Thông tư 79/2016/TT-BTC về các dự án vay lại từ nguồn vốn vay nước ngoài

THE MINISTRY OF FINANCE

Circular No. 79/2016/TT-BTC dated June 06, 2016 of the Ministry of Finance guiding the implementation of the financial audits of programs or projects financed by the Government’s on-lending of foreign borrowed funds

Pursuant to the Law on Public Debt Management No. 29/2009/QH12 dated 17/6/2009;

Pursuant to the Law on Public Sector Investment No. 49/2014/QH13 dated 18/6/2014;

Pursuant to the Government’s Decree No. 78/2010/ND-CP dated 14/7/2010 on on-lending of the Government s foreign loans;

Pursuant to the Government’s Decree No. 79/2010/ND-CP dated 14/7/2010 on public debt management operations;

Pursuant to the Government’s Decree No. 16/2016/ND-CP dated 16/3/2016 on management and utilization of ODA capital and concessional loans granted by foreign sponsors;

Pursuant to the Government s Decree No. 215/2013/ND-CP dated December 23, 2013 defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

Upon the request of the Director of Department of Debt Management and External Finance,

The Minister of Finance hereby introduces the Circular guiding the implementation of financial audits of programs or projects financed by the Government’s on-lending of foreign borrowed funds.

Chapter I

GENERAL PROVISIONS

Article 1. Scope of adjustment

1. This Circular shall set out regulations on financial audits that may be applicable to the following situations:

a) Making decisions on investment in programs or projects financed in whole or in part by the Government s foreign borrowed funds;

b) On-lending the Government’s overseas borrowed funds to enterprises.

2. Programs or projects are financed by on-lent funds invested in the form whereby on-lending bodies which assume the whole credit risk shall conduct auditing and lending operations under finance and credit institutions regulations, comply with laws and regulations, and are not governed by this Circular.

3. Audits that serve the purpose of on-lending of the Government’s foreign borrowed funds to the provincial People’s Committees shall adhere to laws on capital on-lending to local governments.

Article 2. Subject of application

Investment decision-making bodies, Ministry of Finance, on-lending bodies, sub-borrowers, institutional or individual entities related to financial audits of programs or projects financed by overseas borrowed funds on-lent by the Government that fall within the scope and coverage of this Circular.

Article 3. Definition

Terms used herein shall be subject to the interpretation which is the same as that provided in the Law on Public Debt Management No. 29/2009/QH12 dated June 17, 2009, the Government’s Decree No. 78/2010/ND-CP dated  July 14, 2010 on on-lending of the Government’s foreign borrowed funds (hereinafter referred to as the Decree No. 78/2010/ND-CP) and the Government’s Decree No. 16/2016/ND-CP dated March 16, 2016 on management and utilization of ODA capital and concessional loans received from foreign sponsors (hereinafter referred to as the Decree No. 16/2016/ND-CP).  Other terms shall be construed as follows:

1. Benefit – Cost ratio (B/C) refers to the ratio of present value of benefit flow and that of cost flow which is determined within a life cycle of a project.

2. Net Present Value (NPV) refers to net value of all future cash flows of a project discounted to their present value.

3. Internal rate of return (IRR) refers to the discount rate at which the NPV of a project equals 0 (zero).

4. Formulas for calculation of financial indicators referred to in paragraphs 1, 2 and 3 of this Article shall be specified in Appendix 1 and 2 to this Circular.

Article 4. Auditing principles

1. Ensure objectivity, transparency and due care.

2. Investment decision-making bodies shall be responsible for results of audits or decisions on investment projects in accordance with laws.

3. Sub-borrowers shall take legal responsibility for accuracy, validity, rationality and legality of figures, information, parameters and data provided to auditing bodies as inputs for calculating project financial plans or debt repayment schedules and financial competence of sub-borrowers.

4. With regard to investment programs or projects financed by taking the form in which on-lending bodies partially assume risks, financial audits must conform to regulations laid down herein and on-lending bodies regulations.

5. Financial audits that serve the purpose of making investment decisions must observe regulations set forth in the Decree No. 16/2016/ND-CP, this Circular and relevant legislation.

