Chapter VI
ISSUE AND MANAGEMENT OF SOVEREIGN GUARANTEES
Article 41. Borrowers of sovereign guarantees
1. Any enterprise whose investment projects are subject to investment policy decisions of the National Assembly, the Government, or subject to investment decision of the Prime Minister as prescribed in the Law on Investment and the Law on Public Investment.
2. Any bank for social policies that have carried out state credit program.
Article 42. Policies on issue of sovereign guarantees
1. A guaranteed borrower may, according to its need, apply for issue of sovereign guarantees associated with the state credit program to the Ministry of Finance for consolidating, determining the limit on sovereign-guaranteed loan for 5 years and annually, and then submit application to the competent authority for decision.
2. According to the annual sovereign-guaranteed loan limit that has been determined, the Ministry of Finance shall request the Prime Minister to issue sovereign guarantees to every specific program/project.
Article 43. Eligibility for sovereign guarantees
1. An enterprise is eligible for a sovereign guarantee when it fulfills the following conditions:
a) it has legal status, established lawfully in Vietnam and operated for at least 3 years;
b) It has not incurred loss for the last 3 consecutive years according to the audit report, except for the loss incurred due to adoption of state policies as approved by competent authority;
c) it has no overdue debt when the application for a sovereign guarantee is submitted;
d) its debt-to-equity ratio does not exceed 3 to 1 according to the last annual financial statement of the year of assessment;
dd) The guarantee amount is within the annual guarantee limit approved by the Government;
e) it has completed investment procedures under the investment law and other relevant laws;
g) it has the financial plan assessed by the Ministry of Finance and approved by the Prime Minister;
h) its ratio of owner’s equity to total investment of the project is at least 20%. The owner’s equity will be disbursed according to time for performance.
2. A bank for social policies is eligible for a sovereign guarantee when it fulfills the following conditions:
a) It has established and operated as per the law and raised funds in accordance with its charter promulgated by the competent authority;
b) The guarantee amount is within the annual guarantee limit approved by the Government;
c) The sovereign-guaranteed loan shall be used to carry out the state credit program as prescribed by the Government.
3. When an enterprise issues sovereign-guaranteed bonds in the domestic capital market, it must both fulfill conditions prescribed in Clause 1 of this Article and obtain an application for issue of bonds as prescribed in laws on securities and relevant law provisions.
Article 44. The power to issue sovereign guarantees
1. The Ministry of Finance shall take charge and cooperate with relevant agencies in assessing applications for issue of sovereign guarantees associated with state credit program, investment project, and then send the assessment results to the Prime Minister.
2. The following matters in an application for issue of sovereign guarantee shall be assessed:
a) financial situation of the borrower;
b) Financial plan of the program/project financed by the loan and creditworthiness;
c) Terms and conditions of the sovereign-guaranteed loan;
d) Risks of the program/project associated with sovereign-guaranteed loan.
Article 45. Limit on sovereign guarantee for investment project
1. The limit on sovereign guarantees for the loan amount and bond issue for investment project is 70% of total investment as approved.
2. Apart from the sovereign-guaranteed loan prescribed in Clause 1 of this Article, the sovereign-guaranteed borrower must undertake that it may maintain sufficient sources of funds to carry out the project with total estimated investment as approved.
Article 46. Management of sovereign guarantees
1. The guaranteed borrower must pay a sum of guarantee fee depending on risk level of each program/project but not exceeding 2% of guaranteed outstanding debt. The proceed of guarantee fee may be appropriated partially for the management of sovereign guarantees.
2. The guaranteed borrower must put an asset up as collateral as prescribed in laws on security interest registration.
3. Any assignment of rights and obligations of the borrower associated with a sovereign-guaranteed loan must undertake that obligations of the guarantor remain unchanged and notified to the Ministry of Finance in advance. The assignee shall inherit all of rights and obligations associated with the guaranteed loan.
