Foreign loans through international bond issuance

The issuance of international bonds – a debt instrument on the international market of the borrower (Vietnamese enterprise) to the lender (foreign organizations and individuals not residing in Vietnam) is a foreign loan under Vietnamese law and is becoming more and more popular.

1. Nature of foreign loans through international bond issuance

A loan through the issuance of bonds issued by the borrower outside the territory of Vietnam to a non-resident lender, also known as an international bond, is considered a foreign loan without the guarantee of the Vietnamese Government. According to clause 16 Article 2 of Decree 53/2009/ND-CP, international bonds are loan certificates with par value, term, and interest, issued by the Government or Vietnamese enterprises to borrow capital in the international financial market to serve the needs of investment in economic development. 

This form of foreign loan is an alternative to loans at credit institutions (banks, financial companies) licensed to operate in the territory of Vietnam or other Vietnamese enterprises and individuals. Accordingly: 

• Types of international bonds issued: convertible bonds, bonds with warrants, and non-convertible bonds. 
• Borrower: joint stock companies and limited liability companies established and operating under the laws of Vietnam. 
• The lender: foreign organizations or individuals not residing in Vietnam. 
• Principles of implementation: self-borrowing, self-payment, self-responsibility for the authenticity and honesty of the purpose of foreign loans, and the efficiency of using capital raised from the issuance of international bonds.  

Borrowing loans in the form of issuance of debt instruments that bond outside the territory of Vietnam to lenders will have to meet specific conditions. This includes the condition that the issuance limit must be within the total foreign commercial loan limit of Vietnam. It aims to ensure that the country’s total foreign debt is under the Government’s control due to its impact on the country’s economic indicators. 

Thus, the essence of international bond issuance is a form of foreign borrowing. Therefore, the Vietnamese enterprises note not to use international bonds issued as collateral for a foreign loan. 

2. The basis for confirming loan registration through international bond issuance

When borrowing foreign capital through the issuance of international bonds, the borrower must make and submit a registration dossier for the international bond issuance and send it to the State Bank of Vietnam through one of the following methods: (i) The National Public Service Portal, (ii) Public service portal of the State Bank, (iii) Submit directly at the One-Stop of the State Bank or (iv) By post.

A dossier for registration of an international bond issuance comprises: 

• Application for international bond issuance according to the form attached to Circular 10/2022/TT-NHNN; 
• The legal dossier of the issuer includes A copy of the Enterprise Registration Certificate, Corporation Certificate, or Investment Registration Certificate and amended documents (if any); 
• The original or copy of the international bond issuance plan approved by the competent authority, satisfying current regulations on conditions for offering corporate bonds to the international market; 
• The original or a copy of the written approval of the international bond issuance plan of the competent authority under the law on corporate bond issuance, the law on enterprises, and the charter of the issuer; 
• A copy of the State Securities Commission’s written approval for the offering of bonds to the international market (applicable to issuers being public companies, securities companies, and securities investment fund management companies); 
• Copies of foreign languages and Vietnamese translations of other contracts or agreements (if any) signed by the issuer with the foreign party binding the obligation to pay fees related to the issuance; and 
• Some other documents as required during the implementation of procedures. 

The basis for the State Bank to consider and certify the registration of the international bond issuance is: 

• The value of the international bond issuance is within the total annual limit of foreign commercial loans approved by the Prime Minister; 
• The issuer (borrower) complies with and fully satisfies current regulations on foreign loan conditions, foreign exchange management for foreign borrowing and debt repayment activities not guaranteed by the Government, and current provisions of law on offering corporate bonds to the international market. 

3. Conclusion

Hence, the issuance of international bonds is a foreign loan that the Government of Vietnam does not guarantee on the principle of self-borrowing and self-payment. Meanwhile, it is necessary to comply with other conditions and principles prescribed by law strictly. This helps to ensure safety and minimize negative impacts on the national economy. 

At PLF Law Firm