Managing Foreign Exchange Risk in Cross-Border M&A

Foreign exchange risk is a pricing issue in Vietnamese M&A, not a treasury afterthought. A buyer that values a target in US dollars will pay in a deal whose completion accounts, tax filings and capital account movements are all denominated in Vietnamese dong. Between signing and closing the rate moves, and unless the contract says who bears that movement, the answer is decided by whichever party drafted the payment clause. Managing foreign exchange risk well means fixing the conversion rule, the source and the date in the agreement itself.

The second dimension is regulatory. Vietnamese rules restrict the use of foreign currency for transactions inside the country and channel investment payments through designated capital accounts, so the currency the parties would prefer is not always the currency they may lawfully use. A foreign exchange risk strategy therefore has to be tested against the funds flow the account bank will actually accept, and against the documents it will require before it releases or converts anything.

Currency movement between signing and closing is an allocated risk, not a surprise. Photo: Pexels.

Foreign exchange risk can change the economics of a cross-border acquisition even when the target performs exactly as expected. In a Vietnam M&A transaction, the buyer may value the business in US dollars or another foreign currency while the purchase price, completion accounts, regulatory filings, debt repayment and post-closing cash flows are denominated in Vietnamese dong. A disciplined transaction team therefore treats foreign exchange risk exposure as a deal term, not merely a treasury issue.

This guide explains how buyers, sellers and investors can identify currency mismatches, allocate exchange-foreign exchange risk in the acquisition agreement and coordinate payment mechanics with Vietnam’s foreign-exchange framework. It should be read together with our purchase price payment and ownership transfer guide and the Vietnam M&A signing and closing checklist.

Why foreign exchange risk arises in Vietnam M&A

A cross-border deal commonly involves several currencies at once. The buyer’s investment committee may approve a dollar budget; the seller may expect a fixed dollar return; the target keeps statutory accounts in VND; and the purchase price may have to move through an investment capital account maintained at a licensed bank. Between signing and closing, exchange rates can move enough to alter the effective price or the funds required to complete.

Currency risk also continues after closing. A target earning VND but servicing foreign-currency debt, importing equipment or paying technology fees may face margin volatility. Conversely, an exporter receiving foreign currency but paying most costs in VND may have a natural hedge. Due diligence should distinguish transaction-level exposure from the target’s continuing operational exposure.

Foreign exchange risk: map every currency exposure before signing

The first practical step is a currency map covering the purchase price, deposit, escrow, earn-out, shareholder loans, refinancing, leakage payments, transaction costs and taxes. For each flow, record the contractual currency, legally permitted payment currency, responsible payer, destination account, conversion point and exchange-rate source.

• Purchase price: identify whether it is fixed in VND or expressed in a foreign currency with a VND settlement equivalent.
• Price adjustments: confirm the currency used for cash, debt, working capital and completion accounts.
• Earn-outs: specify whether performance is measured before or after translation and how foreign-currency revenues are converted.
• Debt repayment: check the currency and maturity of acquisition finance and target borrowings.
• Tax and fees: model liabilities that must be paid in VND even if the commercial price is discussed in dollars.

Vietnam foreign-exchange rules affect deal mechanics

Vietnam regulates the use of foreign currency within its territory and the accounts used for direct and indirect investment. The correct route depends on the transaction structure, the status of the target and investor, and whether the deal constitutes direct investment under applicable rules. The parties should confirm the receiving and remitting accounts with the servicing bank well before closing.

Do not assume that wording a price in US dollars automatically permits domestic settlement in dollars. The agreement should separate the commercial reference currency from the lawful settlement currency and should state the conversion mechanism. Banking requirements, supporting documents and cut-off times should be built into the closing sequence.

Two rules do most of the work. First, the territorial restriction: transactions between residents inside Vietnam must in principle be quoted and settled in Vietnamese dong, with limited statutory exceptions, so a purchase price expressed in dollars between two resident parties has to be converted for settlement. Second, the capital account regime: where a foreign investor acquires an interest in a Vietnamese company, the price generally moves through the designated investment capital account maintained with a licensed bank, and the bank will only process it against the underlying transfer documents. A foreign exchange risk clause that ignores either rule can produce a payment obligation the parties cannot lawfully perform.

Choose a clear exchange-rate mechanism

An acquisition agreement should identify one objective rate source and one measurement time. Common choices include the spot buying or selling rate published by a named licensed bank, a central reference rate plus a stated margin, or an agreed average over a defined period. The clause should answer which rate applies, on what date and time it is observed, what happens on a bank holiday, and which party bears bank spreads and conversion charges.

A vague reference to the “prevailing exchange rate” invites disputes. Different banks publish multiple rates for cash, transfers, buying and selling. Even on the same day, the results can differ materially for a large transaction.

