Under Decree 4/2017, the Vietnamese Government imposes stricter regulations on issuance and management of Government guarantees. Government guarantees under Decree 4/2017 are guarantees issued on behalf of the Vietnamese Government (as the guarantor) in favour of foreign lenders to guarantee loans or bonds borrowed or issued by companies in Vietnam. Under Decree 4/2017:

• The borrower whose loan is guaranteed must have a leverage ratio not exceeding three.
• The shareholders/members who together hold 65% ownership interest in the borrower must guarantee the borrower’s repayment obligations towards the guarantor. Interestingly, under Decree 4/2017, the Government can now guarantee 100% of a loan where the borrower is a foreign invested enterprise. In the past, the Government can only guarantee for a part of such loan in proportion to the Vietnamese shareholding in such foreign invested enterprise.
• The Government now only guarantees up to 50% of the total debt of a project (down from 80%). The guaranteed amount could be increased to up to 70% for certain important or urgent projects.
• Investors in many projects must purchase default insurance to ensure that the project can repay its loans if there is insufficient cash flow. However, it is not clear whether such insurance has to cover all the debts of the investor or just need to cover the government guaranteed loan.

• The guarantee fee cap is increased from 1.5% to 2% of the guaranteed amount.
• A qualified bank must be appointed as the serving bank for assistance and supervising implementation of the government guaranteed loan and management of the project account.