Law on Investment (“LOI”) 2020 will allow the investors to use bank guarantee to do escrow in order to ensure the implementation of investment projects. This good news will definitely eliminate the burden for many project owners.
Currently, LOI 2014 requires the investors to do escrow to ensure the implementation of projects which need the States to support on land issues (allocated, leased, transfer the purpose of land usage), except for those winning for auction, bidding or being transferee of project. The escrow rate is determined from 1% to 3% depends on the investment capital, according to partial accumulation principle.
Particularly, (1) 3% for the capital up to 300 billion VND (maximum 9 billion); (2) 2% for the capital from more than 300 billion to 1.000 billion VND (minimum 6 billion, maximum 20 billion); (3) 1% for the capital more than 1.000 billion VND (minimum 10 billion). In principle, if the project process is not slowdown, the paid escrow amount will be refunded half upon the completion of procedures to start the project implementation. The remaining part with interests will be refunded when the project completes within or sooner than the rate of progress. These provisions are for the purpose of preventing the project owners from slowing down or giving up on the project.
However, because of the large amount of escrow, the investors have to suffer under big pressure, especially in the “thousand billion” projects (minimum 25-billion escrow amount, more than 01 million USD). Especially, although the beginning stage of the project is commonly in the lack of capital, many of the project owners have to lend with high rate interests to bury that escrow money in the bank account.
Solving that troublesome situation, LOI 2020 will allow the banks to guarantee for the investors to the escrow obligation. Hence, instead of depositing an enormous amount into account, the project owners only need to pay guarantee fees to the bank. Thereby, they can use such money to invest into the project and profit of opportunity cost.
Nevertheless, it needs to pay attention that the door which LOI 2020 provides for the investors will not be easy to open, if the project owner fails to prove the financial ability with the bank. Therefore, a clean and reliable credit “Resume” will be a necessary baggage to the investors before knocking any banks.