6. Financial audits for the purpose of on-lending the Government’s foreign borrowed funds must conform to regulations set out in Article 19 of the Decree No.78/2010/ND-CP, this Circular and relevant legislation.

Article 5. Auditing methods

1. In the process of auditing financial plans of projects financed by on-lent capital, determination of the discount rate (r), B/C, NPV and IRR shall be carried out under the instructions set out in Appendix 1 hereto.

2. In the process of auditing financial competence of sub-borrowers, determination of financial indicators shall be carried out under the instructions set out in Appendix 2 hereto.

Chapter II

AUDITTING CONTENTS

Article 6. Auditing of eligibility to qualify for on-lent funds

1. Auditing of conformity with regulations and requirements for eligibility to receive on-lent funds shall take into consideration financial conditions and fulfillment of requirements in relation to investment procedures as stated by laws. Sub-borrowers must demonstrate their financial competence, ensure that the shareholder s equity adheres to statutory ratios, set up effective business plans in which their ability to repay debts is shown, and implement regulations on loan guarantees.

2. Requirements for eligibility to apply for on-lent funds by sub-borrowers shall be applied as referred to in the Law on Public Debt Management.

Article 7. Auditing of sub-borrowers’ financial competence

1. Auditing financial competence of sub-borrowers shall be conducted by means of assessing audited financial statements of 03 most recent consecutive years preceding the year when auditing of financial competence of sub-borrowers takes place.

2. Where sub-borrowers have not completed full 3 years of operation, a written guarantee of the owner’s representative, owner or parent company for repayment of debts on behalf of borrowers who are faced with difficulty in doing so must be submitted.  In the absence of the said guarantee, sub-borrowers must seek guarantee for discharge of debt obligations from another commercial bank or other security as appropriate verified by the on-lending body with respect to its feasibility and compliance with laws.

Article 8. Auditing of loan application schemes and debt repayment capability of sub-borrowers

1. Audit loan utilization plans, including investment capital disbursement and recovery of a project, which specifies the followings:

a) Investment funding source (including equity capital, capital derived from associates or joint ventures used for project execution, capital derived from the state budget, borrowed capital and others stipulated by laws);

b) Project costs;

c) Capability of investment capital disbursement, revenue generation and cash flows of a project.

2. Audit financial plan assessment indicators by employing the auditing method referred to in Article 5 hereof.

3. Determine debt repayment capability based on on-lent loan debt repayment schedule, cash flow deficiency for debt repayment (if any), and suggest possible solutions to making up for such deficiency.

Article 9. Auditing of assets pledged as collateral for on-lent loans by sub-borrowers

Auditing of assets put up as security for on-lent loans shall meet the objectives of assessing compliance with regulations on assets pledged as collateral for on-lent loans in the Decree No. 78/2010/ND-CP and the Circular No. 139/2015/TT-BTC dated September 03, 2015 of the Ministry of Finance on providing guidance on guarantee for loans received from the Government’s on-lending of its foreign borrowed funds.

Article 10. Assessment and remarks on non-financial elements

Non-financial elements subject to assessment and remarks include:

1. Business sector; qualification, competence and experience of management board; administration model of sub-borrowers.

2. Relationship in economic, financial, lending and debt repayment aspects between sub-borrowers and their fellows, customers and lending organizations.

Article 11. Risk assessment and risk minimization measures

On-lending bodies shall give their opinions on risks and assess efficiency of projects by taking into consideration any potential risks; assess risk mitigation solutions recommended by sub-borrowers.

Chapter III

AUDITING PROCEDURES AND DOCUMENTATION

Article 12. Audits occurring at investment decision-making authorities

1. When formulating the Statement on investment policy statement or pre-feasibility study report of programs or projects using the Government s foreign borrowed funds to which on-lending mechanisms are applied, investment decision-making authorities shall make recommendations on sub-borrowers and on-lending forms, including one of the followings:

a) the on-lending form whereby on-lending bodies shall not assume any credit risk.

b) the on-lending form whereby on-lending bodies shall totally or partially assume credit risks.

c) the on-lending form whereby finance and credit institutions apply for loans on-lent under credit programs or facilities.

