuring Deals p.15
3.7 Debt Buy-back p.7 8.6 Typical Financing Sources and Structures for
3.8 Public Acquisition Finance p.7 Project Financings p.16
4. Tax p.8 8.7 The Acquisition and Export of Natural
Resources p.16
4.1 Withholding Tax p.8
8.8 Environmental, Health and Safety Laws p.16
4.2 Other Taxes, Duties, Charges or Tax
Considerations p.8 9. Islamic Finance p.16
4.3 Usury Laws p.8 9.1 The Development of Islamic Finance p.16
5. Guarantees and Security p.8 9.2 Regulatory and Tax Framework p.16
5.1 Assets and Forms of Security p.8 9.3 Main Shari’a-compliant Products p.16
5.2 Floating Charges or Other Universal or 9.4 Claims of Sukuk Holders in Insolvency or
Similar Security Interests p.9 Restructuring Proceedings p.16
5.3 Downstream, Upstream and Cross-stream 9.5 Recent Notable Cases p.16
Guarantees p.9
5.4 Restrictions on Target p.9
5.5 Other Restrictions p.9
5.6 Release of Typical Forms of Security p.10
5.7 Rules Governing the Priority of Competing
Security Interests p.10

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VIETNAM Law and Practice

YKVN LLC has a highly regarded Banking and Finance Vietnamese and international experience with execution
group, having served as counsel in connection with some capabilities and resources in the home market that match
of the largest project finance transactions occurring in re- those of international and major regional firms. The firm
cent years, across a range of sectors including electricity, has been involved in many of the most complex, ground-
power, cement, petroleum and mining. With more than 90 breaking and high value transactions in Vietnam. The firm’s
legal professionals in offices in Hanoi, Ho Chi Minh City lawyers are very experienced in representing lenders and
and Singapore, YKVN provides legal services that combine borrowers in commercial banking matters.

Authors
Vu Dzung is a partner of YKVN, based in Hang Nguyen is a partner of YKVN,
the Ho Chi Minh City office. He has led based in the Ho Chi Minh City office. She
numerous significant asset financing has experience advising lending and
transactions, especially aircraft financings, security transactions in Vietnam as well as
project financings and, in particular, bonds issuance transactions of large cap
infrastructure financings. His practice corporations in Vietnam market. Her
focuses on banking and finance, capital markets and practice focuses on private equity, M&A transactions,
corporate matters. He has been also involved in major debt banking and finance and corporate matters. She has
and equity capital markets transactions onshore and advised numerous Fortune 500 companies as well as the
offshore. biggest names in Vietnam.

Ha Tran is an associate of YKVN, based in Nam Tran is an associate of YKVN, based

the Ho Chi Minh City office. She has more in the Ho Chi Minh City office. He has
than eight years of experience advising more than six years of experience advising
clients, including a range of credit both foreign investors and local
institutions, payment intermediaries, enterprises in complex transactions and
securities firms, and other multi-national projects. His practice includes project
corporations. Her practice includes banking and finance, finance, corporate matters, M&A transactions and capital
corporate matters, M&A transactions and dispute markets. He has been involved in a number of landmark
resolution. She has advised many credit institutions in international bond deals in Vietnam.
implementing their new cutting-edge and innovative
banking products in Vietnam.

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 Law and Practice VIETNAM

1. Loan Market Panorama petition between such providers and affecting the financing
terms and structures such as creditworthy borrowers are
1.1 Impact of Regulatory Environment and able to obtain lower interest rates. New providers bring new
Economic Cycles ideas and technology solutions to the market such as online
After a period of strong loan book growth during 2013-17, lending.
Vietnam has slowed down. Concerns about aggressive lend-
ing practices, and the possible risk in the real estate and non- 1.4 Banking and Finance Techniques
production sectors, have resulted in a tightening of regula- Given the development of Industry 4.0, digitalisation has
tions by the State Bank of Vietnam (the “SBV”). The SBV been transforming Vietnam’s banking sector through a
also set a modest target of 14% credit growth for 2019, much variety of initiatives by the Government, credit institutions,
lower than the 18% of the previous years. technology and others. In terms of product composition,
new products include POS instalment products such as
The slowdown is attributed to the market’s conditions, the loans for home appliances and consumer electronics and
growing from a larger base, the increasing exposure to real e-wallets and other intermediary payment services such as
estate loans, as well as the saturation of some of consumer MoMo reaching previously unbanked consumers. Peer-to-
finance key products such as instalment loans for home peer lending is becoming increasingly popular in Vietnam
appliances and consumer electronics. with the establishment of several online lending companies,
but it still lacks a legal basis. Peer-to-peer lending will soon
Banks traditionally focused on products such as project be permitted as part of a pilot program before new laws are
financing, housing and automobile loans, but in recent years developed for the activity
they have expanded into other consumer finance products.
Finance companies initially had strong growth, but now face 1.5 Legal, Tax, Regulatory or Other Developments
stiff competition from retail banks and new entrants. At the The SBV launched some tightening of credit in 2018 and
same time, the players are being constrained with the SBV’s 2019 by setting credit growth limits (14% compared to 18%
tightened supervision, a new set of regulations and lack of in previous years) and controlling lending to high-risk sec-
new products. Instalment products have started to reach sat- tors including real estate and security investments. Risky
uration, whereas cash loans are facing the SBV’s restrictions. areas, such as consumer loans or BOT/BT transportation
projects, require commercial banks to maintain their loan
Peer-to-peer lending is a new business model in Vietnam portfolio more conservatively. SBV is also considering a pilot
as evidenced by the establishment of several online lending program for peer-to-peer lending to facilitate the financial
companies, but it still lacks a legal basis. Peer-to-peer lending inclusion goals while minimising its potential risks. As a
will soon be permitted as part of a pilot program before new result, growths in 2019 are considered to be slow and steady,
laws are developed for the activity. following government directions of policies.

1.2 The High-yield Market In 2019, the SBV released two new drafts for amendment of
According to the Ho Chi Minh City Real Estate Associa- Circular No. 39/2016/TT-NHNN and Circular No. 43/2016/
tion, tightening credit policies of bank on real estate lend- TT-NHNN, regulating the lending activities of banks and
ing has resulted in real estate enterprises having desire for non-banks, respectively. In these drafts, the SBV is consid-
project development seeking alternative sources of finance. ering taking a stronger stance in managing the risks and
Real estate enterprises have recently been issuing bonds at impact from lending activities. In light of slower credit
higher interest rates as an alternative source of finance. As a growth, profitability ratios have been decreased while pru-
result, high-yield corporate bonds are becoming an attrac- dential ratios such as NPL have been increased slightly for
tive investment instrument. However, such high interest the sector as a whole.
rates are also a sign of imbalances in the issuers’ financing
structure. Undercapitalisation has continued to be a pressing issue to
the banking sector as the Basel II compliance deadline of
1.3 Alternative Credit Providers 2020 is just six months away. Currently, only nine out of 45
Besides the bank loans, Vietnam has witnessed the growth banks have officially been given approvals from the SBV to
of alternative credit in the securities market, namely, the apply Basel II Standards. Basel II Standards maintain the
bonds issuances to both domestic and foreign investors, capital adequacy ratio of at least 8% but changes the calculat-
loans obtained through finance companies, and foreign ing method. Specifically, total capital is unchanged, however,
loans from more and more investors fleeing low or negative the calculation of risk weighted assets has been changed with
interest rate jurisdiction. the introduction of credit risk and operational risk in the
Basel II Standards, which are measured via a variety of meth-
Additional alternative credit providers mean more options ods. The goal is to ensure that all risks are clearly reflected in
in the capital mobilisation, thus leading to increased com- the formula of capital adequacy ratio calculation.

