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MINISTRY OF EDUCATION AND TRAINING
HO CHI MINH CITY UNIVERSITY OF LAW
-----------***------------

MANAGEMENT COMMITTEE OF SPECIAL PROGRAMS

NGUYEN THUY TRANG

SHORTCOMINGS AND RECOMMENDATIONS
FOR REGULATIONS ON SYNDICATED
LOANS BY COMMERCIAL BANKS

BACHELOR OF LAW – GRADUATION THESIS
FALCUTY: COMMERCIAL LAW
ACADEMIC YEAR: 2013 – 2017

HO CHI MINH CITY
2017


MINISTRY OF EDUCATION AND TRAINING
HO CHI MINH CITY UNIVERSITY OF LAW
-----------***------------

MANAGEMENT COMMITTEE OF SPECIAL PROGRAMS

NGUYEN THUY TRANG

SHORTCOMINGS AND RECOMMENDATIONS
FOR REGULATIONS ON SYNDICATED
LOANS BY COMMERCIAL BANKS



BACHELOR OF LAW – GRADUATION THESIS
FALCUTY: COMMERCIAL LAW
ACADEMIC YEAR: 2013 – 2017

SUPERVISOR: LLM. TRAN THANH BINH
AUTHOR: NGUYEN THUY TRANG
STUDENT ID NUMBER: 1353801011254
CLASS: CLC38B

HO CHI MINH CITY
2017


STATEMENT OF GUARANTEE
I hereinafter guarantee that this bachelor thesis is definitely attributed to my own
research and are implemented under the supervisory guidance of LL.M Tran Thanh
Binh. All of information other than my opinions to be used or quoted has been
acknowledged by means of complete references. I am faithfully and completely
responsible for this guarantee.

i


Abbreviation

LIST OF ABBREVIATIONS
Full text

SBV


State Bank of Vietnam

CMBs

Commercial banks

CIs

Credit institutions

NPLs

Non-performing loans

VND

Vietnam Dong

USD

United State Dollars

LMA

Loan Market Association

CC

Civil Code (Law No.91/2015/QH13)

issued by National Assembly dated 25
November 2015.

LCI

Law on Credit institutions (Law
No.47/2010/QH12) issued by the
National Assembly dated 16 June 2010.

LOB

Law

on

Bankruptcy

(Law

No.51/2014/QH13) issued by National
Assembly dated 19 June 2014.
LOL

Law on Land (Law No. 45/2013/QH13)
issued by National Assembly dated 29
November 2013.

Decree 163/2006/ND-CP

Decree No. 163/2006/ND-CP on security

transactions issued by the Government
dated 29 December 2006 amended by
Decree 11/2012/ND-CP dated 22
February 2012.

Circular 39/2016/TT-NHNN

Circular
No.
39/2016/TT-NHNN
prescribing lending transactions of credit
institutions and/or foreign bank branches
to clients issued by the State Bank of
Vietnam dated 30 December 2016.

Circular 24/2011/TT-NHNN

Circular
No.
42/2011/TT-NHNN
regulating the syndicated loan by credit
institutions to customers issued by the
State Bank of Vietnam on 15 December
2011 amended by Circular 24/2016/TTii


NHNN dated 30 June 2016.
Decision 1627/2001/QD-NHNN

Decision No. 1627/2001/QD-NHNN on

issuing regulations on lending by credit
institutions to clients issued by the State
Bank of Vietnam dated 31 December
2001.

Decision 1160/2004/QD-NHNN

Decision
No.1160/2004/QD-NHNN
issued by the State Bank of Vietnam
dated 13 September 2004 on the
issuance of the regulation on savings
deposits amended and supplemented by
Decision 47/2006/QĐ-NHNN dated 25
September
2006
and
Circular
04/2011/TT-NHNN dated on 10 March
2011.

iii


LIST OF TABLES AND FIGURES
Table 1: List of projects financed by syndicated loans from 2008 to 2017 .............. 15
Table 2: Comparison table of types of syndicated loans ........................................... 19
Figure 1: Syndicated loans since 1980s. ...................................................................... 11
Figure 2: Diagram on syndicated loan transactions .................................................. 28


iv


TABLE OF CONTENTS

STATEMENT OF GUARANTEE ...................................................................................i
LIST OF ABBREVIATIONS ..........................................................................................ii
LIST OF TABLES AND FIGURES ...............................................................................iv
INTRODUCTION............................................................................................................ 1
CHAPTER I. .................................................................................................................... 7
THE CONCEPT OF SYNDICATED LOANS BY COMMERCIAL BANKS .............. 7
1.1.

Definition and Historical background of syndicated loans by commercial
banks..................................................................................................................... 7
1.1.1 Definition of syndicated loans ................................................................... 7
1.1.2 Historical background of syndicated loans ............................................... 9

1.2.

Types of syndicated loans by commercial banks ........................................... 15
1.2.1 Underwritten deals................................................................................... 16
1.2.2 Arranged or best efforts deals.................................................................. 17
1.2.3 Club deals ................................................................................................ 18

1.3.

The major principles of syndicated loans by commercial banks .................. 19
1.3.1 Principle of Independent Obligation ....................................................... 19
1.3.2 Agent bank................................................................................................ 19

1.3.3 Principle of Democratic Decision-Making .............................................. 20
1.3.4 Pro rata sharing ....................................................................................... 21

1.4.