A workable rate clause answers four questions in one sentence: which currency is the contractual currency, which is the settlement currency, which published rate applies, and as at which date and time. Naming a specific rate source, such as the buying or selling rate quoted by the account bank on a defined business day, removes almost all later argument. Where the gap between signing and closing is long, parties often split foreign exchange risk by fixing the rate at signing and sharing movement beyond an agreed collar, so neither side carries the whole exposure.

Allocate signing-to-closing movements

Where signing and closing are separated by regulatory approvals or conditions precedent, the parties must decide who bears foreign exchange risk movements during that period. Three common approaches are:

1. Fixed VND price: the buyer bears the change in the foreign-currency cost of acquiring the VND amount.
2. Fixed foreign-currency value: the VND settlement amount moves with the agreed conversion rate, shifting risk toward the seller or target-side recipients.
3. Collar or sharing formula: movements within a negotiated band are absorbed, while larger movements trigger sharing, repricing or a limited termination right.

The right approach depends on the expected timetable, financing currency and each party’s ability to hedge. For a transaction subject to approval, the timetable analysis in our Vietnam M&A approval guide is particularly relevant.

The account bank decides what funds flow is possible in practice. Photo: Pexels.

The allocation clause should also say what happens if closing is delayed. Where a long-stop date is extended, the rate fixed at signing may no longer reflect the market, and a buyer carrying foreign exchange risk on a deal that has slipped by two quarters is carrying an exposure it never priced. Practical drafting either re-fixes the rate on each extension or converts the foreign exchange risk into a shared adjustment once the delay passes an agreed number of days, so that neither party is rewarded for causing the delay.

Use hedging carefully

Forward contracts, options and other permitted bank products can reduce uncertainty, but a hedge must match the underlying exposure. Closing dates frequently move. A hedge that matures too early, too late or for the wrong amount can create a new cost rather than eliminate risk.

Before hedging, confirm whether the buyer has authority and credit lines to enter the instrument, whether the bank requires evidence of the underlying transaction, and how cancellation or rollover costs will be allocated if the deal is delayed or terminated. The acquisition agreement should also address whether hedge gains or losses affect damages, break fees or purchase-price calculations.

Hedging changes the shape of foreign exchange risk rather than removing it. A forward contract fixes the rate but creates a settlement obligation on a fixed date, so a deal that closes late leaves the buyer to roll or unwind the position at market. Before entering a hedge, agree internally who owns the foreign exchange risk decision, document the mandate, and make sure the tenor, the break costs and the long-stop date in the acquisition agreement are aligned. Where the hedge is taken out at group level offshore, confirm that the resulting foreign exchange risk gains and losses are recognised in the entity that actually bears the exposure.

Protect completion-account calculations

Completion accounts can create hidden currency disputes. Cash, debt, receivables, payables and working capital may include multiple currencies. The accounting schedule should state the translation rate for each item and whether exchange gains or losses between the accounts date and payment date belong to the buyer or seller.

For locked-box transactions, test whether leakage definitions capture foreign-exchange losses, non-arm’s-length conversions or payments through related parties. If the target has material foreign-currency contracts, normalize historical earnings consistently so the valuation does not mix operating performance with exchange-rate movements.

Coordinate funds flow and closing logistics

The closing memorandum should specify the exact account details, currency, bank, payment reference, documentary package and release condition for each transfer. Obtain written confirmation from the servicing bank that the proposed route is acceptable. Allow time for compliance review, correspondent-bank checks and currency conversion.

Where an escrow is used, confirm that the escrow provider can hold the selected currency and release funds into the legally required account. If same-day ownership transfer depends on cleared funds, state what evidence constitutes payment and what happens if funds are delayed after the buyer has irrevocably instructed its bank.

Review the target’s post-closing exposure

Currency due diligence should examine revenue and cost currencies, import contracts, foreign loans, guarantees, transfer-pricing arrangements, dividend expectations and the target’s hedging policy. Ask whether contracts permit price adjustments when exchange rates move, whether customers pay on time, and whether the company has breached any foreign-loan registration or reporting requirement.

The buyer should model downside scenarios rather than rely on a single forecast rate. A weak currency may increase export competitiveness but also raise imported input costs, debt service and capital expenditure. These effects should inform valuation, financing covenants and the post-closing integration plan.

Drafting checklist for the acquisition agreement

• Define the reference and settlement currencies.
• Name the exchange-rate source, rate type, observation time and fallback.
• Allocate bank charges, spreads, withholding and conversion costs.
• Address foreign exchange risk movements between signing, closing and deferred payments.
• Specify translation rules for completion accounts and earn-outs.
• Deal with hedge break costs if closing is delayed or the transaction terminates.
• Align payment obligations with investment-account and banking requirements.
• Provide a practical procedure for failed, rejected or late transfers.

