​From 30 June 2016, an amendment to the co-financing regulations requires the paying agent to be an onshore credit institution, “co-financing agreements” are now required to be entered into between the lenders for offshore syndicated loans in addition to typical foreign law credit agreements, foreign law governing credit agreements need to be consistent with Vietnamese law and there is a restriction on the types and amount of fees that may be payable in connection with syndicated loans. Below is a summary of the key amendments.  

Clause 1.1 of Circular 42 provides that this Circular applies to onshore credit institutions. In practice, SBV has up to now registered various syndicated loans made by offshore lenders without requiring the loans to be subject to Circular 42 on the basis that Circular 42 was not applicable to those loans from offshore lenders only.

Clause 1.1 of Circular 42 has now been amended by Circular 24, which provides that the Co-financing Regulations are applicable to all syndicated loans from not only onshore credit institutions but also offshore credit institutions. Accordingly, all syndicated loan agreements executed from 30 June 2016 shall be subject to the Co-financing Regulations. It should also be noted that the Co-financing Regulations may not be applicable to a bank borrower.

Onshore paying agents

Circular 42 requires that the facility agent, paying agent or security agent to which it applies to be an onshore credit institution. Circular 24 amends this provision and includes a prohibition on offshore credit institutions from acting as paying agents. Since a syndicated loan involving all offshore lenders is governed by the Co-financing Regulations, offshore credit institutions may now act as security agents and facility agents, but are no longer allowed to act as paying agents. This function would then need to be handled by an onshore credit institution. An offshore credit institution may still act as the facility agent for a syndicated loan agreement but the duties in respect of receiving and remitting funds from the lenders to the borrower and the borrower to the lenders will need to be conducted by the onshore paying agent. It should be noted that any agreement to which an onshore paying agent is a party must be executed in the Vietnamese language in addition to the English language execution version, although it is possible to provide for English to be the prevailing language in that agreement. This new requirement could add to the documentation requirements and costs of a typical offshore financing for a Vietnamese borrower.

Compliance with Vietnamese law

Circular 42 requires a co-financing agreement entered into among lenders (which regulates the relationship between co-financing parties or lenders) needs to “comply with Vietnamese law” and that a credit agreement entered into with the borrower (which regulates the relationship between the lenders and the borrower) needs to be “consistent with Vietnamese law”. The new requirements for the loan documentation to “comply with Vietnamese law” and be “consistent with Vietnamese law” could create some uncertainty on the requirements needed for a foreign governing law agreement.

There are presently no specific decisions nor written guidance by the Vietnamese courts or the SBV on the interpretation and application of the requirements of Circular 42 that foreign law governed credit agreements be “consistent with Vietnamese law” and that co-financing agreements need to “comply with Vietnamese law”. Accordingly, there is therefore some risk that a Vietnamese court or the SBV may take the view that a particular term of an English law governed facility agreement is inconsistent or does not comply with Vietnamese law. The risk may arise where a lender is seeking to enforce a foreign court judgement or arbitral award against a borrower in Vietnam and the borrower seeks to challenge the judgement or award before a Vietnamese court for failing to comply with a provision of Vietnamese law. However, it is not clear as to how likely this risk is likely to materialise in practice. For example, Vietnamese authorities may require lending rates to comply with the ceiling lending rates imposed by the new Civil Code of Vietnam from 2017.

It is common practice to combine the credit agreement and co-financing and syndication arrangements and agency appointment provisions into one single agreement that is signed by all the lenders and the borrower and such agreement will be governed by a foreign law (provided that there is at least one offshore lender). However, with the above scope of application for the Co-financing Regulations, the new requirement to “comply with Vietnamese law” means that there is a risk that taking the one-agreement approach may result in the entire agreement being subject to the requirement to comply with Vietnamese law. This could result in the main advantage in having a foreign law govern the financing arrangements being lost. Therefore, in order to address the uncertainty referred to above and to reduce the prospect of usual foreign-law governed financing agreements being challenged in Vietnam, we would recommend that to have the credit agreement and co-financing agreement documented separately as two agreements. The co-financing agreement should be tailored to the provisions set out in the credit agreement and be entered into for compliance with Vietnamese law. Circular 42 requires the co-financing agreement to have the following main contents:

• names and addresses of participating members;

• names of the borrower and the project, and main information about the project;

• the facility agent;

• the arranger (if any);

• the payment agent (if any);

• the security agent (if any);

• form of credit issuance and total facility amount; share of each participating member in the facility and interest rate of each participating member, and all fees arising during the co-financing process;

• method of drawdown and repayment of interest and principal;

• security assets, management of security assets, and enforcement of security in the event of default;

• fes for agents (if any);

• rights and obligations of participating members and agents;

• risk management during the co-financing process, and methods of dispute resolution between participating members;

• regime for control and inspection during and after the provision of credit; and

• regime on provision of information on the credit provision.

The co-financing agreement could simply state that the parties agree that the matters above be contained in the credit agreement itself and the credit agreement shall prevail in respect of any inconsistency under those agreements.

Fees

Under Circular 24, any fee payments shall be agreed by the borrower and the lenders provided that such agreement must be “consistent with Vietnamese law”. In 2011, the SBV issued Circular 05/2011/TT-NHNN regulating fees collected by onshore credit institutions, although this Circular is not applicable to offshore lenders. Vietnamese law does not have any other regulation regulating fees to be collected by offshore banks. However, given the requirement of Circular 24 for the agreement to be “consistent with Vietnamese law”, SBV and other Vietnamese authorities may take the view that offshore lenders in a syndicated loan should also be subject to Circular 05 with the below requirements. This issue has not been confirmed by the SBV to date.

According to Circular 05, banks in Vietnam are allowed to collect the following fees only: arrangement fees in a syndicated loan; prepayment fees; available credit limit fees and any other fees which are specifically allowed under applicable regulations. Taken literally, the combined effect of Circular 24 and Circular 05 means that upfront fees, management fees, structuring fees, commitment fees and other fees may now no longer be allowed in relation to offshore financings, particularly in the absence of any further guidance from the Vietnamese authorities. We note that Vietnamese law does not stipulate the calculation of the available credit limit fee and it appears possible to re-name the commitment fee as the available credit limit fee. It may be, therefore, that offshore arranging and structuring banks will need to consider new ways to re-name and recover such fees whose legality is now in doubt by the introduction of Circular 24.