Conversion of Short-Term Foreign Loans into Equity Contribution: Implementation Procedures and Key Considerations
As discussed in the article “ Short-term Loans from Foreign Parent Companies: Options for Handling Outstanding Loans ” , where a short-term foreign loan reaches its maturity (i.e., one (01) year from the first drawdown) and the company is unable to repay or may become subject to loan registration requirements with the State Bank of Vietnam, selecting an appropriate solution is critical to mitigate potential legal risks. Among the legally permissible options, the conversion of a short-term foreign loan into equity contribution held by the foreign investor in the Vietnamese company is a commonly adopted approach. However, in practice, many enterprises have yet to fully understand the legal procedures required to implement such conversion in a compliant manner. This article analyzes the legal nature of such transactions and provides a detailed guide on the procedures that enterprises need to prepare when converting a foreign loan into equity in accordance with applicable laws. In...