Debt-for-Equity Swap in Vietnam: Legal Guide

A debt-for-equity swap is one of the few tools that can rescue a stressed Vietnamese borrower without a fire sale or a court process. Lenders exchange part of their claims for shares, the borrower’s leverage falls, and the creditors gain a seat at the table.

Yet in Vietnam the technique sits at the intersection of company law, banking law, securities rules, tax, competition control and insolvency law, and a mistake in any one layer can unwind the deal. This guide explains how a debt-for-equity swap works in Vietnam in 2026, where the legal limits lie, and how foreign creditors and bondholders can structure one safely.

Table of Contents

• What Is a Debt-for-Equity Swap in Vietnam?
• Why Lenders Choose Conversion over Enforcement
• Credit Institutions and the 2024 Banking Law Limits
• Capital Increase Mechanics under the Law on Enterprises 2020
• Valuing the Debt and the Equity
• Foreign Ownership Caps and Investment Registration
• Tax Consequences of a Conversion
• Competition Filings and Shareholder Approvals
• Pre-Bankruptcy Workouts and the New Insolvency Law
• Practical Structuring for Foreign Lenders and Bondholders
• Frequently Asked Questions

What Is a Debt-for-Equity Swap in Vietnam?

In a debt-for-equity swap, a creditor releases all or part of the debt owed by a company and receives newly issued shares or charter capital in return. Vietnamese law has no single statute titled “debt-for-equity swap”. The transaction is instead assembled from several rules: the Civil Code 2015 treats a claim as a property right, the Law on Enterprises 2020 allows property rights to be contributed as capital, and the insolvency legislation expressly recognises conversion of debt into capital as a restructuring measure.

Two basic forms

The first form is a consensual conversion outside court, agreed between the borrower, its shareholders and one or more creditors. The second is a conversion embedded in a rehabilitation plan approved under insolvency law, which can bind dissenting creditors in the same class. Most practitioners begin with the first and keep the second as a fallback.

Debt-for-equity swap versus convertible bonds

A convertible bond gives the holder an option to convert under terms fixed at issue. A debt-for-equity swap in a distressed case is different: the conversion is negotiated after default or covenant breach, the price is not pre-agreed, and the borrower’s financial condition drives valuation. Different corporate and securities procedures apply to each.

Why Lenders Choose Conversion over Enforcement

Enforcement in Vietnam can be slow, and collateral such as land-use rights or pledged shares is often hard to realise at book value. A creditor-led restructuring that converts debt can preserve going-concern value, keep licences and project approvals alive, and avoid the insolvency filing that freezes the business.

Commercial drivers

• Cash-flow relief for the borrower while the lender keeps upside through equity.
• A route to control or blocking rights over a strategic project company.
• Avoiding the transaction-avoidance risks that follow a bankruptcy petition.
• Better recovery than a distressed collateral sale in a thin market.

Risks the lender accepts

The creditor becomes a shareholder, subordinated to remaining debt and exposed to project risk. It may also inherit regulatory obligations, such as public-company disclosure or foreign-ownership limits. A swap is therefore an investment decision, not just a recovery tactic, and should be underwritten as one.

Credit Institutions and the 2024 Banking Law Limits

If the creditor is a Vietnamese bank or finance company, the Law on Credit Institutions 2024 (Law No. 32/2024/QH15) becomes the first gatekeeper. It restricts how much capital a credit institution may deploy into other companies and generally prohibits it from holding shares in its own debtors beyond what the law specifically allows, so a bank cannot simply swap its way into an industrial company.

The law also deals with the handling of non-performing loans and the use of collateral, and the State Bank of Vietnam issues implementing circulars that should be checked at the time of the deal.

Ownership limits on shareholders of credit institutions

The same law caps ownership in a credit institution: an individual may hold up to 5% of charter capital, an organisation up to 10%, and a shareholder with its related persons up to 15%, subject to the stated exceptions. These limits matter when the debtor itself is a bank and a creditor wants to convert, or when a distressed bank is recapitalised through the State Bank’s special control process.

