1. Is it permitted for an onshore loan to be refinanced by another onshore loan?

Short answer: Yes.

1.1. Under Article 8.6 of Circular 39 of the State Bank of Vietnam dated 30 December 2016 on lending by credit institutions and foreign bank branches to clients, as amended (Circular 39/2016), a new onshore loan (New Loan) can be used to refinance an existing loan (either onshore or offshore) (Existing Loan) if all the following conditions are satisfied:

1.1.1. the purpose of the Existing Loan is for business activities;

1.1.2. the term of the New Loan must not exceed the remaining term of the Existing Loan; and

1.1.3. the Existing Loan has not been restructured.

2. Is it permitted for an onshore loan to be refinanced by an offshore loan?

Short answer: No.

2.1. Under Article 5.2 of Circular 12 of the State Bank of Vietnam dated 31 March 2014 on conditions for enterprises to borrow non-government guaranteed offshore loans (Circular 12/2014), a borrower is permitted to borrow an offshore loan for certain purposes which include the refinance of their existing offshore loan without increasing the cost of borrowing.

2.2. Since nothing in Circular 12/2014 allows an onshore loan to be refinanced by an offshore loan, a borrower cannot borrow an offshore loan to refinance an onshore loan.

3. Is it permitted for an offshore loan to be refinanced by an onshore loan?

3.1. Yes, as long as the conditions listed from 1.1.1 to 1.1.3 are satisfied.

4. Is it permitted for a short-term offshore loan to be refinanced by a long-term offshore loan?

Short answer: Yes, subject to discussions below

4.1. As discussed in 2.1, Article 5.2 of Circular 12/2014 allows an offshore loan can be refinanced by another offshore loan provided that the borrowing costs must not be increased. Borrowing costs means the total level of costs converted to an annual percentage of the loan amount, comprising the foreign loan interest rate and other fees relevant to the foreign loan which the borrower must definitely repay to the lender, to parties securing the loan, to parties insuring the loan, to agents and to other relevant parties.

4.2. Though nothing in Circular 12/2014 expressly prohibits the refinance of a short-term offshore loan by a long-term offshore loan, if the borrower use a long term loan to refinance a short term loan, it may be hard for the borrowing cost condition to be satisfied. One option to consider in such case is to convert the existing short term offshore loan to be a long term loan before making the refinance.

This post is written by Hoang Thi Thanh Thuy and Luu Tuan Hung.