Vietnam: Legal 500 Project Finance 2024 – Vietnam Chapter

1. What are the typical ownership structures for project companies in your jurisdiction? Does this vary based on the industry sector?

Typical ownership structures for project companies in Vietnam vary based on the industry sector. Particularly, these structures are decided by taking into account the market access barriers, including foreign ownership limitations, as well as regulatory regimes applicable in certain business sectors, which may differentiate between domestic and foreign-invested companies. A project company can be established and organized in Vietnam as a:

• limited liability company (which can have 1–50 owners); or
• joint stock company (which requires at least three shareholders). A joint stock company can be either a private company or a public company.

2. Are there are any corporate governance laws or accounting practices that foreign investors in a project company should be aware of?

Yes. Project companies are subject to the regulations on corporate governance stipulated in the Law on Enterprise 2020 (for all companies in general) and Law on Securities 2019 (for public companies in particular).

Generally, a limited liability company has fewer requirements than those applicable to a joint stock company. For joint stock companies, a two-tier board model applies, consisting of a management board (i.e., board of directors) and a supervisory board (i.e., supervisory board or audit committee under the board of directors). In addition, foreign-invested companies and public companies must appoint an accounting auditor to audit their annual financial statements.

In terms of accounting practices, the Ministry of Finance has issued the Vietnamese Accounting Standards (VAS), which are 26 rules applicable to financial statements prepared in Vietnam. There may be some discrepancies between VAS and International Financial Reporting Standards (IFRS), but Vietnam is developing a roadmap for applying the IFRS, which will become compulsory after 2025 for certain companies (e.g., public companies, parent companies of state corporate groups).

3. If applicable, what forms of credit support from sponsors or host governments are typically provided?

Sponsors typically provide credit support in the form of guarantees and equity commitments. The government of Vietnam may offer reduced tax rates, subsidies, or other financial incentives (such as land rent exemption or reduction) to support the project. In addition, the government can also provide guarantee to lenders regarding debt obligations of project companies whose investment project are granted with investment policy decisions of the National Assembly or the government, or the investment decision of the prime minister in accordance with the Law on Investment and the Law on Public Investment. These projects include national target programs, investment projects of national significance, public investment programs using central budget allocations, certain public investment programs and projects, and certain technical support programs.

4. What types of security interests are available (and suitable) for a project financing in your jurisdiction?

The Civil Code allows security interests, including a pledge of property, mortgage of property, deposit, security collateral, escrow, title retention, guarantee, fidelity guarantee, and lien on property. Subject to onshore or offshore lenders, typical security interests for project financing in Vietnam include:

• mortgages over assets of the project company, including immovable assets such as land-use rights and assets attached to land (e.g., plants and buildings) and movable assets (e.g., equipment, machinery, inventory, receivables and other claims under contracts, bank accounts, contractual rights, and proceeds from investments);
• a mortgage over shares or capital contributions in the project company; and
• guarantee issued by the sponsors, and Government guarantees for certain types of projects.

5. How are the above security interests perfected?

For most types of assets, the security is effective and binding on the contracting parties as agreed in the security documents, and security registration is only to ensure the priority right for lenders and enforceability against any third party in the event of enforcement. In such cases, security registration is conducted at the National Registration Agency for Secured Transactions of Vietnam for most movable assets or at the Vietnam Securities Depository and Clearing Corporation for centrally registered securities (e.g., shares of public unlisted companies or listed companies) to ensure the priority right for lenders and enforceability against any third party.

For immovable assets, mortgage contracts must be notarized. Security registration is required for effectiveness of a mortgage right and is conducted at specialized agencies, such as the land registry of the Department of Natural Resources and Environment ("DONRE") in the province where the land is located.

6. Please identify how security is enforced (notably the enforcement options available for secured parties) both pre and post insolvency/bankruptcy of the project company?

Pre-filing insolvency/bankruptcy of the project company

By law, a secured lender can enforce its collateral if the borrower fails to perform or performs incorrectly the obligation when it falls due or in other circumstances as agreed by the parties or as provided by law. The securing party is obliged to give the secured assets to the secured lender for enforcement; failing to do so by the securing party, the secured lender is entitled to request a court settlement.

Particularly, in case of pledge or mortgage, the parties can agree on one of the enforcement methods as specified below

• Sale of the secured assets by auction;
• Private sale of the secured assets by the secured lender;
• Takeover of the secured assets by the secured lender as substitution for the performance of obligations of the securing party; or
• Other methods agreed by the parties.

If there is no agreement on the method of enforcement, the secured assets will be enforced by the first method specified in the list above.

