Multinational companies, even though, have assets in Vietnam through their subsidiaries are struggling with asset-backed guarantee requirements from funders to secure an obligation or an investment overseas. In this note, we delve into the offshore guarantee regulations of Vietnam and iron out certain possible structures.
Guarantee means an undertaking made by a third party (guarantor) to an obligee to perform obligations on behalf of an obligor if the obligation falls due and the obligor fails to perform or perform the obligation incorrectly.
Credit institutions are permitted to grant guarantees for non-residents under regulations of the State Bank of Vietnam, whereas, other economic organizations shall be entitled to grant guarantees overseas if they obtain the Prime Minister’s approval.
Despite the preceding paragraph, the credit institutions are only allowed to make available their offshore guarantee to non-resident obligors in particular cases:
• Obligors are Vietnamese-invested companies in foreign countries;
• Obligors escrow deposit 100% of the guaranteed amount or provide the security of 100% by term deposit and certificate of deposit;
• Obligees are residents of Vietnam; or
• Regarding foreign bank branches, they are not licensed to guarantee in foreign currencies for non-residents, except for guarantees on the basis of counter-guarantees or guarantee confirmations of credit institutions in foreign countries in which the obligees are residents.
On a different note, economic organizations (non-credit institutions or non-CIs) must not grant any outward guarantee unless they are permitted by the Prime Minister. Going this way, in practice, is not preferable. Though the relevant parties may maintain a lot of assets and affiliates in Vietnam, they cannot arrange any guarantee amongst themselves to secure a loan in a foreign country where they make investments.
With regard to possible structures for the non-CIs, a bank guarantee may be adopted. By this, the non-Cis will use their assets to apply for the bank guarantee, and the bank guarantee shall be granted for its obligation fulfillment overseas. From a different angle, securitization of its assets may also work to secure its offshore undertaking. There are a handful of other potential structures depending on each case in particular.
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