In 2023, there were noticeable changes in the regulatory framework governing refinancing in Vietnam. Refinancing remains forecasted as a crucial need for the operations of foreign-invested enterprises in Vietnam both presently and in the coming years. This year, 2024, the State Bank of Vietnam is also expected to continue issuing amendments to Circular 39/2016/TT-NHNN regarding lending activities of credit institutions and branches of foreign banks. A draft of these amendments (published on the State Bank’s official portal for public consultation on 8 March 2024) provides more detailed regulations on streamlining procedures for small-value credit issuance, requirements for credit institution customers, loan usage checks, etc. It is expected that these changes will impact refinancing activities. Consequently, it may be appropriate for businesses to appreciate the current regulations governing loan refinancing operations at this time, which serve as a foundation for applying future changes related to the credit market.

Vietnam's onshore and offshore loans can be refinanced under specific conditions and restrictions. Loan refinancing offers a means for businesses to overcome financial challenges during certain periods, enabling swift resumption of business activities.

Refinancing using new foreign loans

Borrowers are entitled to refinance offshore loans, subject to the following conditions:

(a) The amount of the new foreign loan for the purpose of restructuring the existing foreign loan shall not exceed the total sum of the outstanding principal, accrued interest, unpaid fees of the existing foreign loan, and the fees associated with the new loan as determined at the time of refinancing;

(b) If the new foreign loan is of medium or long term, within five working days from the disbursement of the new loan, the borrowing party must repay the existing foreign loan in order that after the aforementioned five-day period, the borrowing party can ensure compliance with the borrowing limits as provided by laws. Of note, the new foreign loan (which is medium or long term) shall be registered with the State Bank of Vietnam by the borrower before its disbursement can occur.

For reference, the borrowing limits are defined as follows:

1. In the case of obtaining foreign loans to implement investment projects of the borrowing party: The outstanding principal balance of medium to long-term loans, both domestic and foreign, of the borrowing party (including short-term loans extended and overdue short-term loans converted into medium to long-term loans) serving investment projects shall not exceed the capital borrowing limit of the investment project;
    
2. In the case of obtaining foreign loans to carry out production, business plans, or other projects of the borrowing party: The outstanding principal balance of medium to long-term loans, both domestic and foreign, of the borrowing party (including short-term loans extended and overdue short-term loans converted into medium to long-term loans) serving this purpose shall not exceed the total capital demand as stipulated in the foreign loan utilization plan approved by competent authorities in accordance with the law.

The law clearly stipulates that businesses are permitted to utilize foreign loans for certain purposes. However, permission to refinance existing onshore loans has not been provided.

Refinancing using new onshore loans

At law, businesses are entitled to borrow a new onshore loan to refinance an existing onshore or offshore loan if all of the following conditions are met:

      (a) Such new onshore loan will be used to repay the existing loan (either onshore or offshore)
           before the existing loan’s payment due date;

      (b) The term of the refinancing (new) loan does not exceed the remaining term of the existing
            loan, and

      (c) The existing loan has not undergone repayment term restructuring.

Vietnamese regulations (i.e. Circular No. 08/2023/TT-NHNN, Article 1.2 amending Article 8 of Circular No. 39/2016/TT-NHNN) provide an exception whereby existing foreign loans obtained through deferred payment sale and purchase agreements of goods (including equipment) contracts are permitted to be refinanced by new onshore loans without being subject to the conditions as mentioned above. This exemption eliminates a requirement present in previous regulations where the refinanced loan needed to be designated "for business purposes”, and businesses currently can borrow onshore loans to refinance other loans relating to their operating expenses, which creates greater flexibility for businesses in devising various financial plans.

It can be inferred from the above regulations that if the borrowing party wishes to refinance the existing onshore or offshore loan to extend its term, it would be impossible (from a legal perspective) to do so by using a new onshore loan since the term of the new loan is required to not exceed the residual term of the existing loan. Additionally, since the regulations require the existing loan has not undergone a restructuring of the repayment term, if the term of the existing loan has already been extended even once, it cannot be refinanced using an onshore loan.

The information provided is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.