The roles of syndicated loans ........................................................................... 22
1.4.1 For the lenders ......................................................................................... 22
1.4.2 For the borrower(s) ................................................................................. 24

SUB-CONCLUSION FOR CHAPTER I ...................................................................... 27
CHAPTER II. ................................................................................................................. 28
REGULATIONS, PRACTICAL ISSUES AND PROPOSED
RECOMMENDATIONS ON SYNDICATED LOANS IN VIETNAM....................... 28
2.1

Parties to a syndicated loan .............................................................................. 28
2.1.1. Regulations and practical application ..................................................... 28
2.1.2. Shortcomings of regulations and practical application on parties to a
syndicated loan ........................................................................................ 33


2.2

Taking security for syndicated loans ............................................................... 38
2.2.1. Regulations and practical application ..................................................... 38
2.2.2. Shortcomings of regulations and practical application on taking
security for syndicated loan ..................................................................... 43

SUB-CONCLUSION FOR CHAPTER II ..................................................................... 49
CONCLUSION .............................................................................................................. 50

BIBLIOGRAPHY ..............................................................................................................
APPENDIX 1 Table of ratings for debt securities .............................................................
APPENDIX 2 Clause on Covenants ..................................................................................
APPENDIX 3 Clause on Agent in syndicate .....................................................................
APPENDIX 4 .....................................................................................................................


INTRODUCTION
1.

Rationale for Research
Since the implementation of Đổi mới (Renovation), which was initiated by

the Vietnamese Communist Party in 1986, the Vietnamese legal system in general
and its banking area in particular have been significantly reformed to accommodate
the transition process. In the period of this innovation, the commercial banks
(“CMBs”) have been considered not merely as the storehouses of the country’s
wealth but also the reservoirs of resources necessary for economic development,
especially in case of developing country like Vietnam. One of the fundamental
functions of CMBs is the source of finance and credit for industry and trade.
However, nowadays, due to the rapid growth in volume, the escalating size and
complexity of the loans, CMBs have been forced to further develop methods to
adequately diversity their risk. Indeed, when a borrower’s need for funds exceeds
the amount which any single bank is able to lend or exceeds the limit on credit
extension for each client set by the State Bank of Vietnam (“SBV”), it becomes
necessary for banks to find the way to provide the required funds. In order to handle
these restrictions, besides unilateral credit extension, the CMBs nowadays may
finance projects; production and business plans together with other credit
institutions for the purpose of risk sharing and increase in the possibility of fund
mobilization. This type of credit extension is so-called syndicated lending.

In the recent time, the numbers of projects and economic organizations,
which have been financed by syndicated loans, have gradually increased. In 2016
and 2017, syndication agreements worth hundreds million United State dollars
(“USD”) entered by large corporations as Vingroup1 and Novaland2 mark a
milestone in the process of development of syndicated loans in Vietnamese
financial market. Be aware of the importance of the syndicated loans, SBV has
enacted a new circular3 to amend and supplement Circular 42/2011/TT-NHNN
Binh An, “Vingroup vay 300 triệu USD từ nước ngoài bằng hình thức vay hợp vốn” [Vingroup borrowed
300 million USD from abroad by mean of syndicated loan], http://vietnamfinance.vn/tai-chinh/vingroup-vay1

300-trieu-usd-tu-nuoc-ngoai-bang-hinh-thuc-vay-hop-von-20160707093531209.htm, last visited on 14 May
2017.
“Maybank và Vietinbank Filiale Deutschland giải ngân 30 triệu đô la cho Novaland” [Maybank and
Vietinbank
Filiale
Deutschland
disbursed
USD
30
million
to
Novaland],
2

http://www.thesaigontimes.vn/160530/Maybank-va-VietinBank-Filiale-Deutschland-giai-ngan-30-trieu-dola-cho-Novaland.html, last visited on 14 May 2017.
3
Circular No.24/2016/TT-NHNN issued by the State Bank of Vietnam dated 30 June 2016 on amendment
and supplement to a number of articles of Circular No.42/2011/TT-NHNN regulating provisions of
syndicated loans for clients by credit institutions.


1


issued by the State Bank of Vietnam dated 30 December 2016 regulating provision
of syndicated loans for clients by credit institutions which revealed many
shortcomings in the process of application.
Syndicated loan is not a new lending method in the world, but it has just
been introduced to Vietnam since the emerging of investment capital’s needs for
large-scale projects. However, after looking at the Vietnamese laws relating to
syndicated loans, the author still explores defects around this kind of transactions
which may incur substantial risks, in the worst case where the CMBs’ risk
management does not work effectively, can lead to systemic risk4-the collapse of an
entire financial system, initially from the first weak bank in trouble. Therefore,
building a legal framework to ensure the safety of syndicated lending activity in
particular and to create the stability for banking activities in general is very urgency.
Based on the fact that current laws do not adequately protect the benefits of
CMBs due to the shortage of effective legal mechanism, there are still rooms for
improvement of regulations on syndicated loans. For this reason, the author wishes
to conduct the thesis with topic “Shortcomings and recommendations for
regulations on syndicated loans by commercial banks” for the purpose of
contributing to perfect the legal foundations for implementing “successful”
syndicated loans in Vietnam.
2.
Literature review
As of this moment, the topic of syndicated loans has attracted the attention of
many legal practitioners, policy-makers and, more recently, academic researchers in
Vietnam in particular and in the world in general. The scientific works on this topic
which have been referred by the author will be divided into materials written in
foreign language and in Vietnamese as bellows for convenience of the readers.
2.1

Materials in foreign language
In the developed countries where the international syndicated loan market
has been evolving most such as America, Europe, Eastern Europe, a large number
of research works on syndicated loans have been conducted by specialists as well as
scholars in banking and finance field. The author is pleased to summary some
remarkable points relating to syndicated loans in these works as follows:
The book The Law and Practice of International Finance of Phillip Wood in
2008 covers practical and doctrinal aspects, comment and analysis on this type of
lending activity in typical legal instruments to both international and domestic
4

Systemic risk, Investopedia, http://www.investopedia.com/terms/s/systemic-risk.asp, last visited on 14 May
2017.