2. When auditing instruments relating to programs or projects using the Government s foreign borrowed funds, investment decision-making authorities shall undertake auditing of financial plans of projects financed by on-lent loans, conformity with requirements for receipt of on-lent loans in accordance with existing regulations and provisions laid down herein.

a) Financial auditing contents must adhere to regulations set out in Chapter II hereof.

b) For the purpose of financial audits, project owners must submit required documentation referred to in Clause 1 Article 12 hereof (except Point c).

c) Auditing schedule must conform to regulations laid down in Article 30 of the Decree No. 16/2016/ND-CP.

3. Funding for auditing activities

a) Funding for audits occurring at investment decision-making authorities is provided by their budget.

b) Contents and level of spending for auditing activities must conform to applicable regulations.

c) Establishment of, compliance with the budget plan and final statement of eligible costs for auditing work must conform to the Law on the State Budget.

Article 13. Audits occurring at on-lending bodies

1. List of auditing documents:

Sub-borrowers shall submit a written request to on-lending bodies authorized by the Ministry of Finance as provided by Clause 1 Article 16 for an on-lending audit with attached necessary documentation that requires verification, and also forward it to the Ministry of Finance.   Sub-borrowers shall undertake to take responsibility for accuracy, rationality, validity and legality of submitted documentation used in on-lending audits; for parameters, figures, economic and technical norms, quotes, forecasts for revenue, outputs as well as other data presented in project-related instruments.

Submitted documentation required for audits includes:

a) The Prime Minister’s written consent to using the Government’s foreign borrowed funds.

b) Program or project instruments.

c) Investment approval decisions issued by competent authorities.

d) Audited financial statements of 3 most recent consecutive years preceding the year when financial competence of sub-borrowers is audited (applicable to active enterprises/economic organizations); Where sub-borrowers have not completed full 3 years of operation, a written guarantee of the owner’s representative, owner or parent company for repayment of debts on behalf of borrowers who are faced with difficulty in doing so must be submitted.    In the absence of the said guarantee, sub-borrowers must seek guarantee for discharge of debt obligations from another commercial bank or document proving other security as appropriate verified by an on-lending body with respect to its feasibility and compliance with prevailing laws.

Where sub-borrowers are parent companies, financial statements to be submitted must comprise those of parent companies and consolidated ones of a group of companies. Where subsidiary companies which maintain independent accounting reports apply for on-lent loans from which debt obligations incurred are secured by parent companies, financial statements to be submitted must comprise those of subsidiary companies, parent companies and a group of companies.

dd) Report on credit relationship between sub-borrowers and lending organizations prepared at the most recent date preceding the date when a financial audit takes place; table of credit facility agreements signed by sub-borrowers, and status of loan disbursement, debt repayment under terms and conditions of credit facility agreements; the third party’s guarantee or security.

e) Documentation regarding loan security plans as referred to in the Government’s Decree No. 163/2006/ND-CP dated December 29, 2006 on secured transactions and the Decree No. 11/2012/ND-CP dated February 22, 2012 on amendments to several articles of the Decree No. 163/2006/ND-CP.

g) Financial plans which refer to on-lending conditions under the provisions of the Decree No. 78/2010/ND-CP and documents providing guidance on on-lending practices under the Law on Public Debt Management.

2. Time limits and contents of audits occurring at on-lending bodies

a) Time limits for audits

- Sub-borrowers shall be responsible for submitting required documentation to on-lending bodies for auditing purposes. Where additional documents are required, on-lending bodies shall notify sub-borrowers in writing. Within a permitted period of  7 days of receipt of such notification, sub-borrowers are obliged to provide these additional documents in accordance with regulations.

- Where appropriate, in order to check certainty, feasibility of assumptions used for calculation of financial efficiency of projects, on-lending bodies may request more documents to be submitted to identify the basis for making such assumptions, or to consult with relevant regulatory bodies.

- Within a maximum of 30 working days of receipt of all valid documents submitted by sub-borrowers, on-lending bodies shall conduct audits and submit the report on auditing results to the Ministry of Finance.

b) Auditing contents

The report on results of audits must clearly state the following contents:

- Evaluate level of satisfaction of requirements for utilization of the Government’s foreign borrowed funds under on-lending policies referred to in laws.

- Evaluate sub-borrower’s financial competence.