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VIETNAM Law and Practice

2. Authorisation Vietnamese individuals to borrow foreign loans. It appears,

from the viewpoint of the regulators, that the Government
2.1 Authorisation to Provide Financing to a would be reluctant to permit Vietnamese individuals to bor-
Company row from offshore lenders because their failure to repay the
Vietnamese credit institutions include banks, non-bank debts will adversely affect the national creditworthiness of
credit institutions, micro-finance institutions and people’s Vietnam.
credit funds. Non-bank credit institutions include finance
companies, finance-leasing companies and other non-bank Vietnamese law allows foreign lenders to extend foreign
credit institutions. Under the banking regulations, only cred- loans to companies incorporated in Vietnam subject to cer-
it institutions are allowed to provide financing to Vietnamese tain conditions and requirements, among others:
organisations and individuals. In particular:
• The SBV regulations on foreign loans provide that a com-
• A bank is authorised to provide financing to a company pany is permitted to borrow foreign loans for implemen-
or an individual in Vietnam. In order to do so, it must tation of a “business and production plan” or “investment
obtain, from the SBV, the approval-in-principle and the project” using foreign loan capital of the borrower or its
establishment and operation licence, and from the pro- investee companies or restructuring the foreign loan debt
vincial Department of Planning and Investment obtain of the borrower without increasing the costs of borrow-
the enterprise registration certificate. Notably, there are ing.
several conditions and requirements under banking • If the borrower obtains medium- or long-term loans for
regulations applicable to, among others, the bank, owner/ its project and the project is licensed under an investment
shareholders of the bank and key personnel. certificate or investment registration certificate (“IRC”),
• A non-bank credit institution in Vietnam is not allowed the balance of the foreign loan together with all other
to provide financing to Vietnamese organisations. Only outstanding medium- and long-term foreign and domes-
individuals can obtain financing from a non-bank credit tic loans must not exceed the difference between the total
institution in Vietnam. investment capital and the equity capital recorded in the
• As for other organisations which are not credit institu- relevant IRC. Short-term borrowing is not subject to this
tions, though there are several cases of these organisa- limit. If the borrower’s project does not have an IRC, the
tions providing financing, Vietnamese organisations that balance of the foreign loan together with all other out-
are not licensed to engage in lending activities are not standing medium- and long-term foreign and domestic
allowed to regularly grant loans. If they fail to comply loans must not exceed the total borrowing needs of the
with these restrictions, their lending activity may be project, as approved by the competent authority.
considered an illegal act and monetary fines and criminal • A medium- or long-term foreign loan must be registered
penalties may be imposed. In practice, there are some with the SBV prior to drawdown and the registration is
lending transactions made between affiliated Vietnam- essentially an approval process. Short-term loans are not
ese companies where no penalties have been imposed however subject to the registration requirement. Any
and the activities have yet to be challenged by regulatory change to the details of the loans recorded in the foreign
authorities, thus far. loan registration certificate issued by the SBV will have to
be re-registered by the borrower with the SBV.
• The foreign loan must be within Vietnam’s foreign
3. Structuring and Documentation commercial debt limit, which is approved by the Prime
Considerations Minister on an annual basis.
• There is no specific cap on interest rates of a foreign loan.
3.1 Restrictions on Foreign Lenders Granting However, since the foreign loan has to be registered with
Loans the SBV, the SBV may raise question if the interest rate
Foreign loans (ie, loans extended by offshore entities) are agreed by the borrower and the offshore lender is much
classified depending on their maturity as follows: short term higher than the common interest rate in Vietnamese
loans (those with a maturity of 12 months or less) and medi- market.
um/long term loans (those with a maturity of more than 12
months). 3.2 Restrictions on Granting Security to Foreign
Lenders
Vietnamese individuals are unable to borrow loans from off- Vietnamese law permits foreign lenders to take mortgage of
shore lenders. Vietnamese law requires “[…]individuals to moveable assets and properties only (eg, equipment, inven-
borrow and repay foreign loans on the principle of self-bor- tory, bank accounts and securities), but it does not allow
rowing and self-liability for repayment in accordance with foreign lenders to take mortgage of land use rights and
Government regulations”. To date, there has been no regula- immoveable assets located on land. As a matter of common
tion promulgated by the Government of Vietnam allowing practice, a foreign lender may appoint an onshore security

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agent to take security over land and immovable assets on its However, it is not clear whether a security agent can hold
behalf in BOT projects based on Official Letter No. 1604/ security on behalf of its principals. In foreign loan transac-
TTg-KTN issued by the Prime Minister on 12 September tions, the security interest is normally created in favour of all
2011. However, this arrangement is not workable with secured parties and the security agent is authorised to carry
respect to other projects. out the administration and the enforcement of the security.