2


extents. Due to his long period acting as a lecturer at many universities and an
experienced lawyer in several leading law firms, this author provides and introduces
a logical approach to the terms loan of syndicated loan agreement as well as his
comments on the process of performing this lending activity. The books also
illustrates a detailed pictures of how syndication process of a international loan
funded by the lenders come from many different legal system is conducted, which is
very useful with respect to the international nature of syndicated loan.
The book Syndicated Lending-Practice and Documentation chiefly edited by
Mark Campbell and Christoph Weaver in 2013 is also the essential material when
researching the topic involving syndicated loans. This book concludes with a
summary of the way in which banks organize their syndication, syndication process
and the methods for the effective transfer of syndicated loan.
The book Syndicated Lending written by Andrew Fight in 2004 illustrates the

basic matters of the syndicated loans such as the rights and obligations of parties,
loan terms… and the variety of benefits and risks involving taking part in the
syndicated lending- one of the most important activities of banks.
The Guide to Syndicated Loans&Leveraged Finance Transactions sheet of
LMA serves for the general understanding on basic elements existing in any
syndicated loan transaction which the parties or the lawyers of parties to syndicated
loan must be aware of before doing it.
There are also many other extensive articles as well as scientific works,
which worth time and effort to ponder such as: Yener Altunbas, Blaise Gadanecz
and Alper Kara (2006), Syndicated loans A Hybrid of Relationship Lending and
Publicly Traded Debt, Palgrave macmillan; Toluwani Ajayi, Magaret Sosan (2014),
“Solving Issues of Default under Syndicated Loan- Transactions: A detailed Legal
Analysis”, Equity Research and Legal Consult; Michael Chui (2010), “The
Collapse of international bank finance during the crisis: evidence from syndicated
loan markets”, BIS Quarterly Review; Robert P. Donald (1982), International
Syndicated Loans, Euromoney Publication; Lawrence B. Gutcho (1994),
“Syndicated Lending: Lead Banks and Syndicate Members”, International Business
Lawyer, March 1994; Charles L. Menges (2003), “An agent’s liability to Co-lenders
in Syndicated loan transactions”, Probate& Property (January/February 2003);
Yueqin (Cathy) Wu (2013), “Overview of syndicated loans”, Watson& Band Law
Offices; etc.
2.2
Vietnamese materials
In the recent years, due to the increasing utilization of syndicated loans for
3


financing large-scale projects in Vietnam, there are more and more works focusing
and analyzing legal issues around this transaction. Accordingly, the author is
pleased to list several outstanding research works, which are considered as cardinal

materials for author to complete this thesis.
In the scope of legal aspects; the following theses, articles are should be
noticed according to the author’s opinion:
The book “Thị trường vốn nợ-luật và hợp đồng” [Debt capital market: Laws
and contracts] released by Nguyen Hong Nang in 2016 is one of the indispensable
materials for researching on the syndicated loan transactions in the domestic
market. With his intensive knowledge and many-year experience in finance and
banking field, Nguyen Hong Nang provides readers the comprehensive background
of syndication as well as the detail instruction on the loan terms of LMA sample
contract. However, the general readers may get confused when approaching this
book as it is mostly written for the use of the lawyers, banking staffs who already
have the basic background in this field.
In the scope of Ho Chi Minh University of Law, regarding this sense, the
master thesis “Pháp luật về cho vay hợp vốn bởi ngân hàng thương mại”
[Regulations on syndicated lending by commercial banks] of Dang Thi Luyen in
2014 thoroughly analyzes and discusses many specific legal issues related to the
doctrinal aspects as well as practical applications of syndicated loans by CMBs,
which have not been solved or solved incompletely. However, the regulations cited
in this article have already obtained many changes since the Decree
No.24/2016/TT-NHNN issued by the State Bank of Vietnam dated 30 June 2016 on
amendment and supplement to a number of articles of Circular No.42/2011/TTNHNN and Decree 39/2016/TT-NHNN issued by the State Bank of Vietnam dated
30 December 2016 prescribing lending transactions of credit institutions and/or
foreign bank branches to clients take effect.
2.3
Summary
All aforementioned materials are the helpful resources for the research on
syndicated loans in international syndicated loan market as well as in the domestic
market of the author. The other materials also serve as supplementary elements of
the necessity for the thesis. However, from researching these scientific works, the
author figures out difficulties emerging in the application of international standards

in the syndicated loan transactions conducted in Vietnam due to differences
between the international practice and the specific characteristics in the domestic
market. Therefore, it is needed to build a scientific work which contributes to
4


improvement of Vietnamese regulations in order to not only satisfy the standards of
international market but also eligible to be applied in the domestic transactions.
3.
The objectives of research
The research is carried out in both theoretical and practical aspects for the
purpose of clarification of the legal nature and the structure of the syndicated loan
transactions. The author also figures out the shortcomings of Vietnamese prevail
regulations on syndicated loans and, accordingly, combined with experience learned
form international practices, offers appropriate recommendations and resolutions to
enhance Vietnamese laws. These recommendations are carefully given in respect of
specific features of domestic banking sector.
4.

