Nathan Dodd, David Harrison and Hoang Anh Nguyen of Mayer Brown JSM assess the conditions and framework for project financings in Vietnam

1.1 What are the main project finance trends and developments (for example, increased use of project bonds) recently seen in your jurisdiction?

The key development in Vietnam in 2015 for project finance was the promulgation of a comprehensive legal framework to regulate private investment in the public infrastructure sector. Decree 15, which took effect on April 10 2015 (Decree 15), repealed a number of previous regulations on build-operate-transfer (BOT), build-transfer-operate (BTO) and build-transfer (BT) investments, as well as the pilot PPP scheme. Decree 15 was modelled after Decree 108 dated November 27 2009 (as amended) on BOT, BTO and BT investments, and introduces some incremental improvements from the existing regulations:

it sets out the detailed procedures for pursuing a PPP project, including the process of preparing a project proposal, its appraisal and approval by the government and announcement of the approved PPP projects. It also expressly provides for criteria of a qualified PPP project;
it introduces a more detailed viability-gap-funding (VGF) regime, and removes the 30% cap for VGF by state capital set out in previous regulations, and allows government agencies to determine the use of state capital based on the project's needs; and,
it expressly allows investors of a PPP project to mortgage concession rights under the project contracts, in addition to other assets of the project, and allows lenders to a PPP project to designate a qualified third party to exercise the step-in rights of the lenders against both the investors and the project company.
Decree 15 does not resolve one of the key stumbling blocks in negotiations between sponsors and the government on BOT thermal power projects – namely, the government's position set forth in a letter from the prime minister in 2011 (Official Letter 1604) regarding guaranteeing currency conversion only up to 30% of the project company's turnover.

1.2 What role have export credit agencies, multilateral agencies and international financial institutions played in supporting project finance transactions in your jurisdiction? Please include an overview of the main institutions domiciled in your jurisdiction.

Export credit agencies and multilateral and bilateral institutions have provided key support to Vietnamese power and other infrastructure financings. Many of the project financings in the power sector, with respect to thermal power and hydropower, in particular, have benefited from export credit agency guarantees. The guarantors include export credit agencies of governments in east Asia and western Europe, and also the multilateral investment guarantee agency (MIGA).

The International Finance Corporation (IFC) and Asia Development Bank (ADB) have funded several infrastructure projects on both a syndicated and bilateral basis, such as the IFC's funding of the Cai Lan International Container Terminal with European bilateral development finance institutions as parallel lenders. The World Bank is in the process of promoting the first PPP project in Vietnam, the construction of the Dau Giay-Phan Thiet expressway.

While these institutions generally have a small on-the-ground presence in Vietnam, their operations are generally managed from regional hubs, in the case of multilateral institutions, or their respective home countries in the case of bilateral institutions.

2.1 What types of security are usually seen in project finance transactions in your jurisdiction, and are there any notable exclusions, including assets which cannot be secured?

(i) Movable property:

This includes offshore and onshore bank accounts, receivables, contractual rights, and equipment, machinery, and inventory.

(ii) Immovable property:

Land use rights and assets attached to land may only be mortgaged to Vietnamese credit institutions. Authorities have consistently interpreted this as a prohibition of foreign lenders taking security interests over immovable property.

A Vietnamese branch of a foreign bank is treated as a Vietnamese credit institution. In the context of major infrastructure projects, such as thermal power plants, the project company will typically mortgage land use rights and assets attached to land to a Vietnamese branch of a foreign bank within the syndicate on behalf of the lenders. Lenders will obtain comfort through this structure via the special approval of the office of the prime minister supported by a legal opinion issued by the ministry of justice (MOJ). The government is reluctant to grant these approvals, and obtaining one is rare.

(iii) Equity interests:

Foreign lenders will typically take security over the sponsors' equity interests in the project company.

(iv) Security interests in Vietnam:

Certain types of security arrangements in common law jurisdictions, such as charges and collateral assignments, do not exist in Vietnam, though these are used in financings to grant security over contractual rights governed by foreign law. The two most prevalent types of security interests used with respect to financings in Vietnam are the pledge and the mortgage.

2.2 Would the law of your jurisdiction enforce arrangements whereby debt is subordinated by way of a contractual agreement (including in bankruptcy or insolvency proceedings)?

Yes, contractual subordination is recognised under Vietnamese law. We note, however, that with respect to loans extended from offshore lenders, these loan agreements (and subordination agreements) would generally be governed by foreign laws such as English or New York law.

3.1 How is a security interest in each type of security perfected and how is its priority established?

A mortgage over land and assets attached to land must be recorded at the district or provincial land use registration office.

While registration is recommended to put third parties on notice, registration of security interests over movable property with the national registry of secured transactions (NRAST), an agency under the MOJ, is generally not mandatory.

Priority between creditors is generally established under a first-in-line principle. One important exception is when a deferred sales contract is registered with the NRAST within 15 days of execution. In this case, the vendor will have a first priority security interest in the assets subject to the sales contract, regardless of whether another creditor has previously filed a registration statement covering those assets.

Separate registration procedures exist for security interests over forest rights, aircraft, and sea vessels.

3.2 Are any fees, taxes or other charges payable to perfect a security interest and, if so, are there lawful techniques to minimise or defer them?

Fees associated with registering mortgages over immovable and movable property are negligible.

3.3 May a corporate entity, in the capacity of agent or trustee, hold security on behalf of the project lenders as the secured party?

Under Vietnamese law, the term 'agency' – as used in a security agreement – creates merely a contractual relationship between the agent and the secured parties.

Vietnamese law does not generally recognise agency structures where a Vietnamese bank holds security over immovable property on behalf of foreign lenders. The security interest extends up to the amount of the onshore lending tranche advanced by the secured party of record, and the surplus of enforcement proceeds is payable to the borrower.

The structure may offer some benefits to foreign lenders, as it provides a legal basis to foreclose on the property. Other security structures, such as equity and account mortgages in favour of the foreign lender, would still need to complement the security arrangements.

4.1 What restrictions, fees and taxes exist on foreign investment in or ownership of a project?

Before establishing an economic organisation, a foreign investor must have an investment project and carry out certain procedures to obtain an investment registration certificate.

The form of investment, scope of activities, Vietnamese party(ies) participating in the implementation of investment activities and other conditions are subject to international treaties of which Vietnam is a member.

As of June 26 2015, almost all the foreign ownership limitations in the service sectors specified under Vietnam's WTO commitments have been abolished. Certain highly-specialised and sensitive sub-sectors, such as banking, telecommunication, transportation, agriculture and audiovisual services, still maintain foreign ownership restrictions. One notable exception in the project financing space is container terminal handling services, in which foreign ownership remains capped at 50%.

Restrictions on the ownership ratio by foreign investors in listed and other public companies has been lifted. Now foreign investors are allowed to hold an unlimited proportion of voting shares in Vietnamese public companies, including listed companies, subject to certain exceptions.

There are no particular fees or taxes on foreign investment or ownership of a project company, other than those in the general Vietnamese taxation regime. We note that BOT and other PPP projects will benefit from favourable tax treatment.

4.2 Can a government authority block or unwind a transaction involving foreign investors after it has closed for strategic, national security or other reasons?

A compulsory acquisition or requisition may occur, subject to full compensation being made, for the limited reasons of national defence, security or emergency situations. In such circumstances, however, compensation (if any) will be made to investors or to the project companies and not to offshore lenders, unless there is a relevant direct agreement in place. We note that in practice the government rarely exercises such discretion.

5.1 Is a submission to a foreign jurisdiction and a waiver of immunity effective and enforceable?

For disputes between a government authority and foreign investors or the project company, the parties may provide in the concession agreement and project documents that such disputes may be referred to international arbitration.

A state and its assets benefit from immunity which may be restricted, or absolute.

Vietnamese law does not define the limits of sovereign immunity. When foreign investors enter into contracts with a government authority or a state-owned enterprise (SOE), that government authority or SOE should acknowledge that the arrangement is a commercial one and waive its right to sovereign immunity. However, the enforceability of these waivers is unclear.

5.2 Is English or New York law recognised as a valid choice of law in your jurisdiction?

Foreign laws may be recognised under a transaction involving foreign elements provided that the application of the foreign law would not violate the fundamental principles of Vietnamese law. In practice, offshore loan agreements are generally governed by English law (though New York law may be used as well). Onshore security documents should be governed by Vietnamese law as these contracts are performed entirely in Vietnam. The governing law of project documents poses trickier questions. On several major projects developed under the BOT model, English law has been used as the governing law of the BOT contract, though the enforceability of this from a Vietnamese legal perspective is questionable.

5.3 Would courts recognise a foreign arbitral tribunal award or court judgment? If so, what are the conditions applicable to such recognition?

The laws of Vietnam permit the recognition and enforcement of foreign arbitral awards in Vietnam in accordance with the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Such recognition and enforcement applies only to foreign arbitral awards made in countries that are signatories to the New York Convention, or where reciprocal treatment has been granted by a non-signatory. However, even when a foreign arbitral award is made in a country that is a signatory to the New York Convention, or to the extent that a foreign arbitral award is recognised, in practice, enforcing foreign arbitral awards in Vietnam can still be very difficult. There have only been a small number of cases where a Vietnamese court has recognised and enforced a foreign arbitral award. However, since Vietnamese courts do not publish decisions and records, it is not possible to quantify Vietnam's recognition (or non-recognition) of foreign arbitral awards; nor is it possible to ascertain from a transcript the precise legal basis on which the enforcement of a particular award was rejected.

For a foreign arbitral award to be recognised and deemed enforceable in Vietnam, an applicant must establish that the foreign arbitral award arose from a dispute relating to commercial legal relations and is not contrary to the fundamental principles of the laws of Vietnam. Vietnamese law does not establish bright-line tests as to which party bears the burden of proof in civil proceedings as do common law systems, and the judge is afforded considerable discretion in reaching a decision. The party seeking enforcement would generally need to show that the transaction arose from commercial legal relations as this establishes a basis for enforcement. No official guidance has been issued to clarify what constitutes commercial legal relations or matters contrary to the fundamental principles of the laws of Vietnam. Whether an award violates the fundamental principles of Vietnamese law is a point frequently debated by practitioners as there is no jurisprudence or interpretative principles on this point.

6.1 How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the collateral/security?

Upon a court's acceptance of an insolvency petition, a secured creditor's ability to enforce its rights is subject to a stay. Enforcement by secured creditors against assets of the debtor is restricted until a bankruptcy order is entered. Secured loans are to be repaid with the relevant secured assets, unless the assets are required to implement a business recovery plan for the company, in which case the creditors' committee may make a special recommendation for use of those assets. The court has discretion to allow immediate enforcement of secured assets if there is a risk of destruction or a considerable decrease in value.

6.2 Outside the context of a bankruptcy proceeding, what steps should a project lender take to enforce its rights as a secured party over the security?

If security is registered with the NRAST, the secured lender should file a notice of enforcement with the NRAST. This notice sets out information such as the assets to be enforced against, the reason for enforcement, and the method of enforcement. With respect to both movable and immovable property, the property must be disposed of through an auction, unless otherwise agreed by the parties. Security agreements should clearly set forth various options under which lenders can enforce the security.

6.3 What processes, other than court proceedings, are available to seize the assets of the project company in an enforcement? For instance, is contractual enforcement (such as receivership) recognised?