Read the checklist as a single foreign exchange risk clause spread across the agreement: the price definition, the adjustment mechanic, the escrow terms and the closing conditions must all use the same rate convention. A common failure is a foreign exchange risk allocation that is correct in the payment clause and contradicted in the completion accounts schedule. Before execution, have one person reconcile every currency reference in the document, including the disclosure letter, so that the foreign exchange risk position the parties negotiated is the position the contract actually creates.

Key takeaway

Foreign exchange risk in Vietnam M&A is best managed by combining legal structuring, precise drafting, treasury planning and early bank engagement. The parties should identify every currency mismatch, select an objective conversion rule and ensure that the contractual funds flow can actually be executed under Vietnam’s foreign-exchange and investment-account requirements.

IVLF can assist foreign investors with transaction structuring, regulatory analysis, acquisition documentation and closing mechanics. For the broader acquisition process, see our foreign investor roadmap for acquiring a Vietnamese company.

Frequently asked questions about foreign exchange risk

Can a purchase price for a Vietnamese company be expressed in US dollars?

It can be expressed in a foreign currency, and cross-border deals commonly are, but expression and settlement are different questions. Vietnamese foreign-exchange rules restrict the use of foreign currency for transactions carried out inside Vietnam between residents, so where the seller is a resident the price will normally be converted and settled in Vietnamese dong. The practical approach is to state the contractual amount in the deal currency, define the conversion rate precisely, and confirm with the account bank that the intended settlement route works before signing.

Who should bear exchange-rate movement between signing and closing?

That is a commercial allocation, and the drafting should make it explicit. The three common answers are a fixed rate agreed at signing, so the seller carries no foreign exchange risk exposure; a rate determined at closing, so the buyer carries none; or a collar under which movement inside a band is ignored and movement beyond it is shared or triggers an adjustment. What causes disputes is silence, because a price stated in one currency and paid in another with no rate rule leaves the calculation open on the day the money is due.

How does foreign exchange risk affect completion accounts?

Completion accounts are prepared from the target statutory records, which are kept in Vietnamese dong, while the price may be set in another currency. If the adjustment amount is calculated in dong and then converted at a different rate from the one used for the headline price, the parties can settle a positive adjustment and still be worse off. The fix is to use one defined rate and one defined date for the price, the adjustment and any escrow release, and to state that convention in the accounting policies schedule as well as the payment clause.

Can the parties hedge the exposure?

Yes, within limits. Forward and other derivative contracts are available from licensed credit institutions in Vietnam, and offshore buyers frequently hedge at group level instead. Two cautions apply. A hedge sized to a deal that does not complete leaves the buyer with a live position, so break provisions and hedge tenor should be aligned with the long-stop date. And the cost of the hedge is a real transaction cost, which should be reflected in the price model rather than absorbed silently by the deal team.

What should the agreement say about the funds flow?

It should name the account, not just the amount. A robust payment clause identifies the specific capital or escrow account, the currency of transfer, the rate and date convention, who bears bank charges, and what happens if the bank requires additional documents before releasing funds. Where a regulatory approval must be obtained before the transfer can be registered, the clause should tie the payment to that step, so the buyer is not funding a transfer that cannot yet be recorded.

Next step

Agree the rate convention before you agree the price. Confirm the corporate steps for the transfer itself in the Law on Enterprises, then walk the intended funds flow past the account bank so the foreign exchange risk allocation in the contract matches what can actually be settled.

IVLF Lawyer advises international buyers and sellers on Vietnamese deal mechanics, capital accounts and payment structuring. If you need a Vietnam M&A lawyer to draft the currency, payment and closing provisions that control foreign exchange risk, see our legal services or contact IVLF Lawyer.

Related reading: Structuring cross-border purchase price payments into Vietnam, Purchase price payment, ownership transfer and company handover, and Acquiring a foreign-invested company in Vietnam.

Speak With IVLF About This Transaction

IVLF Advisors supports buyers, sellers and investors through the full lifecycle of a Vietnamese transaction as part of its M&A advisory Vietnam practice. Our Vietnam M&A lawyer team can help you apply the points in this guide to your specific deal, from structuring through closing.

For related reading, see our guides on Real Estate M&A: Acquiring the Project or the Project Company?, Managing Conflicts Between Founders and Financial Investors, Purchase Price Payment, Ownership Transfer and Company Handover, Vietnam M&A Approval and Its Impact on the Closing Timeline. Contact IVLF Advisors to discuss your transaction.

Speak With IVLF About This Transaction

IVLF Advisors supports buyers, sellers and investors through the full lifecycle of a Vietnamese transaction as part of its M&A advisory Vietnam practice. Our Vietnam M&A lawyer team can help you apply the points in this guide to your specific deal, from structuring through closing.

For related reading, see our guides on Real Estate M&A: Acquiring the Project or the Project Company?, Managing Conflicts Between Founders and Financial Investors, Purchase Price Payment, Ownership Transfer and Company Handover, Vietnam M&A Approval and Its Impact on the Closing Timeline. Contact IVLF Advisors to discuss your transaction.