- Evaluate financial plans of projects financed by on-lent capital prepared by sub-borrowers, bases for making assumptions about revenue, expenses or on-lending conditions of projects.

- Evaluate plans to use assets put up as collateral proposed by sub-borrowers.

- Evaluate levels of risks arising from loan utilization plans, debt repayment capability of sub-borrowers after anticipating potential risks; make recommendations on risk prevention measures.

- Give definite opinions about debt repayment possibility (impossibility) of projects, sub-borrowers; and determine on-lending conditions applied to sub-borrowers in accordance with prevailing laws and regulations.

Article 14. Audits occurring at the Ministry of Finance

1. Upon receipt of the report on results of audits submitted by on-lending bodies, the Ministry of Finance shall consider the following contents:

a) Conformity of auditing documentation, procedures and methods which are applied by on-lending bodies.

b) Approaches to dealing with differences in standpoints, and evaluate capability of the sub-borrower s repaying loan debts to on-lending bodies.

c) Evaluation of results of audits conducted by on-lending bodies, including:

- Evaluating results of audits conducted by on-lending bodies; where results of audits announced by on-lending bodies with respect to financial plans of programs or projects, and with respect to financial competence of project owners are not consistent with the governing body’s evaluation, the Ministry of Finance shall consult with the governing body to make any decision within its jurisdiction, or report to the Prime Minister for consideration and decision.

- Determining whether on-lending is permitted; on-lending risk control solutions.

d) Recommendations of sub-borrowers or on-lending bodies on necessary security or assistance provided to sub-borrowers or third parties to the extent that there is a temporary lack of fund for repayment of debts.

2. Subject to results of verification of auditing reports produced from on-lending bodies, the Ministry of Finance shall seek the Prime Minister s approval of or make its intra vires decision on on-lending of funds to programs or projects, and notify on-lending bodies and sub-borrowers of on-lending requirements.

3. Where there are dissented opinions amongst relevant authorities, in order to receive assessment opinions assisting the Ministry of Finance in making its decision on approval of on-lent loans, it may consult with independent organizations or individuals that have professional expertise in re-assessing results of audits conducted by on-lending bodies with respect to financial plans of projects and financial competence of sub-borrowers.   These organizations or professionals must be independent and responsible for their own opinions.

4. Funding for audit and inspection activities

a) Administrative expenses paid to independent organizations or professionals rendering assessment services taking place at the Ministry of Finance shall be covered by the regular expenditure scheme of the Ministry of Finance or on-lending fees and a portion of guarantee fees collected by the Ministry of Finance in accordance with relevant regulations.

b) On an annual basis, bodies in charge of on-lending activities shall prepare budget plans for auditing work as referred to in this Article for submission to the Ministry of Finance for the purpose of consolidating and approving them as a part of the regular expenditure scheme of the Ministry of Finance.  Establishment of, compliance with such budget plans and final statements of eligible costs for auditing work must conform to the Law on the State Budget.

Chapter IV

RESPONSIBILITIES OF RELEVENT BODIES

Article 15. Responsibilities of investment decision-making authorities

1. Conduct audits, or grant investment decisions, including auditing of financial plans of projects financed by on-lent funds, financial competence of sub-borrowers under the provisions of the Decree No. 16/2016/ND-CP, existing regulations and those set forth herein.

2. Bear responsibility for results of audits or decisions on investment projects and project efficiency, including financial audits provided for by laws.

Article 16. Responsibilities of the Ministry of Finance

1. Notify investment decision-making authorities and sub-borrowers of on-lending bodies authorized to grant on-lent funds to investment projects by the Ministry of Finance.

2. Subject to investment decisions granted by competent authorities and after considering results of audits conducted by on-lending bodies, the Ministry of Finance shall seek the Prime Minister s approval of or make its intra vires decision on on-lending of funds to programs or projects.

Article 17. Responsibilities of on-lending bodies authorized by the Ministry of Finance

1. Audit financial plans of projects financed by on-lent funds, financial competence of sub-borrowers under the provisions of the Decree No. 78/2010/ND-CP and those set forth herein.

2. Report results of these audits to the Ministry of Finance.

3. make definite recommendations on whether on-lending of funds to projects is permitted, and bear responsibility for results of audits.

