Vietnam: Opens Its Debt Trading Market To Foreign Investors

Last Updated: 27 December 2017
Article by Linh Bui

In brief: Recent years have seen players in the Vietnamese banking sector making extensive efforts to recover non-performing loans (or bad debts). The Government has issued new regulations to improve the processes for recovering and handling bad debt in Vietnam and has implemented a framework to facilitate the trading of bad debt in a secondary market. Partner Linh Bui ( view CV) and Associate Dang Vu report on the key issues.

  • Background
  • Bad debts to which Resolution 42 applies
  • Opening the debt trading market
  • Improvements in enforcing the secured assets
  • Impediments for foreign purchasers of bad debt

Background

Resolution 42/2017/QH14, which took effect on 15 August 2017 (Resolution 42), aims to facilitate the sale of debt by providing incentives to stimulate bad debt trading in a secondary market and to provide improved measures for enforcement of collateral security.

Prior to Resolution 42, bad debt accumulated by Vietnamese credit institutions was traded and settled by the Vietnam Assets Management Company under the management of the State Bank of Vietnam (VAMC) and more than 20 other asset management companies associated with Vietnamese credit institutions. Transactions relating to the bad debts of state owned enterprises were overseen by the Vietnam Debt and Assets Trading Corporation under the management of the Ministry of Finance.

Bad debts to which Resolution 42 applies

Resolution 42 will be effective for five years as a pilot program. It took effect on 15 August 2017 and applies to debts classified as bad debt before 15 August 2017 or debts that were created before 15 August 2017 and become 'bad debt' within the effective period of the Resolution (that is, within the next five years).

Resolution 42 also sets out criteria that are required to be met for a debt to be classified as a bad debt, and which include a range of quantitative and qualitative thresholds. The underlying debt itself must be debt accounted for on or off the balance sheet of Vietnamese credit institutions (including foreign bank branches) or the VAMC and must have arisen from certain specified credit activities (which include lending, finance leasing, factoring and bond trades).

Opening the debt trading market

The major change introduced by Resolution 42 is that VAMC is now permitted to sell bad debt to any legal entity, individual or enterprise (whether licensed as a debt trader or not). This move allows both local and foreign investors and foreign invested enterprises (FIEs) to purchase bad debt from the VAMC without needing to obtain licences for debt trading activities. 

In other measures that facilitate the development of a debt trading market, Resolution 42 permits the sale of bad debt at a price lower or higher than the principal debt (ie aligned with the market price) and prescribes that all bad debt trading must be made in a 'public and transparent' manner. 

In addition, the State Bank of Vietnam has issued further guidance specifying that VAMC may sell bad debt by way of direct sale, auction or through a competitive bid process.

Improvements in enforcing the secured assets

Resolution 42 allows Vietnamese credit institutions, foreign bank branches and VAMC to directly seize assets securing bad debt held by a debtor or a third party after making a public disclosure. Police and local authorities may assist with the seizure of secured assets if necessary. The VAMC recently exercised its rights under Resolution 42 to seize the collateral of a prominent real estate project in Ho Chi Minh, Saigon One Tower, after the complex owner failed to pay debts and hand over the building. However, further guidance will be required in relation to the process of registering the new owners of the seized assets if the debtor does not cooperate to complete the relevant registration procedures.

Where secured assets are immoveable property (for example, land use rights or construction works on land), the purchaser of the bad debt is entitled to receive transfer of the mortgage and to register as the mortgagee of the underlying property. However, as the current Law on Land restricts any person other than credit institutions from being the mortgagee of property, further detailed guidance is required to clarify the process for non-bank investors registering and enforcing a mortgage over immoveable property.

Vietnamese credit institutions, foreign bank branches and VAMC are also permitted to transfer secured assets, being real estate projects, to other persons who satisfy certain conditions as transferees of a real estate project under the Resolution and who commit to continue to implement those projects. As a comparison to the conditions for transfer of a real estate project under the Law on Real Estate Business, Resolution 42 has eased the transfer conditions to allow enforcement in relation to the collateral securing bad debt. In particular, completion of the land clearance process and the payment of compensation are not necessary as conditions precedent to the transfer, nor is it essential that the transferor hold a land use right certificate prior to the transfer.

Claims relating to collateral may be resolved through a fast-tracked procedure. Under civil proceeding law, a fast-tracked case is usually heard in a first instance court within about six weeks, compared with five to eight months for a normal case.

Impediments for foreign purchasers of bad debt

Although Resolution 42 has gone some way to facilitating a debt trading market in Vietnam, foreign investment in the debt trading market is likely to remain limited until the government releases further specific guidance.

A foreign buyer can expect to encounter the following issues when purchasing bad debt in Vietnam:

  • It remains unclear whether foreign investors and FIEs are permitted to engage in debt trading as a line of business (ie the purchase and resale of bad debt), or whether they may only participate in debt trades sporadically in the capacity of a purchaser.
  • There is no clear basis for foreign investors to acquire onshore bad debts in Vietnam. In particular, it remains unclear whether foreign investors would be considered as offshore lenders of the debtor once they acquire the bad debt. If this were the case, the debt acquired would be required to be registered with the State Bank of Vietnam as a foreign loan and currently there is no mechanism for such registration.
  • While a market is in its infancy, it may be difficult for both buyers and sellers of bad debt to ascertain the 'market price' for the debt. In transactions involving VAMC as purchaser and a Vietnamese credit institution as seller of the bad debt, Resolution 42 requires that the parties to the transaction agree on the selection of independent valuers to determine the market price for the debt. This requirement does not apply for transactions involving a foreign entity as buyer of bad debt from VAMC (although the parties are free to reach agreement on the appointment of an independent valuer nonetheless).
  • Under the current Law on Land, foreign investors and FIEs are restricted from receiving the transfer of real property or taking security over real property. Therefore, it appears that foreign investors cannot enforce their rights over the secured assets when purchasing bad debt secured by mortgage/pledge of real property in Vietnam.
  • In conditional business sectors where restrictions on foreign investment or a cap applying to foreign ownership may apply, foreign investors and FIEs may face difficulties converting debt into equity if the debt is secured by shares or equity interests in companies whose business is in a conditional sector.
  • As the bad debt market in Vietnam is in its infancy, it may be difficult for buyers to obtain information about the loan book being acquired, such as the history of the debt and debt transactions, debt collection, debt liquidity and information of the debtors.

Despite the above challenges, Resolution 42 is a major step in opening up the secondary debt trading market in Vietnam to both local and foreign investors. In order to encourage the development of this market, the Government is currently working to address the issues considered in this article. We are optimistic that such matters will be sufficiently addressed in the near future, and, as a result, we expect to see more activities by foreign investors on the secondary debt trading market in Vietnam in the coming years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions