Government guarantees for investment projects must not exceed 70 per cent of the project's total investment, noted a draft decree recently unveiled by the Ministry of Finance for public opinion.
Government guarantees for investment projects must not exceed 70 per cent of the project's total investment, noted a draft decree recently unveiled by the Ministry of Finance for public opinion.
Under the draft, which is designed to replace Decree No. 15, dated February 16, 2011, on the Provision and Management of Government Guarantees, the guarantee level must be based on the type of project.
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| Enterprises that wish to take government-guaranteed loans must have equity accounting for at least 20 per cent of the project's total investment. |
Specifically, a guarantee of up to 70 per cent of the investment can be issued to urgent projects and projects with an investment policy that has been approved by the National Assembly.
Key projects with an investment policy approved by the Prime Minister will be entitled to a maximum guarantee level of 60 per cent.
Other projects will be eligible for a guarantee level of up to 50 per cent.
The draft also set conditions for projects that can be offered Government guarantees.
Under these conditions, the company implementing the project must have a debt-to-equity ratio below 3 at the time the project is appraised to obtain a government guarantee.
The enterprise's loans and issued bonds must be within the government guarantee limit approved by the Prime Minister. In addition, the enterprise must produce a feasible financial plan for the project, ensuring a debt service coverage ratio of at least 0.9 on average for the first five years, for projects covering outlet contracts, or the minimum ratio of 1 for other projects.
If the enterprise wishes to take government-guaranteed loans, its equity must account for at least 20 per cent of the project's total investment. The enterprise will also be required to make sure that its equity is sufficient to implement the terms of the project, which must receive funding from the project owner's equity, as prescribed by law. Further, at the time of completing the project, the equity invested must equal the equity registered upon submission of the dossier requesting a government guarantee.
Enterprises that fail to satisfy the conditions on equity ratio will only receive government guarantees for projects of special significance to national socio-economic development, with an investment policy approved by the National Assembly, or for urgent projects approved by the Prime Minister. However, in all cases, the enterprises' equity must equal at least 15 per cent of the total investment of their projects.
(Source:VNS)