There is no restriction on granting of guarantees by a Viet- The issue of whether a commercial bank is able to act as
namese entity in favour of foreign lender in order to secure a security agent (for onshore lenders or offshore lenders)
obligations of a Vietnamese borrower; however, the guaran- remains questionable, though in practice, there have been a
tee must be registered with the SBV together with the reg- number of precedents. There are two reasons for this:
istration of foreign loans that are secured by the guarantee.
Firstly, as a general principle, any action taken by a commer-
3.3 Restrictions and Controls on Foreign Currency cial bank should be within the scope of business stated in its
Exchange establishment licence. However, acting as a security agent in
Foreign exchange control regulations provide that the for- loan transactions is not expressly stated as one of the busi-
eign loan must be made in a foreign currency, save for cer- ness activities in licences of commercial banks.
tain cases such as
Secondly, creation of security over land use rights or immov-
• the borrower being a micro-finance institution; able assets in favour of offshore lenders is not legally permis-
• the lender being an investor making direct investment in sible, and therefore the use of a commercial bank as agent for
the borrower, and the loan is sourced from the dividends security over those assets can be considered as circumven-
in Vietnamese currency distributed by the borrower to tion of that prohibition and accordingly, is not valid.
the foreign lender; or
• other circumstances as approved by the SBV Governor 3.6 Loan Transfer Mechanisms
on a case-by-case basis. Vietnamese law provides the transfer mechanism for
onshore loans granted by credit institutions in Vietnam, but
The borrower of foreign loans is permitted to purchase for- not foreign loans extended by foreign lenders.
eign currency at an authorised credit institution for the pur-
pose of payment of loan principal, interest and fees. A foreign loan can be transferred from an existing foreign
lender to a new foreign lender if there is no restriction on
3.4 Restrictions on the Borrower’s Use of Proceeds transfer of the loan under the loan documents and such
The proceeds from foreign loans must be used for permitted transfer is permissible under the law of the jurisdiction in
purposes, which include: which the lenders are located. Since the transfer of foreign
loan causes a change in lender, the borrower is required to
• implementation of business and production plans and register such change with the SBV.
investment projects of the borrower or its investee com-
panies; and Circular No. 09/2015/TT-NHNN, which regulates debt
• restructuring of current foreign loan(s) of the borrower purchases and sales by local credit institutions and foreign
without increasing the cost of funding. bank branches, allows a local credit institution or a foreign
bank branch to sell its loans to either a Vietnamese or an
In Vietnam, corporate bonds are typical debt securities. offshore debt purchaser and such sale of loans is generally
Bonds can be issued by a company privately or publicly and not subject to any approval of or prior notification to the
on the domestic market or international market. A company SBV. As a general rule, under Article 370 of the Civil Code
can use the proceeds from privately issued bonds to imple- a transfer of loan requires the consent of the borrower if the
ment its investment programs and projects and increase lender has obligations under the loan agreements (such as
working capital or to refinance the company’s debts. There keeping clients’ information confidential or notifying clients
is no restriction relating to the use of proceeds from bonds of change in lending interests or fees, etc). In the absence
which are publicly issued on either the domestic market or of such consent, the transfer may become voidable. In case
the international market. there is no such obligation by lender to the borrower, it is
not required to obtain their consent; instead, a notification
3.5 Agent and Trust Concepts shall be made by the lender to the borrower.
The concept of “trust” is generally not recognised.
According to Article 368 of Civil Code and Articles 14 and
Agency arrangement is not a well-developed concept in Viet- 17 of Circular 09, the debt purchaser will assume all of the
nam, although it is recognised in the Civil Code and regula- rights and obligations of the bank relating to the trans-
tions on syndicated loans of credit institutions in Vietnam. ferred loan including, but not limited to, those relating to

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VIETNAM Law and Practice

the security attached to a loan. In case the security is reg- on prices and payments terms similar to those applicable in
istered with security registration authority/agency, the reg- the public tender offer. In case the public company is a listed
istration should be amended to update the new lender as company, a public tender offer may reduce the pool of public
the new secured party without compromising the priority shareholders of the listed company such that it no longer
of the security. satisfies the public float. In this case, the listed company will
be subject to delisting procedures.
3.7 Debt Buy-back
Circular No. 09/2015/TT-NHNN only regulates the sale Whether transactions have “certain funds” or financial
of debts arising from the extension of loans by local credit capability provisions in the documentation depend on the
institutions and foreign bank branches pursuant to which transacting parties and whether short or long form docu-
a local credit institution or a foreign bank branch may sell mentation is to be used will normally depend on the credit
its loans to either a Vietnamese or an offshore individual, requirements of the relevant lenders. Documents evidencing
and organisations which may include borrower and sponsor. that the offeror complies with financial capability require-
Since Circular No. 09/2015/TT-NHNN does not prohibit a ment will be submitted to the SSC and provided to the secu-
borrower to buy-back debt, the borrower or sponsor may rities company, but not publicly disclosed.
be permitted to buy-back debt if there is no such restriction
under a loan agreement.
4. Tax
In case of foreign loans, it appears that the Vietnamese
borrower and Vietnamese sponsor are unable to buy-back 4.1 Withholding Tax
debt. Since the buy-back of foreign loan causes a change in A withholding tax of 5% corporate income tax (CIT) shall
lender and the foreign loan becoming the local loan which apply to interest accrued on loans granted by foreign entities.
must be denominated in Vietnamese Dong, the borrower is Foreign loans provided by certain governments or semi-gov-
required to register any changes with the SBV. The SBV may ernment institutions may obtain an exemption from interest
not accept the registering of changes because the buy-back withholding tax where a relevant double taxation agreement
of foreign loans is not provided elsewhere under Vietnamese or inter-governmental agreement applies.
law. With regard to the debt buy-back by a foreign sponsor,
it is a matter of law of the jurisdiction in which the lender 4.2 Other Taxes, Duties, Charges or Tax
and foreign sponsor are located rather than a matter of Viet- Considerations
namese law. Other than the withholding tax, there are no taxes or duties
applicable to foreign lenders making loans to local borrow-
3.8 Public Acquisition Finance ers.
Vietnamese law does not explicitly provide a “certain funds”
requirement, however, an offeror in a public acquisition of a 4.3 Usury Laws
part or all of the voting shares of a Vietnamese public com- There is no specific cap on interest rates of a foreign loan.
pany for the purpose of taking control of the public company However, since the foreign loan has to be registered with the
(a “public tender offer”) must ensure fair chance for sale by SBV, the SBV may raise a question if the interest rate agreed
all shareholders of the public company. by the borrower and the offshore lender is much higher than
the common interest rate in the Vietnamese market.
In order to implement a public tender offer, the offeror must
submit an application to register the public tender offer with
the State Securities Commission (the “SSC”) and the appli- 5. Guarantees and Security
cation must include, among others, audited financial state-
ments of the preceding year and other documents certifying 5.1 Assets and Forms of Security
financial capability in accordance with specialised laws, or Security customary for project financing in Vietnam typi-
confirmation on financial capability of the offeror. In addi- cally includes:
tion, a securities company acting as agent for public tender
offer must ensure that the offeror has sufficient funds to • security over project assets of the project company which
make the offer. may include land use rights and assets attached to land
(such as plants and buildings) and movable assets (such
After the SSC registers the public tender offer, the offeror will as equipment, machinery, receivables, bank accounts,
make a public announcement of the public tender offer to contractual rights, and proceeds from investments);
the media and implement it. Upon completion of the public • security over equity interests of shareholders in the pro-
tender offer, if the offeror holds at least 80% of total out- ject company; and
standing voting shares of public company, the offeror must
continue to purchase the remaining shares within 30 days,

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 Law and Practice VIETNAM

• in certain circumstances, guarantee issued by, and/or security and each kind of secured assets. Therefore, a secu-
security over other assets of, the intermediary or ultimate rity interest over an individual type of asset is usually taken
owners of the project. rather than a universal security interest.