The object and scope of research

4.1

The object of the research
The thesis aims to provide the comprehensive background of syndicated loans
and the important issues arising in this kind of loans. However, not all legal issues
relating to syndicated loans are fully analyzed in the thesis, the author only focus on
the points, which are considered essential in a syndicate loan transactions and are
not completely and fully regulated in Vietnamese laws.
4.2

The scope of the research
The author will limit the research under the certain scope to suitable with
page capacity of the thesis and to ensure that the selected legal issues are accurately
and deeply analyzed. Accordingly, the author focuses on describe syndicated loans
with participating lenders being CMBs, other credit institutions will not be
mentioned. Further, due to the unavoidable restrictions, the thesis cannot completely
cover all other relevant issues arising around chosen topic; it only can illustrate
legal issues arising in two fundamental matters, which are parties to syndicated
loans and security transactions in syndicated loans. As the parties mostly subject to
risk are the banks due to the shortcoming of laws, most of recommendations and
resolutions are proposed with an aim to mitigating the banks’ risks by the way of
enhancing regulations controlling it.
5.

Research methodology
For the thesis’s objectives mentioned above, the author will combine various
kinds of legal methods as follows:
Firstly, as regards to the analytical method, this is the most mainly used
method. Under this method, the thesis analyze and assess regulations in relation to
syndicated loans and experience from laws of foreign countries to reach a
conclusion on the appropriateness and effectiveness of Vietnamese current laws.
5


Secondly, in term of synthetic method, this method is mostly used in Chapter
I which help the author collect relevant information from different resources, both
primary and secondary: books, legal journals, online material, etc.
Thirdly, comparative method, under this method, the thesis figures out the
similarities and differences between Vietnamese law and English laws to draw a
conclusion on which the best resolution for issues arising in Vietnamese market.

Chapter 1 of the thesis takes advantage of the analytical and synthetic method as
well as historical method. Chapter II of the thesis follows the analytical and
synthetic method along with comparative method.
6.

Research structure
The thesis is divided into two chapters. Chapter I provides the basic

background under theoretical and general perspectives in Vietnamese laws involved
to the lending activity in general and syndicated loans in particular. In Chapter II,
the author aims to specify several legal issues arising in syndicated loan transactions
and thus contribute the proposal for the improvement of Vietnamese regulations on
syndicated loans.

6


CHAPTER I.
THE CONCEPT OF SYNDICATED LOANS BY COMMERCIAL BANKS
1.1. Definition and Historical background of syndicated loans by commercial
banks
1.1.1 Definition of syndicated loans
In the social-economic life, lending is the common term in the financial
relationships, which were formed among individuals and organizations. Lending
activity originated from the reality where there existed the temporary financial
difficulties of people who have capital deficits, the needs of borrowing from the
people with the surpluses budget therefore arose. In order to mismatch these needs,
the banking system was born as a remarkable invention of the modern society.
Through its operations, banks connect borrowers and lenders, as the intermediaries,
to transfer the idle cash flow to invest in the necessary places. The linking is

cheaper, quicker and more accessible if via banks5. Lending activity is then
considered as one of the fundamental functions of a CMB. Accordingly, in general
understanding, the term “lending” by CMBs can be interpreted as an activity
whereby a bank or other organizations grant to customers the use of money on the
understanding that it shall be returned, usually with extra interest added to the
original amount6.
Approaching in the similar way, under the aspects of banking law, “lending”
activity is defined as a “form of extension of credit whereby a CI provides a client
with or undertakes to provide a client with an amount of money to be used for a
specified purpose within a specifies period of time as agreed, on the principle of
repayment of both principle of repayment of both principal and interest”7. It can be
seen that, from both general and statutory perspectives, lending activity can be
considered as an effective means to boost cash flow to the trade and economy.
From time to time, the basic premise behind lending and extension of credit
has not changed, however, the way lending happens has changed fundamentally8.
The changes are imperative in order to satisfy evolving customer expectation.
Particularly, due to the rapid growth in volume and the escalating size of the current
loan demand, the banks have been forced to further develop their lending forms.
5

Phillip Wood (2008), Law and Practice of International Finance, Sweet& Maxwell, p. 9.

6

Black Law Dictionary (sixth edition), p. 936.

7

Clause 16 of Article 4 of Law on Credit Institutions (Law No.47/2010/QH12) issued by the National
Assembly dated 16 June 2010 (hereinafter referred as to “LCI”).

Paul Thomas, “History of Lending”, http://www.provenir.com/2016/07/history-of-lending/, last visited on
18 May 2017.
8

7


Depending on the financial capability, limit on extension and the size of loan
demand, CMBs may decide to grant the credit to clients under bilateral form or
syndication form. The form of syndicated lending is specifically legislated in LCI,
which allows credit institutions (“CIs”) and foreign bank branches to extend
syndicated credit under the SBV’s regulations for a single client and affiliated
persons need capital in excess of the limits9. The syndicated lending is the advanced
option in case where the banks wish to adequately diversify their risks but
concurrently still get profit from their lending activity. Moreover, financing a
project or a plan for production and business which require the investment capital
larger than regulated limit on extension or its financial capability is impossible
unless CMBs extend credit together with other banks under the terms of syndicated
loan agreements.
In order to proceed successfully this transaction, the players shall thoroughly
know the structure and credit process of a syndicated loan. Accordingly, a
syndicated loan, also known as a syndicated bank facility, is one in which two or
more institutions, which are banks or other non-bank investors, collectively the
syndicate of lenders known as participants contract with a borrower to provide
credit on common terms and conditions governed by a single loan agreement10. In
short, syndicated loan is a loan made available by a group of lenders in pre-defined
proportions under the same credit facility. However, in the scope of this thesis, the
author only focus on the cases where lenders are CMBs in syndicate, other CIs will
not be mentioned. Although the lenders grant credit under a single contract, the
obligations of each lender are separate and the commitments of granting credit is

independent with such of other lenders. It means that each lender acts as an
underwriter and/or a lender, on its own without responsibility for the other lenders
in the syndicate. If a lender fails to honor its obligations as a member of a syndicate,
the other syndicate members have no legal duty to satisfy these obligations on that
lender’s behalf.
9

Clause 6 of Article 128 of LCI.

10

This term is defined in many international scientific works. For more information, please refer to:
Mark Campbell and Christoph Weaver (2013), Syndicated Lending Practice and Documentation, Euromoney
Institutional Investor PLC, p. 23; Nguyen Hong Nang (2016), Thi truong von no Luat va hop dong [Debt
capital market Laws and contracts], Industry and Trade Publishing House, p. 165; YenerAltunbas,
BlaiseGadanecz and Alper Kara (2006), Syndicated Loans A hybrid of Relationship Lending and Publicly
Traded Debt, Palgrave macmillan, p. 6; Andrew Fight (2004), Syndicated lending, Elsevier ButterworthHeinemanm, p. 1; Lawrence B Gutcho (1994), “Syndicated Lending: Lead Banks and Syndicate Members”,
International Business Lawyer, March 1994, p. 131; LMA (2013), “Guide to Syndicated Loans& Leveraged
finance transactions”, p. 5.

8


Regarding this sense, according to Circular No.42/2011/TT-NHNN issued by
the State Bank of Vietnam on 15 December 2011 regulating the syndicated loan by
credit institutions to customers amended by Circular 24/2016/TT-NHNN dated 30
June 2016 (“Circular 42/2011/TT-NHNN”), the syndicated credit facility means
“two or more CIs jointly arrange provision of credit to a client via professional
activities of lending, discounting, finance leasing, debt factoring, bank guarantee or
other professional activities of extending credit”11. This credit shall be extended for

the “implementing a project or plan for production and business in Vietnam or an
offshore investment project”12. It is obvious that there is the significant difference
between the international definition and definition in the Vietnamese laws. Namely,
in the international definition, the lenders extend credit to a borrower, regardless of
its purpose for one or more projects. In contrast, Article 1 of Circular 42/2011/TTNHNN requires the syndicated loans shall be used for implementing a specific
project (an investment project or plan for production and business) by clients.
In the reality, there is still the confusing between the terms “syndicated
loans” [in Vietnamese: “khoản vay hợp vốn”] and “loan participation” [in
Vietnamese: “khoản vay dự phần”]. In order to comprehensively understand the
definition of syndicated loans, the distinction between these two lending structures
must be interpreted intensively. Therefore, the author attends to provide readers
with the respective benefits and risks affecting loan participations and syndicated.
In a loan participation, the originating lender transfers all or part of its interest in a
loan to a participant pursuant to a participation agreement and the participant shall
undertake the obligation to fund any additional loans on behalf of the originating
lender. The intention of the participation is to transfer full economic rights from the
originating lender to the participant, but the participant shall not become a party to
the credit agreement and does not have any direct contractual relationship with the
borrower. On the contrary, in a syndicated loan, each of the lenders has a direct
contractual relationship with the borrower and is in privity with the borrower13.
1.1.2 Historical background of syndicated loans
a)

The formation and development of syndicated lending activity in the world
The syndicated loan market was initially developed in London by a relatively
small number of merchant banks, which had small balance sheets but large and
11

Clause 1 of Article 2 of Circular 42/2011/TT-NHNN.


12

Clause 1 of Article 1 of Circular 42/2011/TT-NHNN.
Phillips Lytle LLP (2014), “The risks and rewards of multiple lender financings: loan participations and

13

syndicated loans”, http://www.phillipslytle.com/The_Commercial_Paper/2014_11_Nov/Page3.html, last
visited on 20 May 2017.

9


important customers. It would not have been possible for these merchant banks to
provide the full amounts of loans needed by their customers, and so other banks
were asked to provide parts of the loans on the same terms and conditions, with the
merchant bank taking a fee to arrange the loan and administer it once it was
drawn14.
The development of syndicated loans has a very lengthy historical
background. However, the evolution of global financial activities, which occurred in
the early 50’s, played a crucial role in the development the present financial practice
and credit arrangement15. Pursuant to McDonald, in his book, was of the view that
syndicated loans evolved as a lending vehicle from the domestic capital markets in
the US truly in the early 50’s but the major drama did not occur until late 1960s 16.
The capital market in London recorded a total volume of 11.4 billion dollars, which
was the shocking development in 12 years. During this time, syndicated loan
become more of a sovereign business, because most of developing nations had debts
resulting from it17. The evolution of syndicated lending are divided into three phases
that explains the evolution of syndicated loan agreements.
The first is the creation and expansion phase, which began in the 1970s.

Credit syndication first developed as a sovereign business18. Between 1971 and
1982, medium-term syndicated loans were widely used to channel foreign capital to
the developing nations like Latin America, Asia and Africa. In 1970, syndicated
loans made a remarkable increase of about 23 percent between 1970 and 1984
which resulted into a steady displacement of bilateral lending19.
The second phase recorded a downfall, as serious problems in relation to
loans and lending arose in 1983, where Mexico and other countries like Brazil,
Argentina, Venezuela and Philippines, suspended interest payments on its sovereign
debt, soon followed by other countries. This brought a crash down in loans and
lending activities reached their lowest point at 9 billion USD in 1985 as opposed to
46 billion landmarks up-shoot between 1970 and 198220.

14
15

Andrew Fight (2004), supra (10), p. 2.
Toluwani Ajayi, Margaret Sosan (2014), “Solving Issues of Default under Syndicated Loan Transactions:

A detailed Legal Analysis”, Equity Research and Legal Consult, p. 6.
16
Robert P. Donald (1982), International Syndicated Loans, Euromoney Publication, p. 23-24.
17

Robert P. Donald (1982), supra (16), p. 23-24.

Blaise Gadanecz (2004), “The Syndicated loan market: structure, development and implications”, BIS
Quarterly Review, December 2004, p. 75.
18

19

20

Blaise Gadanecz (2004), supra (18), p. 76.
Toluwani Ajayi, Margaret Sosan (2014), supra (15), p. 7.

10


Figure 1: Syndicated lending since the 1980s21
The third phase was a phase that started in 1987, lead to an action plan
initiated by Nicolas Brady who was the US Treasury Secretary. The Brady plan was
made to swap or exchange credit risk for “Brady bonds”. This strategy was seen as
a useful, flexible source of funds and thereafter developed an appetite for syndicated
loans. Because of these developments, syndicated lending has grown strongly from
the beginning of the 1990s to date.
Syndicated credits have thus become a very significant source of financing in
the international market. In 2003, a record signing of new loans globally reached
1.6 trillion dollars, which was three times the amount in 199322, and in 2009 this
amount has double, despite the effect of global economic meltdown.
b)
The formation and development of syndicated lending activity in Vietnam
Since the national economics made its transition to a market economy in
1986, the restructuring of the State Bank significantly changed the banking industry
to a new stage of growth and expansion. The country renovation enabled the
Vietnamese banking system to integrate into the international banking system and
thereafter diversified its types of lending and the source of capital for large-scale
projects. Before the period of conducting socialist-oriented commercial banking
activities, most of projects in Vietnam usually were subsidized by the State.
However, the number of subsidized projects from 1986 were gradually narrowed
21

22

Sources: Dealogic Loanware; Euromoney, BIS.
Blaise Gadanecz (2004), supra (18), p. 77.

11


and replaced by the projects financed by CMBs. The growth in the needs of largescale investment capital has played an important role in the process of bringing the
syndicated lending method-a common type of lending in developed countries into
Vietnamese market.
From the 1990s, there existed several short-term syndicated loans which
were jointly financed by CMBs in Mekong Delta for the import activities to East
Europe countries (at the time, the syndicated loans were defined as the loans of
bank association)23.
From 1990 to 1996, the growth of credit averaged 36% per year, contributing
to the success of restructuring towards industrialization and modernization, while
promoting economic growth over many years. In this period, the relationship
between Vietnam and international financial and monetary institutions (IMF, WB,
and ADB) was resumed. In December 1996, at the Meeting of bank directors in the
national scale, the SBV General Director officially set the incentive policies for the
co-financing activities by CIs, thereafter laid the foundation for many syndicated
loans proceeded between 1996 and 1997. Namely, Vietcombank together with
Vietinbank (previous name is Incombank) granted a syndicated loans to projects
constructing Ha Noi hotel, the office of Ha Noi People’s Committee and other
projects of 8/3 textile company24. In 1997, the National Assembly approved the
Law of the State Bank of Vietnam and the Law on Credit Institutions forming the
basic legal foundation for the banking system to continue its transformation toward
a market-orientation and further international integration. During this year, the
syndicated lending activities in Vietnam also steadily developed. Namely, under the

arrangement of branch of SBV in DakLak, CMBs in the territory of this province
also provided loans to the project of developing local crops as well as other projects
of local coffee planning25.
After experiencing the effectiveness of aforementioned syndicated loan
transactions, SBV enacted Decision No. 154/1998/QD-NHNN14 promulgating the
regulation on co-financing by credit institutions, forming the basic legal foundation
for the syndicated lending activity in Vietnamese financial market. From this
remarkable landmark, the enterprises with large budget gradually developed the
appetite of mobilizing capital by syndication methods from banks for the projects
Hong Linh (2001), “Giải pháp phát triển phương thức cho vay hợp vốn ở nước ta” [Resolutions for the
developing syndicated lending method in our country], Tạp chí ngân hàng [Banking journal,] Vol (2), p. 20.
23

24
25

Hong Linh (2001), supra (23), p. 20.
Hong Linh (2001), supra (23), p. 20.

12


requiring large and long-term loans. During these years, there were several largescale projects used syndicated loans such as: In 1998, Vietcombank and BIDV
extended the credit of 18 million USD for Vietnam Electricity Corporation for
importing electric machines with 8-year term loan. In 1999, three CMBs namely
Vietcombank, Military Commercial Bank and Vietnam International Commercial
Bank provided a medium-term loan (three years) for the first time to oil and
gasoline Corporation with the amount of 230 million Vietnam Dong (“VND”);
Vietcombank, Vietinbank and BIDV also extended the project expanding Dien Bien
Phu bridge a credit of 230 billion VND26.