Article 18. Responsibilities of sub-borrowers

Sub-borrowers shall assume responsibility for accuracy, validity, rationality and legality of figures, information, parameters and data provided to investment decision-making authorities, the Ministry of Finance and on-lending bodies for as inputs for calculation of financial plans, loan repayment plans of projects and financial competence of sub-borrowers.

Chapter V

IMPLEMENTATION PROVISIONS

Article 19. Effect

1. This Circular takes effect on July 20, 2016.

2. In the process of implementation, if legislative documents which serve as reference to be applied in this Circular are amended, supplemented or replaced by new ones, the latter documents shall prevail.

3. During period of implementation, if there is any difficulty that may arise, relevant bodies or entities are advised to send timely feedbacks to the Ministry of Finance for further study with the aim of seeking possible solutions./.

For the Minister

The Deputy Minister

Tran Xuan Ha

APPENDIX 1

(Issued as an attachment to the Circular No. 79/2016/TT-BTC of the Ministry of Finance dated June 6, 2016)

Formulas for calculating financial indicators

On-lending bodies shall audit financial plans of projects financed by on-lent loans through determination of the discount rate (r), NPV and IRR.

1. The discount rate (r):

In the event that projects are financed by different funds, r shall be calculated by using weighted average function

Where:

- V1, V2,... Medium or long-term funds

- Vtc: the shareholder’s equity capital

- r1, r2,..: loan interest rate

- rtc: desired discount rate (capital cost rate) of the project owner

2. Benefit – Cost ratio (B/C)refers to the ratio of present value of benefit flow and that of cost flow which is determined within a life cycle of a project. A project shows efficiency when the profitability index is greater than (>) 1

Where:

* Bi: Total benefit of year i

Bi= B0i+ Tkhi+ Vbi

In which

- B0i: Annual revenue

- Tkhi: Other earnings of year i

- Vbi: The residual value which has not been fully discounted, or has not been discounted (when appropriate), of a fixed asset in the end year of year i (i ranging from 1 to n)

* Ci: Total project cost of year i

Ci= Iti+ C0ti

In which

- Iti: Total investment cost (when appropriate) of year i

- C0ti: Annual operating cost in year i

C0ti= Cti- (Dti+ Lti) + Tni

In which

- Cti: Cost price in year i

- Dti: Fixed asset depreciation in year i

- Lti: Fixed loan interest amount which is included in the cost price of products in year i

- Tni: Taxes of year i (including VAT + Vk+ Vtn)

- Vbi:The residual value which has not been fully discounted, or has not been discounted (when appropriate), of a fixed asset in the end year of year i (i ranging from 1 to n).

* r: The chosen discount rate

Interpretation:

B/C ratio shows how much present value of benefit can be generated from each dong of present value of cost spent in a project

- If B/C>1, that project has proved its economic efficiency.

- If B/C<1, that project has proved its economic inefficiency.

3. Net present value (NPV)

Net present value (NPV) refers to net value of future income of a project discounted to its present value.

Where:

• i – cash flow calculation time

• n – total time length of project execution

• r – discount rate

• Bi: Total benefit of year i

• Ci: Total project cost of year i

Interpretation:The net present value reflects whether total present value of future revenue flow may make up for the initial cost.

- If NPV>0, the project has proved its economic efficiency.

- If NPV<0, that project has proved its economic inefficiency.

4. Internal rate of return (IRR)

Internal rate of return (IRR) refers to the discount rate at which the NPV of a project equals 0 (zero).

Where:

• t – cash flow calculation time

• n – total time length of project execution

• IRR - Internal rate of return (IRR)

• Ct– net cash flow at time t

• C0– initial cost for project execution

Interpretation:IRR means the growth rate of a project and shows the maximum cost of capital utilization that may be acceptable to investors.

- If IRR is greater than the discount rate, the project has proved its economic efficiency. The greater IRR is in a project, the higher its economic efficiency is.

- If IRR is less than the discount rate, the project has proved its low economic efficiency.

When IRR, which is considered a simple calculation method, applies to long-term projects with different cash flows and discount rates, or those with unstable cash flows, it is not a reliable indicator and NPV is used instead for assessment./.