Post-filing insolvency/bankruptcy of the project company

Within five working days of the competent court's acceptance of a bankruptcy application, the right to enforce security will be subject to a temporary suspension. During this suspension, enforcement of security is possible only with the permission of the court when there is a risk of the secured assets being damaged or significantly devalued.

(1) After bankruptcy proceedings are opened, the judge may consider and decide how the security assets are to be handled, including the following scenarios:

• If it has been agreed that the security assets to be used for the rehabilitation of the company, the enforcement of security will proceed in accordance with the Rehabilitation Plan.
• If there is no reorganization procedure or the security assets are not necessary for the company's rehabilitation, the security can be enforced per the applicable security agreement. If the security agreement has not become due, the court will suspend the security agreement and permit enforcement of the security before declaring the company's bankruptcy.

(2) If the security assets are likely to be damaged or dramatically devalued, the asset management officers or asset management enterprises must request the judge to immediately handle the situation.

(3) Debts secured by assets listed in paragraphs (1)(b) and (2) that have been validly concluded before the court receives the filing for bankruptcy will be paid out. If the value of the security assets is insufficient, the remaining debt must be paid during liquidation of assets of insolvent entity; if the value of the security assets is higher than the debt, the remainder must be included in the assets of the insolvent entity.

7. What are other important considerations in relation to the security regime in the jurisdiction that secured parties should be aware of?

The laws only permit project companies to create mortgages over land-use rights and assets attached to land with credit institutions licensed to operate in Vietnam. An onshore security agent, being a commercial bank in Vietnam, can be used for a consortium of lenders to receive and handle the mortgage.

In addition, by law, a right to exploit natural resources may be used to secure for obligations; however, in practice, enforcement in respect of a right to exploit natural resources might need to be performed through a court judgment.

8. What key project risks should lenders be aware of in project financings in your jurisdiction? This may include, but may not be limited to, the following risks: force majeure, political risk, currency convertibility risk, regulating or permitting risk, construction/completion risk, supply or feed stock risk or legal and regulatory risk).

Lenders should be aware of certain project execution risks in project financing, including force majeure (e.g., natural disaster), changes in legal regulations, and land site clearance, among others. Due to the Vietnamese foreign currency control regime, foreign debt and crossborder payments are strictly managed by banks handling payments. Project schedules are subject to regulatory processes in addition to the actual construction or completion.

Lenders should also take into account certain changes of Vietnamese national plans for particular sectors during a definite period (especially the national power development plans) so that the projects with ongoing project financing are implemented in alignment with these national plans. Furthermore, particular goods and services are subject to state monopoly (e.g., national electricity transmission or national railway infrastructure) and project financing may not be achieved in such sectors.

9. Are any governmental / regulatory consents required and are any financing or project documents requirement to be filed with any authority in order to be admissible in evidence in a court of law, valid or enforceable?

Generally, project agreements do not need to be registered or filed with a government authority. On the other hand, the following financing agreements must be registered with the State Bank of Vietnam (SBV):

• Medium and long-term foreign loans.
• Short-term foreign loans that have their principal repayment period extended if the total loan term is over one year.
• Short-term foreign loans that do not have an extension agreement but have outstanding principal (including deferred interest) at the time of 1 year from the date of first capital withdrawal, unless the borrower repays the principal balance within 30 working days of the first capital withdrawal.

As noted above (Question 4), mortgage contracts over immovable assets must be notarized and security registration must be conducted for the mortgage rights to be effective.

10. Are there are any specific foreign exchange, royalties, export restrictions, subsidies, foreign investment, that are relevant for project financings (particularly in the natural resources sectors)?

Foreign exchange

Foreign loans are commonly denominated in foreign currencies. The borrower must use foreign loan and repayment account(s) opened at one bank for withdrawal and repayment of foreign loans. Accordingly, one foreign loan and repayment account can be used for one or multiple foreign loans. Foreign-invested enterprises must use their direct investment capital account for medium- and long-term foreign loans in the same currency as the account; they can choose to use the direct investment capital account or a foreign loan and repayment account for short-term foreign loans.

Medium or long-term foreign loans must be registered with the SBV for approval prior to drawdown, while shortterm loans are generally not subject to registration. Any changes to the contents of the loans recorded in the registration confirmation issued by the SBV (including the repayment schedule) will have to be re-registered by the borrower with the SBV (except for limited circumstances where notification via the SBV portal is sufficient).

Foreign loans of all borrowers not guaranteed by the government are subject to annual overall loan limits stipulated by a decision of the prime minister.

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Originally published by The Legal 500.

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