In 2001-2002, in the concept of significant growth of the economics, the
increasing needs of borrowing middle and long-term loans of enterprises facilitated
the development of CMBs’ lending activities. The changes, which took place in the
syndicated loan market are remarkable since the promulgation of Decision No.
286/2002/QD-NHNN issuing the regulation on co-financing by credit institutions.
This Decision was enacted in time to solve the shortcomings existing in the former
decision and to promote the syndicated lending activities of CMBs. Between 2005
and 2010, besides the State-owned banks and Commercial Joint Stock banks, there
existed the presence of foreign banks in the syndicated loans for large-scale projects
conducted in Vietnam27. Hence, the syndicated credit facility in Vietnam has
entered into a period of strong comprehensive development from this remarkable
time. For convenience of the readers, the several projects which have been financed
by syndicated loans from 2008 to 2017 are compiled in the following table.

No.
1.

26

Name of
Projects

Name of CMBs
granting credit

The amounts
of syndicated
loans

Vietnam

national coal
and mineral

- Standard Chartered
USD 58 million
Bank acted as lead bank,
- Cathay Bank,

industries
holding

- Malayan Berhad Bank,
- Bank of China- Ho Chi

Date of
credit
extension
2008

Dang Thi Luyen (2014), Pháp luật về cho vay hợp vốn bởi ngân hàng thương mại [Regulations on

syndicated lending by commercial banks], Master thesis, Ho Chi Minh City University of Law, p. 25.
27
Dang Thi Luyen (2014), supra (26), p. 26.

13


corporation


Minh Bank

limited28
2.

Ban Chat
hydropower
project

- Agribank acted as lead
bank,
- Vietcombank,

conducted by

- Global Petro

Electricity of

Commercial Joint Stock

Vietnam
3.

29

VND 2.601
billion

2009


2011

Bank,
- BIDV

Oil and gas

- Standard Chartered

USD 430

projects
conducted by

acted as lead bank
- 13 other foreign banks

million

Petro Vietnam
(PVEP)30
5.

Vietinbank
increases its

- Nomura Singapore Ltd USD 65
acted as arranger,
million


2012

source of
- Commerzbank
foreign currency Aktiengesellschaft,
to serve the
- ChinaTrust

6.

28

production and
business needs
of enterprises31.

Commercial Bank,
- Mega International
Commercial Bank,
- Nomura Special
Investments Singapore.

PVEP32

- SeABank,
- Vietcombank

USD
million


150

2014

“Vinacomin nhận khoản vay 58 triệu USD” [Vinacomin borrowed the loan of 58 million USD],

http://touch.vietstock.vn/2008/09/vinacomin-ky-khoan-vay-hop-von-58-trieu-usd-37-87136.htm, last visited
on 22 May 2017.
“Vietnam banks in loan deal for Ban Chat”, http://www.waterpowermagazine.com/news/newsvietnambanks-in-loan-deal-for-ban-chat, last visited on 22 May 2017.
29

“Petro Vietnam affiliate signs syndicated loan”, http://english.vietnamnet.vn/en/print/lastestnews/4507/petrovietnam-affiliate-signs-syndicated-loan.html, last visited on 22 May 2017.
30

31

“Ký kết hợp đồng vay hợp vốn trị giá 65 triệu USD” [Signing the syndicated loan agreement of USD 65

million], http://www.tinmoi.vn/ky-ket-hop-dong-vay-hop-von-tri-gia-65-trieu-usd-011166742.html,
visited on 24 May 2017.

last

“SeABank và cái duyên với dầu khí” [The connection between SeABank and oil& gasoline],
http://thoibaonganhang.vn/seabank-va-cai-duyen-voi-dau-khi-25704.html, last visited on 24 May 2017.
32

14



7.

8.

Duyen Hai 3

-Vietinbank

acted

Thermal Power

arranger, and BIDV and

Plant Project33

Vietcombank
lenders

Vingroup34

Credit Suisse AG acts as USD

as

as USD 65 million

2015


co-

arranger,

300

2016

USD 30 million

2017

million

Maybank

Investment

Bank
Berhad
and
Deustche Bank AG as
co-lenders
9.

Lakeview City
Project

Maybank,
Vietinbank, and


implemented by
Novaland 35

Filiale Deutschland

Table 1: List of projects financed by syndicated loans from 2008 to 2017
1.2.

Types of syndicated loans by commercial banks
It is extremely important for the parties to syndicated loans to be aware of
the types of syndicated loans and the characteristics of each type in order to make
an informed business as to which structure best fits the parties’ interests. The
consistence between Vietnamese regulations on syndicated loans and the
international standards on such loans is one of the key factors to conduct
successfully a syndicated loan, which is mostly international in nature. The research
on common types of syndicated loans in the world thus is indispensable to form the
stable theoretical foundation for the improvement of Vietnamese regulations on
syndicated loans.
In other scientific works36, types of syndicated loans are divided into two
33

Anh Huy, “3000 tỷ tài trợ Dự án Nhà máy nhiệt điện Duyên Hải 3 mở rộng” [Financing Duyen Hai 3

Thermal Power Plant Project VND 3000 billion], https://www.vietinbank.vn/web/home/vn/events/15/3000ty-tai-tro-du-an-nha-may-nhiet-dien-duyen-hai-3-mo-rong.html&p=1, last visited on 24 May 2017.
Binh An, “Vingroup vay 300 triệu USD từ nước ngịai bằng hình thức vay hợp vốn” [Vingroup borrowed
USD 300 million via syndicated loan from abroad], http://vietnamfinance.vn/tai-chinh/vingroup-vay-30034

trieu-usd-tu-nuoc-ngoai-bang-hinh-thuc-vay-hop-von-20160707093531209.htm, last visited on 24 May 2017.
35