Security under Vietnamese law comprises pledges, mortgag- 5.3 Downstream, Upstream and Cross-stream
es, security deposits, performance bonds, escrow deposits, Guarantees
title retentions, guarantees, fidelity guarantees and liens on Generally, Vietnamese private companies are permitted to
property. In project finance, mortgage is the most common grant downstream, upstream and cross-stream guarantees
form of security granted over property in Vietnam whereby to guarantee the obligation of Vietnamese individuals and
the securing party can retain possession over the property. organisations. Downstream, upstream and cross-stream
guarantees may be considered related-party transactions,
With respect to moveable assets, property rights and equity and thus corporate approvals for these transactions will be
interest, the security interest will be effective as from the required.
execution date of the security agreement, unless otherwise
agreed by the parties, and registration of the security is only In the case of Vietnamese public companies, the granting
to ensure the priority (based on time of registration) and of guarantee by the public companies are subject to Decree
enforceability against any third party in the event of enforce- No. 71/2017/ND-CP on providing guidelines on corporate
ment. The registration can be made at the local Centre for governance applicable to public companies, which gener-
Registration of Transactions and Assets under the National ally prohibits public companies from providing loans and
Registration Agency for Secured Transactions under the guarantees to:
Ministry of Justice of Vietnam (the “NRAST”). Registered
security shall have priority over unregistered security. Pri- • its individual shareholders and related persons of such
ority payment among unregistered security is based on the shareholders except for the case where the public com-
date of creation of the security. pany is a credit institution;
• its institutional shareholders and related persons of such
With respect to immovable assets (such as land use rights and shareholders being individuals, except for certain cases as
assets attached to land), the security agreements are required follows:
to be notarised by competent notary office and registered (a) where the public company is a credit institution; and
with the Land Use Right Registration Office under the pro- (b) where the shareholder is also the public company’s
vincial Department of Natural Resources and Environment subsidiary (without shareholding held by the State)
(the “DONRE”). A security over immovable assets shall take and such cross ownership was established before 1
effect as from the DONRE registration and recorded in the July 2015;
title document such as a certificate of land use right, house • related persons of shareholders being organisations,
ownership and other assets attached on land. except for certain cases as follows:
(a) where the public company is a credit institution; and
5.2 Floating Charges or Other Universal or Similar (b) where the public company and the related person of
Security Interests the shareholder are in the same group of companies,
The concept of floating charges does not exist in Vietnam. provided that appropriate approval is obtained in ac-
Nonetheless, Vietnamese laws allow mortgage over “prop- cordance with the public company’s charter; and
erty being goods rotating during the production and busi- • board members, general director, supervisory member,
ness process” which may be similar to the concept of floating other managers and related persons of such persons,
charge. Examples of properties include machinery, equip- except for certain cases as follows:
ment, raw materials, fuel, or other inventory which can be (a) where appropriate approval is obtained from the
sold, replaced or exchanged by the mortgagor at any time general meeting of shareholders of the public com-
prior to occurrence of an event of default. In this case, the pany; and
rights to demand the purchaser to pay money, the rights (b) where the public company and the related person of
to receive proceeds, the assets formed from the proceeds the shareholder are in the same group of companies.
received or the substituted or exchanged assets shall be the
secured assets. In case inventory is the secured asset, the Guarantees granted by Vietnamese economic organisations
mortgagor may replace goods in the warehouse but must (which are not credit institutions) in order to secure the obli-
maintain the value of inventory as agreed by the mortgagor gations of an offshore borrower are not possible, unless the
and the mortgagee. prior approval of the Prime Minister is obtained.

A single security interest over the whole business and assets 5.4 Restrictions on Target
of a company is not a market practice in Vietnam as Viet- IF the target is a private company, it is not restricted from
namese law provides different regulations on each kind of granting guarantees or security in connection with the

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VIETNAM Law and Practice

acquisition of its own shares. However, in the case of the 5.7 Rules Governing the Priority of Competing
target being a public company, it is prohibited from pro- Security Interests
viding loans and guarantees to its institutional shareholders Registration helps establish priority based on the time of reg-
and their related persons, except for certain cases (where the istration. Registered secured transactions have priority over
shareholder is also the public company’s subsidiary (without unregistered secured transactions. The priority of payment
shareholding held by the State) and whose cross ownership among unregistered secured transactions/registered secured
was established before 1 July 2015 or where the public com- transactions is based on the date of creation.
pany and the related person of the shareholder are in the
same group of companies). Vietnamese law is silent on the method of subordination
as well as the procedure to change the priority. Generally,
For security granted by the target for acquisition of its own secured parties may contractually agree to change the order
shares, the target can only mortgage land and other immov- of priority between/among the secured parties, if this agree-
able assets to credit institutions licensed to operate in Viet- ment is not contrary to the fundamental principles of Viet-
nam. For the time being, Vietnamese law does not permit namese law. The agreement is expected to survive the insol-
foreign entities to take security interest in land and other vency of a borrower in Vietnam.
immovable assets. Foreign entities are only permitted to take
security interest in movable assets and property rights (other
than property rights relating to immovable assets such as 6. Enforcement
land use rights).Therefore, if the lender is a foreign entity,
it is not feasible for the target to grant security over its land 6.1 Enforcement of Collateral by Secured Lenders
and other immovable assets to such lender. A secured lender could enforce the security if the borrower
fails to perform or performs incorrectly its obligation under
5.5 Other Restrictions the security agreement, or in other circumstances as agreed
Whilst Vietnamese law does not permit foreign lenders by the parties in the security agreement or as provided by
to take mortgage of land use rights and assets attached to law. The enforcement of the security over movable assets
land, it is permissible for foreign lenders to take mortgage of is subject to agreement between the secured party and the
moveable assets and property rights. A mortgage of land use securing party but will usually be conducted as follows:
rights and assets attached to land in favour of foreign lend-
ers, through the arrangement of an onshore security agent, • Notification on Enforcement: the secured party is
may be permitted in important BOT power projects or infra- required to send a notice to the securing party to com-
structure projects. However, this is only a special preferential mence enforcement of the security. Such notice should
treatment applied to such kind of projects. state, among others, the reason for the enforcement,
details of the secured property, the secured obligations
For a guarantee provided by a local entity to an offshore and method and timing for enforcement.
entity, the grant of a guarantee by a Vietnamese entity in • Possession of Secured Assets: if directed by the secured
favour of a foreign lender in order to secure obligations of party, the securing party is required to hand over posses-
a Vietnamese borrower will be subject to the SBV approval. sion of the secured assets to the secured party within the
Further, foreign exchange control regulations do not permit timeline specified in an enforcement notice. If the secur-
the remittance of foreign currency overseas by residents for ing party fails to hand over possession, the secured party
payment under such guarantee. In the absence of express is entitled to repossess the same in accordance with the
permission, a remittance bank will likely be unwilling to security agreement. Vietnamese law allows the secured
remit funds in relation to the payment under the guarantee party to take possession of the secured assets with prior
and may request that specific approval from the SBV (or the notice and to request assistance from local People’s
Prime Minister) be obtained for a remittance of this kind. Committees or local police authorities. However, such
assistance is not available all the time.
5.6 Release of Typical Forms of Security • Possible Enforcement Method: disposition of the secured
The security could be released upon the secured obligation assets can be effected within the timeframe as agreed
being fully discharged or, in other cases, as agreed by the between the secured party and the securing party, or after
relevant parties to the security agreements. If the security has seven days from the date of the enforcement notice in the
been registered with the security registrar (ie, the DONRE absence of such agreed timeframe. Vietnamese regula-
or the NRAST), deregistration of the security should be con- tions permit the following methods for enforcement of
ducted in order to be properly released. security (in addition to such other methods as may be
agreed by the secured party and the securing party):
(a) selling the secured assets; and
(b) taking an assignment of secured assets in lieu of
performance of the secured obligations; and

