Should Foreign Investors Contribute Capital To Foreign Direct Investment (FDI) Enterprise In An Amount Denominated In A Foreign Currency Or In VND?

Introduction

An FDI enterprise is an enterprise which is established by foreign investors with or without domestic investors. It is a common practice for foreign investors to contribute capital to an FDI enterprise in a foreign currency, such as USD, with the amount denominated in that particular foreign currency recorded in the FDI enterprise's Enterprise Registration Certificate (ERC) and/or Investment Registration Certificate (IRC). The difference in exchange rate between the date of the IRC and the date of actual contribution often leads to a disparity between the VND amount converted from the contributed capital in foreign currency and the VND amount recorded in the IRC. Different

In such cases, it remains uncertain whether the foreign investors will be considered to have fully fulfilled their capital contribution because it is not clear which amount should be used to determine if the FDI enterprise's charter capital has been fully contributed: (i) the VND amount after being converted from the foreign currency, or (ii) the actual contributed amount in foreign currency (see analysis below). Different authorities may have different views on this issue.

NEW RESTRICTIONS ON ONE-WAY MONEY TRANSFER ABROAD

On 30 December 2022, the State Bank of Vietnam (SBV) issued Circular 20 guiding activities of one-way money transfer from Vietnam to abroad and payment, money transfer for other current transactions of institutional residents and individual residents (Circular 20/2022), which took effect from 15 February 2023. In this post, we summarise certain key points of Circular 20/2022.

Potential Issues for Vietnamese Bondholders When Bond Issuer Are In Default

The recent credit crunch and anti-corruption campaigns in Vietnam have made many bond issuers in Vietnam fail to repay their outstanding bonds. According to a recent report, around 67 bond issuers are in default and the outstanding amount is around US$ 3.7 billion. Bond issuers, who wish to recover the principal and coupons and to enforce their rights, could face significant legal issues. In this post, we will discuss some of these issues:

·        Lack of documents and information: It may be difficult for a bondholder to have access to all the transaction documents of a bond including (1) detailed bond terms and conditions,  (2) agreements between issuers and other service providers such as bondholders’ representative, security agent, or registration agents, and (3) security agreements. This is because under the law, a bond issuer is not required to make public all these documents. Only a summary of key terms and conditions of the bonds is required to be published. And only for bonds issued after 1 January 2021, a bond holder is granted the right to request for documents and information relating to the bonds. In addition, in practice, many individual investors did not pay attention in collecting these documents when purchasing the relevant bonds.

·        Uncooperative agents: In a standard bond transaction, the bond issuer will usually engage various service providers to act as representatives for the bondholders (e.g., bondholders’ representative, security agents, or registration agents). Since these representatives are appointed and paid by the bond issuer, in practice, they may be reluctant to take actions against the bond issuers for the benefit of the bond holders if the bond issuers are in default.