“Maybank va Vietinbank Filiale Deutschland giải ngân 30 triệu đô la cho Novaland” [Maybank and
Vietinbank

Filiale

Deutschland

disbursed

USD

30

million

to

Novaland],

http://www.thesaigontimes.vn/160530/Maybank-va-VietinBank-Filiale-Deutschland-giai-ngan-30-trieu-dola-cho-Novaland.html, last visited on 25 June 2017.
36

For more information, please see: Dang Thi Luyen, supra (26), p. 12; Nguyen Dang Don, Hoang Duc, Tran
Huy Hoang, Tram Thi Xuan Huong, Nguyen Quoc Anh, Nguyen Thanh Phong (2011), Nghiệp vụ ngân hàng

15


categories namely direct syndicated loans and indirect syndicated loans. However,
this kind of classification seems not show the effectiveness in deciding which type

is appropriate cause it is easy to see that the direct syndicated loan reveals many
shortcomings in its operation and as a result rarely be chosen by the parties to
syndicated loans37. Whereas in the international financial market, the following
types of syndication are very common with the participants, namely:
1.2.1 Underwritten deals
The underwritten deal is one of the most widely available types of syndicated
loans in the international financial market. This is also known as a “Bought Deal”,
under which the whole amount of the facility is guaranteed to the borrower by the
appointed lead arranger with all the terms and conditions agreed in advance.
The loan is underwritten by an arranger who takes entire transaction risk and
will be responsible for the syndicated loan process. In other words, in case in which
the arranger fails to mobilize sufficient the amount of the loan cause the
participation of lenders or the commitment amount of participants is insufficient, it
shall lend out the whole amount of syndicated loans 38. However, if it cannot fully
subscribe the loan, the arranger may later sell to other investors the undersubscribed
part of the loan that it has absorbed. This underwriting commitment is often not
legally binding and is usually expressed to be subject to material changes in market
conditions prior to the signing of the loan agreement39. This is the easy if market
conditions or the credit’s fundamentals improve. If the markets are bearish, the
arranger may be forced to hold a larger position on its balance sheet than originally
planned and therefore have to sell any undersubscribed portion at a discount or
simply consider the whole thing as a loss. Fortunately, nowadays, with flexlanguage40 now widely accepted, underwriting a deal does not carry the same risk as
it did when the pricing was set in stone before syndication41.
Besides the potential risks associated with underwritten deals, there are
several benefits, which attract both parties (lenders and borrower) to participate in
thương mại [Commercial banking operations], Nhà xuất bản Đại học Quốc gia [National University
Publishing House], p. 190-191.
37
Dang Thi Luyen, supra (26), p. 12.
38

39
40

Nguyen Hong Nang (2016), supra (10), p. 168.
Philip Wood (2008), supra (5), p. 95.
The term “flex language” can be described as the flexibility inserted into a syndicated loan agreement that

allows the arranger to alter the terms of the borrowing in order to attract enough lenders to finance the loan.
These alternations could include increases in the interest rate, changes in covenants, or increases in
prepayment penalties.
41
Standard& Poor’s (2010), “A Guide to The European Loan Market”, p. 8.

16


these transactions.

On the one hand, from the perspective of borrower, the

attraction to the borrower is the speed at which the deal can be finalized and the
protection of confidential and price-sensitive information, but the borrower is
expected to pay higher than normal fees to the arranger42. On the other hand, there
are several reasons why a bank may decide to become the underwriter. First, this
type of loan can make a financial institution look more competitive. Next, a
syndicated debt could mean huge profits for the bank because the risks involved in
this type of loan can translate to higher service fees. Lastly, underwritten deals now
have floating interest rates43, thus the risks are no longer as high as debts with fixed
rates44.
Due to the aforementioned specific elements, the underwritten deals are often

found in situations where a short turnaround period is required, such as acquisition
finance, and sufficient time would not be available for the normal syndication
process.
1.2.2 Arranged or best efforts deals
Of all the types of syndicated loans, the best-efforts syndication is the most
commonly used in the world. Contrary with underwritten deals, in the best efforts
deals, the loans are not underwritten by the arranger. In other words, the arranger
does not guarantee that the whole required amount can be raised. The arranger will
commit to a certain amount of the loan, and undertake to find other lenders to
provide commitments for the remainder on a “best efforts” basic. If the loan is
undersubscribed, the credit may not close or may need major surgery to clear the
market. The borrower therefore bears the risk that in the event that the arranger fails
to attract enough commitments for the total amount of the loan, the borrower will
not receive sufficient funds45. Thereafter the borrower is forced to accept a lower
loan amount or loan agreement is canceled entirely, but will be paying a smaller fee
to the arranger.
This type of transaction is suited to the cases in which a borrower is
42

Andrew Fight (2004), supra (10), p. 66.

The term “floating interest rates” can be described as interest on a loan which is not fixed for the term of
the loan, but which is periodically determined by an agent bank in accordance with the loan documentation.
43

The rate is usually set at a margin in relation to a specified money market rate (usually three or six months),
see at Christoph Weaver, Mark Campbell (2013), supra (10), p. 553.
44
“The 3 types of Syndicated Loans”, http://www.finweb.com/loans/the-3-types-of-syndicatedloans.html#axzz4hsK0iZYe, last visited on 23 May 2017.
45

LMA (2012), supra (10), p. 5.

17


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