APPENDIX 2

(Issued as an attachment to the Circular No. 79/2016/TT-BTC of the Ministry of Finance dated June 6, 2016)

Formulas for calculating financial indicators

In the process of auditing financial competence of sub-borrowers, auditing bodies shall comply with existing laws and identify the following indicators:

1. Taxonomy of capital structure indicators:

a. DSCR - Debt service coverage ratio refers to the ratio of cash flow generated from business operations to annual debt.

Interpretation:

- If DSCR >1, a project can have sufficient income so that its cash flow will secure discharge of debt obligations.

- If DSCR <1, the cash flow of a project is negative and the project is faced with difficulty in using its cash flow to pay its debt obligations.

b. D/E - Debt to Equity ratio refers to the ratio of total liability to the shareholder’s equity capital.

Interpretation:

- If D/E <1, an enterprise’s assets are primarily financed by the shareholder s equity capital. The less this indicator is, which indicates that liabilities are small in proportion to total assets or total equity, the less an enterprise has financial difficulty.

- If D/E >1, an enterprise’s assets are primarily financed by liabilities. If liabilities are greater than the shareholder’s equity capital, which indicates that an enterprise s borrowed funds are greater than its equity capital, this enterprise may face more risks in its debt repayment.

c. The ratio of the shareholder’s contributed capital to charter capital. The possible reason for which charter capital greater than the shareholder’s equity is either insufficient capital contribution or reduction in the shareholder s equity resulting from losses incurred from an enterprise s business operations.

2. Taxonomy of operating indicators:

a. ROE - Return on equity:

Where:

- Net income indicates the net income available for common stockholders (after dividends paid to preferred stockholders).

- Equity capital refers to the shareholder’s equity.

Interpretation:

This indicator is the most accurate measurement to calculate how many dongs of profit are generated from each dong of shareholder’s equity capital invested in and accumulated in an enterprise.  This ratio may indicate the followings:

- ROE ≤ bank loan interest rate reveals that profit generated is intended for paying interest to a bank.

- ROE > bank loan interest rate reveals that profit earned is higher than an amount required to pay interest. However, it is necessary to judge whether an enterprise has taken out any loan from a bank and make best use of competitive advantages in the market so as to assess whether this enterprise can make an increase in ROE in the future.

b. ROI - Return on investment refers to the ratio of net income to total assets

Interpretation:This indicator shows the profitability that an enterprise achieves with a certain amount of assets available on hand.

c. The fund self-mobilization rate (self-mobilized fund rate (%))

d. Self-finance ratio:

Self-finance ratio = Shareholder’s equity / Total assets

Interpretation:This indicator reflects the proportion of shareholder’s equity to total assets of an enterprise. Determination of the degree of proportional conformity of shareholder s equity with an enterprise s funding source depends critically on business operations and policies of each enterprise as well as each sector where an enterprise is operating.

The fact that this indicator is high shows that such enterprise demonstrates its financial self-reliance but also reveals that this enterprise has not taken good advantage of the financial leverage.

3. Taxonomy of liquidity indicators:

a. The current payment ratio refers to the ratio of short-term assets to short-term liabilities.

Interpretation:The current payment ratio indicates an enterprise’s ability to use short-term assets, such as cash, inventories or receivables, to pay its short-term liabilities.

- The current ratio greater than 1 means that an enterprise will be far more able to pay off its current liabilities. Nonetheless, this indicator which is high is not a good sign because this shows that this enterprise is using its assets in an inefficient manner.

- The current ratio less than 1 means that an enterprise is in a negative financial condition and may be unable to repay all of its debts at maturity. However, this does not mean that this enterprise is going bankrupt because there are various means of fund mobilization.

b. The quick payment ratio refers to the ratio of cash and cash equivalents plus receivables plus short-term investments to current liabilities.

Interpretation:The quick ratio shows whether a company is able to cover its current liabilities with its current assets without selling inventories. This more accurately reflects the existing liquidity ratio.

- The quick ratio less than 1 indicates that an enterprise may be difficult to cover its current liabilities and should be treated with caution.

- The quick ratio greater than 1 indicates that an enterprise may be able to pay its current liabilities without selling inventories./.