4. Any assignment of a sovereign-guaranteed loan by the guaranteed borrower must undertake that the guarantor does not incur heavier obligations, with the consent of the lender. The guaranteed borrower shall report on the assignment to the Ministry of Finance and the Ministry of Finance shall then forward it to the Prime Minister for approval.
5. Any division, consolidation, acquisition, or conversion of business entity type of the guaranteed borrower must undertake that the guarantor does not incur heavier obligations and be reported to the Ministry of Finance; the Ministry of Finance shall then forward it to the Prime Minister for approval.
6. The assignment of shares of a shareholder whose name is included in the list of shareholders holding at least 65% of shares which has been registered with the Ministry of Finance when the application for issue of sovereign guarantee has been assessed shall be reported to the Ministry of Finance, the Ministry of Finance shall then forward it to the Prime Minister for approval.
7. The assignment of project or project property after investment of the guaranteed borrower must undertake that the obligations of the guarantor are not expanded and obligations of the guaranteed borrower towards the lender and the guarantor do not change. The guaranteed borrower shall report on the assignment to the Ministry of Finance and the Ministry of Finance shall then forward it to the Prime Minister for approval.
8. The guaranteed borrower must grant security interests to ensure the repayment of loan and sovereign-guaranteed bonds in full and on schedule.
Article 47. Management of sovereign guarantee risks
1. Sovereign-guaranteed loans and bonds must be monitored for risk prevention and mitigation.
2. Any guaranteed borrower that has overdue debt arising from debt repayment fund must be supervised by the Ministry of Finance as prescribed by the Government.
3. The sovereign guarantee risk prevention and mitigation shall be done in accordance with Article 55 of this Law.
Article 48. Responsibilities of guarantors, borrowers, Ministries, ministerial-level agencies, and People’s Committees of provinces
1. The Ministry of Finance acting as the guarantor shall:
a) Assess policies and applications for issue of sovereign guarantees and issue sovereign guarantees;
b) Negotiate, offer opinions about loan agreement and bond issue plans in consideration of the application submitted by the guaranteed borrower;
c) Supervise the use of loan; make a proposal for measures and sanctions when a borrower faces difficulty in debt service, and send it to the Prime Minister for approval;
d) Fulfill the guarantor's payment liability arising from the letter of guarantee when a guaranteed borrower defaults on the debt;
dd) Apply necessary measures and sanctions as per the law to recover debts and expenses arising from the debt repayment on behalf of the borrower;
e) Consolidate and report on the issue and management of sovereign guarantees to competent authorities.
2. The guaranteed borrower must:
a) Provide adequate documentation and take responsibility for accuracy and truthfulness of documentation furnished to the Ministry of Finance;
b) Preside over negotiation of loan agreement or bond issue;
c) Manage and use the sovereign-guaranteed loan with proper purposes as approved by the competent authority;
d) Discharge debt obligations to the lender in full;
dd) Fulfill obligations to guarantor adequately. When failing to repay debts in full and on schedule, the borrower must abide by measures and sanctions applied by the guarantor; and take legal responsibility in case of debt default;
e) Provide information about the performance of project, and fulfillment of obligations specified in the loan agreement or bond issue on a regular basis or at the request of the Ministry of Finance; and take responsibility for the accuracy and truthfulness of the information;
g) Report risks of violating loan agreement or letter of guarantee in a timely manner.
3. Relevant Ministry, ministerial-level agency, or People’s Committee of province shall:
a) Approve scheme for loan or bond issue of enterprises under its scope of management;
b) Cooperate with the Ministry of Finance in assessing the policy on issue of guarantee or sovereign guarantee;
c) Inspect and expedite guaranteed borrowers under its management to fulfill their obligations; take actions against violations committed by guaranteed borrowers;
d) Cooperate with the Ministry of Finance in settling any dispute arising from the implementation of letter of guarantee.
4. The Government shall provide guidelines for issue and management of sovereign guarantees.
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