The horizon has been broadened for domestic investors planning investments abroad, thanks to a new circular guiding foreign exchange activities in overseas direct investments by Vietnamese enterprises.
Circular 04/2005/TT-NHNN by the State Bank of Vietnam, dated August 26 and slated to come into force 15 days after it is published in the government’s Official Gazette, has amended Provision 6 of Article 3 of Circular 01/2001/TT-NHNN, which governs foreign exchange in investment projects made by Vietnamese businesses abroad.
The new provisions allow Vietnamese enterprises to seek loans in foreign currencies from authorised banks and transfer them abroad for investment capital contributions and the implementation of their overseas projects.
Under Circular 01/2001/TT-NHNN, only the investors’ own capital is allowed to be transferred abroad for such purposes.
The new rules also enable Vietnamese investors to buy foreign currencies from authorised banks and transfer them out of the country for their foreign investment projects.
“This is a big improvement to facilitating investments by Vietnamese enterprises outside the country,” said Nguyen Anh Tuan, deputy director of the Ministry of Planning and Investment’s Foreign Investment Agency.
He referred to Provision C of Article 1 of Circular 04, which allows enterprises to borrow capital from banks and contribute it as investment capital in overseas projects.
“Actually, several overseas investment projects set up by Vietnamese enterprises, particularly large ones, do not often meet the requirements of ownership capital. In other words, not every Vietnamese investor has sufficient equity to actualise their projects outside Vietnam,” he said.
The $270-million Xe Kaman 3 hydropower project being developed by the Viet-Lao Power Development Joint-stock company in Vietnam’s neighbouring country of Laos is considered a typical example. With such huge investment capital required, analysts believe the investors behind the project would not be able to go ahead if they are not allowed to transfer borrowed capital abroad.
Nguyen Van Anh, head of the Capital Transaction Management Division under the central bank’s Foreign Exchange Management Department, confirmed that the new proposal enables investors in large projects to be more active in transferring foreign currencies abroad.
“Basically, large project developers can borrow funds from commercial banks [to form investment capital abroad],” he said, adding that whether the borrowers obtain the loans would depend on the banks’ requirements.
He also underlined Provision B of Article 1 of Circular 04, which permits local enterprises to buy foreign currencies from authorised banks to transfer abroad.
“[Under Circular 01/2001/TT-NHNN] enterprises are only permitted to transfer money from their ownership capital accounts. Now, [under Circular 04], they can buy foreign currencies with their borrowed capital, such as with the Vietnamese dong they have borrowed,” he said.
Anh believes that the new amendments address the biggest obstacle that Vietnamese investors face when investing abroad, following complaints by several enterprises regarding complicated currency transmittance procedures.
“Circular 01 clearly provided simple money transmittance procedures and caused no obstacles to enterprises,” he asserted.
“However, in some specific cases, there may have been some problems relating to its implementation in the central bank’s local branches. If there were any obstacles, the State Bank of Vietnam should have amended the related provisions when revising this circular ,” he said.
Tran Manh Hung, deputy general director of Cavico Vietnam, a joint stock corporation which is planning to invest in Australia, welcomed the central bank’s move.
“This [the issuance of Circular 04] is a good sign for us,” he said.
However, Hung warned that it would not be so easy for local enterprises to seek loans to invest outside Vietnam, pointing to a series of difficulties businesses often had to face when approaching banks for loans.