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 Law and Practice VIETNAM

• Receipt of enforcement proceeds: the securing party member of the New York Convention on Recognition and
receives enforcement proceeds up to the value of the Enforcement of Foreign Arbitral Awards (“New York Con-
secured obligations and returns any excess amount to the vention”). An application for recognition and enforcement
securing party. The securing party remains liable for any of foreign arbitral awards may be rejected by Vietnamese
deficiency. court on certain grounds as provided in the New York Con-
vention.
In practice, enforcement by the secured party requires co-
operation from the securing party, especially in respect of 6.4 A Foreign Lender’s Ability to Enforce Its Rights
repossession of the secured assets by the secured party. In Other specific issues relating to enforcement of equity inter-
case the securing party is not co-operative and repossession ests:
of the secured assets is necessary, for the purpose of enforce-
ment the secured party, in most cases, will have to bring the • Foreclosure upon enforcement of a security over equity
dispute to the agreed dispute resolution forum. interests in a limited liability company is subject to the
right of first refusal. If a member of a limited liability
6.2 Foreign Law and Jurisdiction company transfers its equity interests in the company,
A transaction relation involving a foreign element is permit- other members have the right of first refusal over such
ted to choose foreign law as the governing law of contract. transfer. Transfer of shares held by a founding share-
The foreign law may not apply if, among other reasons, the holder in a joint stock company during the first three
consequences of its application are inconsistent with “the years after incorporation to a party that is not a founding
fundamental principles of Vietnamese laws”. In addition, shareholder of the joint stock company is subject to the
some contracts are required to be governed by the Vietnam- approval of the general meeting of shareholders of such
ese Law even they involve a foreign element, such as security joint stock company.
agreement, in relation to immovable assets. • Since the transfer of equity interest to a foreign entity
requires approvals of the local licensing authorities and
Apart from certain matters being subject to exclusive juris- could be subject to foreign investment restrictions such
diction of Vietnamese courts (such as cases in relation to as foreign ownership limitation, enforcement will be sub-
immovable assets), submission to a foreign jurisdiction is ject to regulatory procedures at the time of transfer.
permissible if the relevant matter involves a foreign element. • Enforcement also requires assistance from companies
in which equity interests are mortgaged. Assistance
6.3 A Judgment Given by a Foreign Court includes, among others, issuance of new certificates evi-
To be enforceable in Vietnam, a foreign court judgement dencing ownership of equity interests and recording the
or a foreign arbitral award must go through the recogni- name of purchasers as owners of equity interests.
tion and enforcement process in Vietnam. In principle, for
the purpose of the recognition and enforcement of a foreign The above-mentioned requirements will make the enforce-
court judgement or a foreign arbitral award, the Vietnamese ment process more complicated.
authorities will not review the merits of the case. However,
Vietnamese courts may refuse this recognition and enforce- In respect of security of project licenses and permits, the
ment on the ground that the recognition and enforcement enforcement of security is uncertain given that those rights
of a judgement or awards in Vietnam are contrary to “the are granted specifically to certain eligible investors and the
fundamental principles of Vietnamese laws”. transfer of such license rights is subject to strict conditions.

Vietnamese courts will only consider recognition and

enforcement of judgments issued by courts of countries that 7. Bankruptcy and Insolvency
have entered into judicial assistance treaties with Vietnam
or on a reciprocal basis. To date, Vietnam has entered into 7.1 Company Rescue or Reorganisation Procedures
limited judicial assistance treaties with other countries and Outside of Insolvency
territories. Given the absence of a system to track which Under Vietnamese law, the term “bankruptcy procedures” is
countries have granted Vietnam judicial assistance, in prac- used to describe the processes beginning from the filing of
tice the application of the reciprocity principle is difficult the petition with the Vietnamese court for a determination
and, as a result, is subject to the sole discretion of the courts. on whether the debtor is insolvent and for initiating “bank-
Very few judgments issued by foreign courts have been rec- ruptcy proceedings”, to either the “Recovery Procedures”
ognised and enforced in Vietnam. or the “Liquidation Procedures”. A debtor is deemed to be
insolvent when;
Meanwhile, Vietnamese courts will consider recognition
and enforcement of a foreign arbitral award where the award • a debt is payable;
has been made in, or by arbitrators of, a country who is a • requests have been made for payment of the debt; and

