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Revised regulations on government guarantees

On February 16 2011, the Vietnamese government promulgated Decree 15/2011/ND-CP regulating the provision and management of government guarantees, replacing Decision 272/2006/QD-TTg dated November 28 2006 which regulated provision and control of Government guarantees for foreign loans.

Decree 15 extends the provision and management of Government guarantees to both domestic and foreign loans, including domestic and international bond issues, but specifically excludes foreign capital from the security of Government guarantees.

Under Decree 15, the Ministry of Finance is the body primarily responsible for granting government guarantees for individual loans or government bond issues and operates an annual quota which may only be exceeded in limited circumstances.

Programmes and projects eligible to be considered for provision of a government guarantee are determined by the Law on Public Debt Management and include:

(i) investment programmes or projects whose investment is decided by the National Assembly or the Prime Minister;

(ii) hi-tech development programmes or projects in the sectors of energy, mineral mining and processing, or export manufacture or provision of export services in conformity with national socio-economic development orientations;

(iii) programmes or projects within special investment zones and sectors under the Investment Law and other relevant laws; and

(iv) programmes or projects funded with commercial loans associated with ODA funds in the form of syndicated credit.

Certain conditions apply to such programmes or projects which may be eligible for a government guarantee, stipulated in Decree 15 and the Law on Public Debt Management, including:

(i) inclusion on the list of programmes and projects permitted to be guaranteed by the government, as determined by the Prime Minister for the relevant period;

(ii) the enterprise implementing the programme/project must be established and operating in Vietnam in accordance with the law, have a healthy financial status (for example no losses in the previous three years and owing no overdue debts to financial and credit institutions at the time of requesting the guarantee) and, where implementing an investment project, must have at least 20% of the total investment capital in the form of equity capital;

(iii) the value of the loan or bond issue must fall within the quota on government guarantees approved by the Prime Minister and within the government's annual commercial loan limits and foreign borrowing guarantee, in the case of foreign loans or the issue of international bonds;

(iv) with respect to a foreign loan, it must be valued at a minimum of US$50 million, or US$100 million for an international bond issue, except for programmes or projects as prescribed at item (iv) in the previous list above, the term of the loan repayment must be at least 10 years, and borrowing or issuance conditions must conform with market conditions and international practice; and

(v) with respect to a domestic loan or domestic bond issue in a foreign currency, it must be valued at a minimum of US$30 million and the term of the loan repayment must be at least five years; a loan or bonds in local currency must be valued at a minimum of VND500 billion ($24 million) with a loan repayment term of a minimum one year.

The guarantee may not exceed 80% of the total investment of the programme/project, including all relevant loan fees, except for key projects/works or major projects of urgency and particular importance to national socio-economic development.

Foreign-invested enterprises

Unlike Decision 272, which did not impose restrictions, the government excludes foreign-invested enterprises from its guarantees. If the enterprise seeking the government guarantee is foreign invested, Decree 15 states that the guarantee will only be provided for the portion of the loan capital corresponding to the liability of the Vietnamese party in the enterprise.

Furthermore, during the period of the guarantee, the principal to the loan agreement may only assign its shareholding (in whole or part) or capital contribution portion (for a limited liability company) to a foreign investor after repayment of the debt obligation to the lender in respect of the outstanding debt, in proportion with the ratio of the proposed shareholding to be transferred.


Apart from loans or bond issues of State policy banks (State-governed banks with a specific policy purpose) which the government guarantees, assets created with government-guaranteed loan capital may be used, in the ratio at which the loan capital was used to create such assets, as mortgage security for discharge of the obligations of the borrower to the Ministry of Finance. These assets may not, however, be used as security for discharge of other civil obligations, nor may the assets be sold without the agreement of the Ministry.

Juniper Cheng and Mark Fraser

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