When the Law on Credit Institutions 2024 does not apply

If the debtor is an ordinary corporate and the creditor is a non-bank lender, a fund or a foreign bank holding an offshore facility, the banking restrictions on bank equity do not directly bind the creditor. Even so, onshore lenders in the syndicate may be unable to participate, which shapes how the intercreditor deal is built. Because the 2024 law took effect in phases from 2024 and 2025 and implementing documents continue to appear, always verify the current text before advising.

Capital Increase Mechanics under the Law on Enterprises 2020

Once the creditor is permitted to take equity, the borrower must complete a valid capital increase. The route depends on the company form.

Limited liability companies

For a limited liability company, the charter capital increase is made through additional contributions from existing members or by admitting a new member, and the members’ council approves it by the voting thresholds in the charter and the Law on Enterprises 2020. The creditor becomes a member after the contribution is recorded and the business registration is updated. For a single-member company, the owner decides, which is simpler but still needs registration.

Joint stock companies

A joint stock company can issue shares to a specific creditor as a private placement, but the general meeting or board must authorise the issuance within the charter’s limits, and the shares offered must comply with the securities rules. For a public company, the Law on Securities 2019 (as amended in 2024) and Decree 155/2020/ND-CP govern the offering, and an issue to a small number of existing creditors will usually need to be structured as a private placement with transfer restrictions.

Contributing a debt claim as capital

The creditor contributes its receivable as a non-cash contribution. The Law on Enterprises 2020 requires assets other than cash, foreign currency and gold to be valued, either by the members or founders by consensus or by an independent valuation organisation. If the valuation is higher than the real value, the contributors and the valuing persons are jointly liable for the shortfall and for resulting damage to the company. In practice, the resolution, the debt-conversion agreement and the amended charter must all tell the same story.

Bondholders

Privately placed corporate bonds are governed by Decree 153/2020/ND-CP as amended. Converting non-convertible bonds usually requires a bondholders’ meeting, the issuer’s approval, and amendment of the bond terms, and the bond trustee or agent plays a central role. Where bonds are convertible by design, the issue documents govern the conversion and the issuer must have reserved authority for the future shares.

Valuing the Debt and the Equity

Valuation is where most disputes arise. Two numbers must be agreed: what the debt is worth, and what the shares are worth.

Debt: face value or discounted value

A creditor can convert at face value, so that every dong of principal and accrued interest becomes one dong of charter capital, or at an agreed discount. Conversion at face value into shares worth less than the debt can make the company’s balance sheet look healthier than it is, and it exposes the other shareholders to dilution at an unfair price. Conversion at a discount can trigger tax questions for both sides, discussed below.

Equity: pre-money, post-money and the distressed discount

The pre-money value of a distressed company is often close to zero or negative, which would give the creditors almost all the shares. Existing shareholders usually negotiate to retain a minority stake as an incentive. A defensible approach is a discounted cash-flow or asset-based valuation prepared by an independent adviser, with a documented rationale for any ratio chosen. A transparent valuation also helps protect the board and the shareholders against later challenge.

Interest, penalties and security

The parties should decide whether accrued interest, default interest and fees convert, are waived or stay payable. They should also decide what happens to the security: a partial conversion typically leaves the mortgage or pledge in place for the remaining debt, while a full conversion requires the security registrations to be deleted.

Foreign Ownership Caps and Investment Registration

For foreign lenders, the central question is whether a foreigner may hold the shares at all. Under the Law on Investment 2020 and Decree 31/2021/ND-CP, foreign investors have market access to most sectors but face conditions in listed sectors, and the share-purchase or capital-contribution route requires registration in specified cases, such as when the target operates in a conditional sector or when the foreign share would exceed 50% of a company holding land in sensitive locations.

Public companies and banks

For public companies, Decree 155/2020/ND-CP sets the foreign ownership ratio by reference to the sector’s commitments, and companies without a sector restriction may in principle go up to 100%. For Vietnamese commercial banks, aggregate foreign ownership is generally capped at 30% of charter capital, which affects any conversion into bank equity.

Practical consequence for foreign creditors

If the cap is reached, a foreign lender may need to convert only part of its claim, hold shares through a Vietnamese vehicle, or sell the shares to a domestic purchaser. Since the ability to repatriate proceeds depends on proper foreign-investment registration, the capital account and registration steps should be completed before closing.