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VIETNAM Law and Practice

• the debtor has failed to pay the debt within three months Any amendments of or additions to the Rescue Plan must
from the due date. be approved a vote by more than half of the attending unse-
cured creditors who represent at least 65% of the total unse-
The “Liquidation Procedures” will be implemented in case cured debts.
the debtor is already declared “bankrupt” (in other jurisdic-
tions, this is commonly referred to as “dissolution”). Accord- 7.2 Impact of Insolvency Processes
ingly, there are two main types of processes under the Bank- After commencement of bankruptcy proceedings, contrac-
ruptcy Law: “Recovery Procedures” is for the recovery of tual rights and remedies of the debtor are generally limited
the business operations and “Liquidation Procedures” is to by the Law on Bankruptcy and the rights and remedies of the
liquidate the debtor’s assets and to write off its debts. After debtor are primarily limited to statutory rights and remedies
the commencement of the bankruptcy procedures, the judge under the Law on Bankruptcy. In particular:
then makes a decision on whether the debtor should be sub-
ject to the Recovery Procedures or the judge will declare the • within five business days from the date on which the
debtor bankrupt then the Liquidation Procedures will be court accepts jurisdiction over the bankruptcy matter,
implemented accordingly. any competent authority or organisation may temporarily
suspend enforcement of secured assets of the debtor by
Within 30 days from the date on which the creditors’ meet- secured creditors.
ing passes a resolution on application of the Recovery Proce- • the business activities of a debtor continue to be operated
dures, the debtor must formulate a plan for recovery of busi- and conducted as usual but is subject to the supervision
ness operations of the debtor (the “Rescue Plan”) and send of the judge and the Insolvency Trustee.
it to the judge, creditors and the asset management officer • the following transactions will be deemed void if they
or asset management and liquidation enterprise (hereinafter were conducted by the debtor within six months (or
collectively referred to as the “Insolvency Trustee”) for their eighteen months if related parties of the debtor are par-
opinions. The Rescue Plan must specify the measures for ties to the transaction) prior to the date of commence-
the recovery of business operations of the debtor and the ment of the bankruptcy procedures:
conditions, time limit and a plan for payment of debts. Once (a) assignment of assets not based on their market price;
the Rescue Plan is prepared, it will be submitted to the court (b) conversion of unsecured debts into debts secured or
for its consideration and approval prior to submission to partly secured by the debtor’s assets;
the creditors’ meeting for their consideration and approval. (c) payment or set-off which benefits a creditor in
If approved by the creditors’ meeting, the judge will issue a respect of undue debts or with a sum more than the
decision recognising the resolution of the creditors’ meet- due debts;
ing on approval of the Rescue Plan and will then send the (d) donation of assets; and
decision to the debtor, creditors and the procuracy at the (e) other transactions for the purpose of disposing of
same level. assets or outside the purpose of the debtor’s business
operations.
The Recovery Procedures will be implemented within the • the debtor is required to report to the Insolvency Trustee
time period as approved by the creditors’ meeting. If the prior to carrying out the following activities, among
creditors’ meeting fails to approve the time period for imple- others, activities in connection with a borrowing or a
mentation of the Recovery Procedures, the Recovery Proce- pledge, mortgage, guarantee, purchase, sale, assignment,
dures must be implemented no later than three years from leasing out of assets; sale or conversion of shares; transfer
the date of approval of the Rescue Plan by creditors. of ownership rights in any asset; or stopping the per-
formance of an effective contract. Therefore, a secured
The debtor will proceed with the Liquidation Procedures if creditor can only foreclose the secured asset with the
the Rescue Plan is not approved, if the parties fail to imple- court’s approval.
ment the approved Rescue Plan, or if, upon the expiry of the • interest on any debt shall continue to accrue in accord-
Recovery Procedures, the debtor is still insolvent. ance with the signed agreements, but the payment
thereof shall be temporarily suspended. If the debtor is
The creditors’ meeting will be held with a minimum of 51% declared bankrupt, the interest shall no longer accrue;
of the total unsecured debts represented and the Rescue Plan and
is approved with a vote by the attending unsecured credi- • in case the secured assets are used for the Rescue Plan,
tors who represent at least 65% of the total unsecured debts. the handling of the secured assets shall comply with the
Notably, the Rescue Plan which involves the use of secured resolutions of the creditors’ meeting. In case the secured
assets must specify the period of use of such secured assets assets are not used or not necessary for the Rescue Plan,
and plan for enforcement of such secured assets and be con- the assets will be disposed of according to the relevant
sented to by the creditors secured by such assets. secured loan agreement which has become due. As for a
secured loan agreement which has not become due, prior

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 Law and Practice VIETNAM

to declaration of bankruptcy, the court will suspend the Under the Law on Bankruptcy, secured creditors are permit-
agreement and settle the secured loans. The settlement of ted to enforce their security during any bankruptcy proceed-
the secured assets are as follows: ings provided that;
(a) secured loans established prior to the court’s accept-
ance of jurisdiction over the petition for commence- • there are no Recovery Procedures applicable to the
ment of bankruptcy proceedings will be repaid by debtor or the secured assets are not used for the Recovery
the secured assets; and Procedures;
(b) if the value of the secured assets is not sufficient for • the enforcement is made in accordance with the relevant
repayment of the debt amount, the unpaid amount security agreement; and
will be repaid under the liquidation procedures; • the enforcement is subject to the judge’s decision.
if the value of the secured assets exceeds the debt
amount, the excess will be incorporated into the In other words, the secured assets may be only enforced after
value of the assets of the debtor. the first creditors’ meeting and subject to the judge’s deci-
sion. If the first creditors’ meeting makes a decision to use
7.3 The Order Creditors Are Paid on Insolvency the secured assets for the Recovery Procedures and the cred-
Where the judge issues a decision declaring bankruptcy, itor of the secured assets agrees to such usage, the debtor will
assets of the debtor are distributed in the following order: be entitled to use such assets for the Recovery Procedures.

• the bankruptcy fees; Uncertainty upon Enforcement of Secured Assets Pro-

• the unpaid wages, severance allowance, social insurance vided by a Third Party who Becomes Insolvent
and health insurance and other payables to the debtor’s It appears that the Law on Bankruptcy only stipulates the
employees; procedures for foreclosure of secured assets owned by an
• the debts arising after commencement of the bankruptcy insolvent company and used to secure its own obligation
procedures to recover the debtor’s business activities; rather than the foreclosure of secured assets owned by an
• financial obligations owed to the State, the unsecured insolvent company and used to secure the obligation of a
debts, the secured debts if the value of secured assets is third party (ie, the debtor). Given such uncertainty under
insufficient to pay all such secured debts; and the Law on Bankruptcy, the rights of creditors could be
• the members of the company, owner of the private enter- affected.
prise or the shareholders in a shareholding company (as
the case may be).
8. Project Finance
If the value of the assets is insufficient to make the payments
in accordance with the order above, each creditor in the same 8.1 Introduction to Project Finance
class will be paid the corresponding proportion of its debt. For the last two decades, Vietnam has enjoyed strong eco-
nomic growth. This growth has required significant resourc-
7.4 Concept of Equitable Subordination es to meet the increasing demand for investment. Heavy
Under Vietnamese law, there is no concept of equitable sub- focus has been on investment in the energy and infrastruc-
ordination or similar. ture sectors, which have traditionally been financed from the
State budget of Vietnam and the Official Development Assis-
7.5 Risk Areas for Lenders tance (“ODA”) from developed countries. However, these
Insufficiency of Secured Assets sources are no longer sufficient to accommodate the existing
In case the debtor is declared bankruptcy, the assets of the and future investment needs of the energy and infrastruc-
debtor will be distributed in the order prescribed under the ture sectors. Leveraging domestic and international capital
Law on Bankruptcy. If the value of the assets is insufficient markets and attracting private investments has emerged as
to make the payments in accordance with such order, the new sources to meet this demand for financing energy and
loan might not be repaid. infrastructure projects, forming the project finance market
in Vietnam.
Enforcement of Secured Assets
Within five business days from the date on which the court The participation of private sector, including foreign inves-
accepts jurisdiction over the bankruptcy matter, any com- tors, in the Vietnamese project finance market for energy
petent authority or organisation may temporarily suspend and infrastructure projects is usually on the basis of public-
enforcement of secured assets of the debtor by secured credi- private partnership (“PPP”), including investment forms of
tors. Build-Operate-Transfer (“BOT”), Build-Transfer-Operate
(“BTO”) and Build-Transfer (“BT”).