Secured creditors may enforce security without the need for judicial proceedings. The party holding collateral is first required to deliver the collateral to the secured party upon prior reasonable advance notice. If it fails to do so before the expiry of the time set out in the notice, the secured party may seize the asset or may refer the matter to the courts. In practice, it is difficult for foreign lenders to enforce security without a court order.

7.1 What, if any, are the restrictions, controls, fees and taxes on remittances of investment returns or payments of principal, interest or premiums on loans or bonds to parties in other jurisdictions?

In order to issue offshore bonds, an entity is required to have been in existence for three years. As project companies are unlikely to fulfil this requirement, bonds are unlikely to be a source of international financing for projects under the existing legal framework.

Investment returns may be remitted offshore either through the sale of equity or through dividends.

7.2 Can project companies establish and maintain onshore foreign currency accounts and/or offshore accounts in other jurisdictions?

Project companies can establish and maintain onshore foreign currency accounts. The company may open an offshore account subject to approval of the State Bank of Vietnam.

8.1 Is there a public-private partnership (PPP) act or similar statute authorising PPPs, and are both greenfield and brownfield PPP projects permitted?

Decree 15 is the official legislation regulating the investment in PPP form. Under Decree 15, the PPP model is permitted for both greenfield and brownfield projects.

8.2 May a concessionaire grant security interest in the project to its lenders and, if so, is consent of the government or contracting authority required?

Under Decree 15, investors and project companies may create security interests over assets of the project company (including immovable assets) subject to the contracting authority's consent.

9.1 Is reinsurance in the international market commonly seen on project finance transactions in your jurisdiction and are cut-through clauses permitted?

Reinsurance is customary on large BOT projects in the power sector but not on smaller infrastructure financings. The Law on Insurance expressly authorises clauses that permit direct payments from the reinsurer to the insured.


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Nathan Dodd
Mayer Brown JSM

About the author
Nathan Dodd is a partner of Mayer Brown's global projects group. He is a highly experienced projects and infrastructure lawyer with more than 16 years' experience in the development and finance side of projects in Asia, and regularly works on Asian investments into the Middle East and Africa. In addition to project finance, he has extensive experience in energy, natural resources and infrastructure M&A. He has worked on a number of award winning transactions, acting on the government, sponsor and lender side. Deal locations include Australia, Bangladesh, Brunei, Cambodia, Gabon, Ghana, India, Indonesia, Kenya, Mozambique, Myanmar, Oman, Pakistan, Philippines, Sierra Leone, Singapore, Sri Lanka, Thailand, the UAE and Vietnam. Dodd is named a leading lawyer in project finance in IFLR1000 (2015).


David Harrison
Mayer Brown JSM
Ho Chi Minh City

About the author
David Harrison is a partner and a member of Mayer Brown's global projects group. He is ranked as a leading lawyer in Vietnam in Chambers Asia Pacific (2015) and up and coming in Chambers Asia Pacific (2014).

He has practised in both New York and Vietnam for over 10 years. David has advised multilateral and commercial lenders and agents on a broad range of project financings and secured and subordinated credit facilities extended to banks and corporations in Vietnam and other Asian jurisdictions such as Cambodia, Bangladesh, Mongolia, and Sri Lanka. He has advised foreign investors on numerous mergers and acquisitions, including Vietnamese commercial banks and corporate targets in Vietnam and other Asian jurisdictions. Harrison previously worked as a diplomat and speaks Vietnamese, Spanish, and French.


Hoang Anh Nguyen
Mayer Brown JSM

About the author
Hoang Anh Nguyen is a partner of Mayer Brown JSM Vietnam. He has worked with the firm for more than 20 years. He advises on a wide range of Vietnam-related matters including investment projects, banking, finance and debt capital market issues, corporate finance and investment funds. He is experienced in advising on shipping finance, performance bond issuance, cross-border finance transactions and domestic and international bond issuance. He speaks English and Vietnamese. Hoang Anh Nguyen is a leading banking and finance lawyer ranked by IFLR1000 (2015) and Asia Pacific Legal 500 (2015).