Tax Consequences of a Conversion

Tax is frequently the deciding factor for how a debt-for-equity swap is priced. The headline points are as follows.

Tax	Issue	Typical treatment and watch-points
Corporate income tax (debtor)	Debt released for less than face value	The difference may be argued to be other income; the debtor should document that the claim was converted into capital rather than forgiven. Check the current Corporate Income Tax Law and guidance.
Corporate income tax (creditor)	Loss on conversion, provisions, written-off interest	Deductibility depends on proper bad-debt records and provisioning rules; unrecognised interest may be an issue.
VAT	Transfer of debt or shares	The issuance of shares and transfer of capital are generally outside the VAT charge, but check fees and related services.
Foreign contractor tax	Interest paid to an offshore lender and later share sale	Interest to a foreign lender commonly attracts withholding; a later transfer of shares is taxed on the foreign seller under capital-transfer rules or the relevant treaty.
Registration and stamp items	Charter capital registration	Licence-related fees and notarial costs apply; budget them early.

Debt forgiveness income

The risk is greatest where the swap is priced below face value. A tax authority may treat the discount as income to the borrower, and the creditor’s loss may not be deductible without full documentation. Tax rulings and written clearance on the structure are sensible in large deals.

Competition Filings and Shareholder Approvals

Economic concentration review

Under the Law on Competition 2018 and Decree 35/2020/ND-CP, an acquisition of shares or charter capital can be an economic concentration. A filing is required if the parties’ combined market share, asset or revenue in Vietnam, or transaction value crosses the thresholds set by the Decree, and a deal cannot close before clearance. A creditor who becomes a controlling shareholder in a business that competes with its existing portfolio should check the thresholds with care, and confirm the figures against the latest regulation.

Shareholder and board approvals

The Law on Enterprises 2020 requires the general meeting or members’ council to approve charter capital changes and charter amendments, and related-party transactions involve additional safeguards. Where the creditor will hold a significant stake, the swap may also trigger takeover-bid or public-company notification rules. Existing shareholders often hold pre-emptive rights, which must be waived or respected in the resolution.

Pre-Bankruptcy Workouts and the New Insolvency Law

A pre-bankruptcy workout is a negotiated restructuring made before, or instead of, a court-supervised procedure. The Law on Bankruptcy 2014 (No. 51/2014/QH13) allowed a rehabilitation plan that could include conversion of debts into capital, but its procedure was seldom used because it started only after a petition and the court’s acceptance of the case.

The 2025 reform

The National Assembly has adopted the Law on Restructuring and Bankruptcy (Law No. 142/2025/QH15), which replaces the 2014 law from 1 March 2026. As far as we understand it, the new law adds an earlier restructuring stage and more explicit support for out-of-court agreements and creditor votes, and it addresses the position of secured creditors and cross-border elements. Practitioners should read the final text and the implementing decrees before relying on any specific mechanism.

Transaction-avoidance risk

Insolvency law can invalidate transactions that favour one creditor or strip assets in a defined period before a petition. A pre-bankruptcy workout that converts one lender’s debt on better terms than others carries real risk. To limit that risk, the swap should be offered to all relevant creditors on the same footing, supported by independent valuation, and approved by the corporate bodies and, ideally, a creditors’ majority.

Practical Structuring for Foreign Lenders and Bondholders

Foreign lenders face added layers: offshore documents, offshore security trustees and enforcement through Vietnamese courts or arbitration. A workable structure usually has the following steps.

Step-by-step approach

1. Map the capital structure, security package and intercreditor terms, and identify which lenders cannot hold equity.
2. Obtain an independent valuation and a standstill so negotiations can continue.
3. Check foreign-ownership caps, sector conditions and investment registration for each foreign lender.
4. Agree a term sheet covering conversion ratio, governance rights, exit and anti-dilution.
5. Complete corporate approvals, capital increase and registration, then update security and tax filings.

Using a holding vehicle

Foreign lenders sometimes convert into shares of an offshore holding company that owns the Vietnamese borrower, or into a Vietnamese acquisition vehicle. This can ease governance and exit, but it does not bypass sector caps and may attract additional tax and anti-avoidance scrutiny.