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VIETNAM Law and Practice

Currently, Vietnam does not have a consolidated legal docu- capital depending on the amount of the total investment
ment regulating project financing in Vietnam. As such, vari- capital. This requirement is to ensure that only investors
ous regulations are considered when deciding on PPP invest- having sufficient financial capability can participate in
ment forms such as investment laws, enterprises laws, tax PPP projects.
regulations, foreign exchange control regulations and other • Another key provision is that the investor is not allowed
legal regulations in specific industry (such as solar energy, to assign its rights and obligations under the signed PPP
construction, transport, etc). Large PPP projects have typi- contract to any third party until completion of the con-
cally been implemented in the investment form of BOT as struction phase or after the start of the operation phase
the BOT regulations are more developed than other invest- of the PPP project. As a consequence, the investor must
ment forms. ensure that it has sufficient capability to implement the
PPP project until the exit event is triggered, this prevents
However, in recent years, the legal framework for project circumstances where an investor bids for the project
financing (including PPP) has developed toward greater merely to later assign it to unqualified investor without
transparency, stability and fairness to encourage business implementing any part of the PPP project.
investment. Notably, on 4 May 2018, the Government issued
Decree No. 63/2018/ND-CP providing the framework of the Regarding the Draft PPP Law, key changes relate to:
PPP investment activities (“Decree 63”) replacing Decree
No. 15/2015/ND-CP from 2015. Decree 63 took effect on • the sectors for PPP investment activities;
19 June 2018 and aim of improving and streamlining the • a minimum level of total investment capital and debt/
legal framework governing PPP projects. Further, the Min- equity ratio;
istry of Planning and Investment is preparing a draft Law on • restrictions on business activities engaged in by the PPP
Public-Private Partnerships (the “Draft PPP Law”), which is project company; and
expected to serve as a consolidated framework for the PPP • the issuance of Government guarantees for the minimum
investment activities. The Ministry of Planning and Invest- project revenue.
ment is collecting opinions from market participants and the
Draft PPP Law is expected to be discussed in the National Whether or not these changes will be adopted into law hing-
Assembly’s meeting session in November 2019 and be adopt- es on the National Assembly’s meeting session in November
ed in mid-2020. 2019.

8.2 Overview of Public-Private Partnership 8.3 Government Approvals, Taxes, Fees or Other
Transactions Charges
PPP is an investment form based on contracts among the To implement a project finance transaction, typical govern-
State authorities, investor, and the project company to build, ment approvals as set out below must be obtained.
operate and manage large projects in certain sectors. PPP
investment activities are governed by various regulations • Approvals for investment:
such as the investment law, construction law, tendering law (a) Establishment of new foreign invested enterprises: in
and tax law, which are high-level legal documents in Viet- order to set up a new company in Vietnam, a foreign
nam’s hierarchy of legislation (only below the Constitution). investor must at least obtain investment approval-
Under these laws are decrees, of which Decree 63 is currently in-principle from the National Assembly, the Prime
the main legal document specifically guiding PPP projects. Minister or the relevant People’s Committee depend-
ing on the type and size of each project, investment
The key highlights of Decree 63 include: registration certificate which records information
relating to the investment project of the foreign in-
• Investment is encouraged in a variety of sectors under vestor, and enterprise registration certificate evidenc-
PPP investment forms, such as power, transportation, ing the incorporation of the project company.
commercial infrastructure, water treatment infrastruc- (b) Acquisition of capital contribution/shares in exist-
ture and information technology, etc. ing company: acquisition of capital contribution or
• The most important requirement is the capital require- shares in an investee company is subject to approval
ment applicable to the PPP investors. Specifically, upon of the local Department of Planning and Investment
registration of a PPP project, the investor is required to if the investee company operates in conditional busi-
register the equity capital and the total investment capital ness sectors or even if the investee company does not
(which includes equity capital and loan capital) of the operate in conditional business sectors. 51% or more
project. The project company can obtain loan capital not of charter capital of the investee company would be
exceeding the difference between the total investment held by foreign investors post-acquisition. In addi-
capital and the equity capital. The equity capital ratio tion, depending on whether the investee company is
must not be less than 10%-20% of the total investment a limited liability company or a joint stock company,

14
 Law and Practice VIETNAM

the investee company must register any change of The Ministry of Industry and Trade and provincial people’s
contents in its enterprise registration certificate if the committees are responsible for administration of petroleum
acquisition results in such change. operations.
• Administrative fees are subject to the type of application,
but these are typically nominal amounts: Power
• Land matters: subject to need for land use, foreign inves- Matters relating to power are mainly governed by the Law
tors, via the project company, submits application to on Electricity as amended by Law No. 24/2012/QH13 and
obtain land use right certificate and pay land use fees for Decree No. 137/2013/ND-CP. The Prime Minister, Ministry
the land. of Industry and Trade, and people’s committees at all levels
• Environment matters: by law, there are certain projects are responsible to carry out uniform state administration of
required to be conducted environment impact assess- electricity activities and electricity use.
ment or environment protection plan. Fees are subject to
the type of procedure. Mining Sectors
• Registration of foreign loans and security transactions: a Matters relating to mining activities are mainly governed the
medium/long term foreign loan (those with a maturity of Law on Minerals 2010 and Decree No. 158/2016/ND-CP.
more than 12 months) must be registered with the SBV The Government, Ministry of Natural Resources and Envi-
and the registration is actually an approval process. A ronment, and people’s committees at all levels are responsi-
medium/long term foreign loans can only be disbursed ble for administration of minerals.
after registration of such loan with the SBV. Short-term
foreign loans (those with a maturity of 12 months or 8.5 The Main Issues When Structuring Deals
less) are not however subject to such registration require- Main issues that need to be considered when structuring a
ment. However, security agreements are required to be deal include the following:
notarised or registered, or both in certain circumstances
(such as mortgage of land use rights and assets attached • Land use forms: foreign invested enterprises (“FIEs”) are
to land). Each type of application has different fees. The not entitled to own land in Vietnam; instead, FIEs can
security registration fee is USD4 and the notarisation fee use land allocated from the State (for residential property
is USD3,000, at a maximum. development) or leased from the State or other real estate
developers (for residential property development and
Generally, project agreements do not need to be registered or other purposes).
filed with the government authority, and do not need to com- • Secured Assets Available to Foreign Entities: for the time
ply with any local formality in order to be valid or enforce- being, Vietnamese law does not permit foreign entities
able, except that power purchase agreements (the “PPA”) in to take security interest in land and other immovable
particular sectors (eg, a solar or wind power) need to comply assets. Foreign entities are only permitted to take security
with a prescribed template and security agreements relating interest in movable assets and property rights (other than
to land use rights. Assets attached to land are required to be property rights relating to immovable assets such as land
notarised by competent notary office and registered with the use rights). Land and other immovable assets can only
Land Use Right Registration Office under the local Depart- be mortgaged to credit institutions licensed to operate in
ment of Natural Resources and Environment. Vietnam and cannot be mortgaged to Vietnamese entities
other than these credit institutions. The mortgage right of
A transaction involving a foreign element (eg, if there is a the project company being the land user is subject to the
foreign contracting party or if the assets subject to the con- form of payment of land rental. Generally, the land user
tract are located offshore) may be governed by foreign law who pays a lump-sum payment for the entire land use
if the parties so agree. English law or New York law is typi- term is entitled to mortgage both its land use right and
cally selected. Nonetheless, certain transactions will have to assets attached to the land, meanwhile the land user who
apply Vietnamese laws, such as the PPA in solar or wind pays land rental on an annual basis is entitled to mort-
power projects, which is subject to a prescribed template, gage the assets attached to the land only.
the incorporation and operation of project companies, a • Foreign Investment Restrictions: Vietnam limits for-
shareholder agreement among shareholders of the project eign investment in certain sectors by setting conditions
company, contracts or agreements with respect to immov- and requirements. Foreign investment restrictions are
able assets located in Vietnam, and labour contracts. provided in Vietnam’s WTO commitments and other
international or bilateral treaties of Vietnam and domes-
8.4 The Responsible Government Body tic laws. Vietnam’s WTO commitments are the most
Oil and Gas important and comprehensive international treaty provi-
Matters relating to oil and gas are mainly governed by the sions in relation to foreign investment. They provide for
Law on Petroleum as amended by Law No. 19/2000/QH10, Vietnam’s commitments to give foreign investors market
Law No. 10/2008/QH12 and Decree No. 95/2015/ND-CP. access (and limitation thereon) to all key service sectors.