Governance and exit rights

A creditor turned shareholder should secure board seats, reserved matters, information rights, drag-along and tag-along clauses, and a path to exit through a sale, listing or buy-back. Governing law and arbitration seat should be addressed in the shareholders’ agreement, although Vietnamese corporate law will continue to apply to the company itself.

Running a Debt-for-Equity Swap: Workplan for Lenders

A debt-for-equity swap is a legal, financial and commercial exercise at the same time. Lenders that treat the debt-for-equity swap as a single workstream, with agreed roles for credit, legal and tax advisers, normally reach closing faster than lenders that handle each issue in sequence.

Preparing the Debt-for-Equity Swap Term Sheet

The term sheet for a debt-for-equity swap should state which claims are converted, the conversion price or formula, the resulting shareholding, the governance rights attached to the new shares and the treatment of any claims that remain outstanding. A debt-for-equity swap that leaves unclear whether accrued interest is converted will cause disputes, so the term sheet should define the converted amount at a fixed cut-off date.

It should also record the conditions to completion, including regulatory consents and the approval of other creditors, because a partial debt-for-equity swap can leave the company with an uneven capital structure.

Corporate Steps in a Debt-for-Equity Swap

The corporate steps depend on the form of the borrower. In a debt-for-equity swap involving a joint stock company, the general meeting must approve the share issue and the board must settle the issue price and the allottees. In a limited liability company, the members approve the increase of charter capital and the admission of the lender as a member.

In either case the debt-for-equity swap must be reflected in the enterprise registration and, where a foreign lender is involved, in the investment registration documents. The lender should check that the debt claim is validly contributed, that the contribution is valued consistently, and that the debt-for-equity swap does not breach a negative pledge or a covenant in other facilities.

Protecting the Lender After the Debt-for-Equity Swap

Once the debt-for-equity swap closes, the lender is a shareholder, with different rights and risks from a creditor. It should therefore negotiate board representation, reserved matters, information rights and a path to exit, such as a put option, a drag-along or a sale process.

A lender that expects to sell its shares quickly after the debt-for-equity swap should also consider lock-up periods, foreign ownership room and the tax cost of disposal, since these affect the value of the swap as much as the conversion price does.

Finally, the lender should keep an audit trail of the valuation, the approvals and the board papers behind the debt-for-equity swap, because insolvency or tax authorities may later examine whether the conversion was a fair transaction.

In short, a debt-for-equity swap works best when the commercial case, the legal steps and the exit plan are settled together. Each debt-for-equity swap should be tested against the borrower’s cash flow, the lender’s portfolio strategy and the regulatory constraints for its sector, so that the debt-for-equity swap supports recovery rather than postponing a loss.

Frequently Asked Questions

Can a Vietnamese bank convert a loan into shares of its borrower?

Only within the limits of the Law on Credit Institutions 2024 and State Bank guidance. Banks face restrictions on holding shares in debtors, so each case needs a specific legal check before documents are signed.

Can a foreign lender hold shares after a conversion?

Often yes, subject to sector conditions, foreign-ownership caps and investment registration. Banks and some conditional sectors are more restricted, so the cap should be confirmed before the swap is agreed.

Is a debt-for-equity swap taxable?

It can be. Conversion at a discount may create income for the debtor, and the creditor’s loss may be hard to deduct without records. Obtain tax advice before pricing the conversion.

Do I need a competition filing?

Possibly. If the creditor gains control of a business and the Decree 35/2020 thresholds are met, the deal must be notified and cleared before completion.

Can a swap be used inside a formal insolvency procedure?

Yes. Vietnamese insolvency law recognises conversion of debt into capital within a rehabilitation plan, and the 2025 law expands restructuring options. A plan approved by the creditors and the court can bind minorities in the class.

Before any term sheet is signed, ask counsel to prepare a one-page map of each creditor’s legal ability to hold equity, because that single document usually decides whether a swap is feasible. For the primary texts, consult the official legal database at vanban.chinhphu.vn and the State Bank of Vietnam for banking circulars.

Disclaimer: This article provides general information only and does not constitute legal, tax or financial advice. Laws and regulations change, and the application of any rule depends on specific facts. Please obtain advice tailored to your circumstances before acting.