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VIETNAM Law and Practice

Vietnam’s WTO commitments and other treaties are sup- tranche syndicated secured facilities from domestic and
plemented by a set of domestic laws, including the Law international lenders.
on Enterprises, Law on Investment and other specialised
laws regulating specific business sectors. Foreign invest- Bank financing is the most common type of financing in
ment restrictions exist primarily in the form of prohi- Vietnam, which comes from both foreign and domestic
bition of foreign investment, foreign ownership limit, banks. There have also been several export credit agency
requirement to joint venture with local partners, regula- (“ECA”) financings. Most entities receiving ECA financing
tory approval for foreign investment, or a combination are state-owned corporations who are financed to develop
thereof. top national priority projects in fields of power, infrastruc-
• Fund Flows: there exist uncertainties relating to how ture, and aircraft. The first ECA-supported facility extended
payment of the acquisition consideration would flow, to a private sector company is the USD950 million financing
especially in secondary transactions. Since the regula- to VinFast in 2018 to support the country’s first automotive
tions are not clear, banks where foreign investors open and motorcycle manufacturing complex.
their accounts have broad discretion on how the funds
flow. In practice, account banks should be consulted to Besides the above typical funding techniques, certain project
clarify fund flow issues. investors have started considering using project bonds to
• Currency: under Vietnamese foreign exchange regula- raise fund on a larger scale or to restructure former debts.
tions, all transactions in Vietnam require VND denomi-
nation except for certain exceptions prescribed by the 8.7 The Acquisition and Export of Natural
SBV, such as foreign investors being permitted to make Resources
deposit or escrow in USD in the context of a privatisa- By law, there is no private ownership over natural resources
tion/divestment of State assets only. Before 2014, market in Vietnam. They are owned by the people and are managed
practice was that payments were made in VND in by the State. Private parties may acquire rights to conduct
transactions involving foreign investors and these were exploration and production by way of entering into contrac-
indexed to or calculated on the basis of USD values. tual agreements (such as production sharing contracts in
However, from 2014 onwards the most prudent practice exploring and producing oil and gas) or obtaining relevant
is to agree on VND amounts in contracts and for these licences and approvals (such as licence to explore or extract
VND amounts to not be indexed to or calculated on mineral resources).
the basis of USD values. Therefore, the foreign inves-
tor should take into account the FX risk when making Royalty tax applies to the extraction of natural resources
investment. which is revenue-based. The royalty rates range between
• Limitation on Loan: the outstanding medium or long- 1% and 35% depending on the kind of resources. Crude
term loan must not exceed the difference between total oil, natural gas and coal seam gas are taxed at progressive
investment capital and the equity capital of the project tax rates depending on the daily average production out-
as recorded in the Investment Registration Certificate. put, with applicable rates ranging from 7% to 29% for crude
Foreign medium or long-term loan is required to be oil, and 1% to 10% for natural gas. Also, an environmental
registered with the SBV. protection fee shall be paid. For example, the environmen-
tal protection fee is VND100,000 per ton (for crude oil) or
A foreign invested enterprise can be set up in one of the VND50 per cubic metre (for natural gas) or VND35 per
following forms of companies, namely limited liability com- cubic metre (for associated gas).
pany (LLC), joint stock company (JSC), partnership and
private enterprise. However, in practice, the two forms that Minerals that are legally exploited and processed by licensed
the foreign investors often use are LLC and JSC. Depend- entities are domestically tradeable, except for toxic miner-
ing on the investment structure and the foreign ownership als. For export activities, in general, minerals to be exported
limitation, the project company can either be a 100% foreign must be in the permitted list, satisfy certain quality standards
invested company or a joint venture between foreign and prescribed by laws, and have lawful origin. The Prime Minis-
domestic investors. ter has set out a general objective up to 2025 that crude ores,
gold and copper concentrates are prohibited from export.
8.6 Typical Financing Sources and Structures for The export tax rate ranges from 0% to 40% subject to each
Project Financings type of minerals.
Standard debt financing (which is usually secured debt) and
equity structures have been traditionally used in Vietnam. 8.8 Environmental, Health and Safety Laws
Large investment projects in Vietnam are primarily funded In respect of environmental laws applicable to projects in
by a mix of external debt and equity finance. The funding Vietnam, the Law on Environment Protection would be the
is typically mobilised through shareholder loans and multi- primary legislation. Regarding health and safety issues, sev-
eral laws are adopted, namely, Labour Code, Law on Social

16
 Law and Practice VIETNAM

Insurance, Law on Occupational Safety and Hygiene, etc. 9. Islamic Finance

Such laws govern the requirements for a project and the obli-
gations of a project company. 9.1 The Development of Islamic Finance
Islamic finance is not relevant to the financing market in
Depending on the specific industry, projects may also sub- Vietnam.
ject to other environmental, health and safety regulations
specific to that industry, such as Law on Petroleum, Law 9.2 Regulatory and Tax Framework
on Chemicals, Law on Minerals, Law on Construction, etc. See 9.1 The Development of Islamic Finance.

The main regulatory body at the national level is the National 9.3 Main Shari’a-compliant Products
Assembly. The Government, Ministry of Natural Resources See 9.1 The Development of Islamic Finance.
and Environment, Ministry of Health, Ministry of Labour
- Invalids and Social Affairs, and local authorities are also 9.4 Claims of Sukuk Holders in Insolvency or
responsible for overseeing environmental, health and safety Restructuring Proceedings
in Vietnam. See 9.1 The Development of Islamic Finance.

9.5 Recent Notable Cases

YKVN LLC See 9.1 The Development of Islamic Finance.
235 Dong Khoi Street
The Metropolitan, Suite 1102
Ho Chi Minh City, Vietnam

Tel: (84-28) 3822 3155

Fax: (84-28) 3 823 6902
Email: [email protected]
Web: www.ykvn-law.com

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