presentation to british russian law association sergei voitishkin 24 november 2008 baker &...
TRANSCRIPT
Presentation to British Russian Law Association
Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.
New Restrictions for Foreign Investments in Russia
New Restrictions of Foreign Investments in Russia
Foreign Investments in the Russian Economy1st Half 2003-2008 (% to GDP)
0
2
4
6
8
10
12
2003 2004 2005 2006 2007 2008
Total incomingvolume of foreigninvestments in % toGDP
Direct investments in% to GDP
New Restrictions of Foreign Investments in Russia
Foreign Investments Structure: 1st Half of 2008
22%
13%
2%
32%
5% 26%
Mining
Metals
Chemicals andPetrochemicals
Food Industry
Wood Processing
Other
New Restrictions of Foreign Investments in Russia
2 new laws2 new laws• “On the Procedures for Foreign Investments in Companies of Strategic Significance for National Defense and
Security”
• “On the Introduction of Amendments in Legislative Acts of the Russian Federation in Connection with the Adoption of Federal Law “On the Procedures for Foreign Investments in Companies of Strategic Significance for National Defense and Security”
Both effective as of May 7, 2008
The restrictions do not apply to transactions consummated before May 7, 2008, except to the extent the rights and obligations under the transaction arise after this date
New Restrictions of Foreign Investments in Russia
Purpose
• Is it a ban on foreign investments?
• Aimed at streamlining foreign investments in Russian strategic companies and establishing procedures for obtaining approvals
New Restrictions of Foreign Investments in Russia
Foreign Investor
• Any foreign (non-Russian) organization, company, individual
• Russian companies Controlled by foreign persons
• Group of persons which includes a foreign investor
• Foreign states and international organizations and companies controlled thereby
New Restrictions of Foreign Investments in Russia
Strategic Company means
activities involving nuclear facilities and radio active materials and wastes
production and distribution of cryptographic means and related services requiring licenses
electronic surveillance
weapons and military hardware
Aviation and aviation safety
space activities
TV or radio broadcasting (≥50% of public in a constituent member of Russia)
activities involving use of agents causing infectious diseases
natural monopolies (oil and gas pipelines, railways, airports and ports, dispatching in electricity, internal waterways)
telecoms (for companies with a dominant position, except Internet providers)
natural resources on strategic deposits (federal plots)
fishing
production of metals and special alloys for military use (having a dominant position)
printing (200 million pages a month)
activities affecting нydrometeorological and geophysical processes
Russian companies (LLC or JSC) engaged in any 42 strategic activitiesThese broadly include:
New Restrictions of Foreign Investments in Russia
Strategic Deposits (Federal Subsoil Plots)
Hard Rock Deposits:
• Subsoil plots containing deposits and showings of uranium, diamonds, nickel, cobalt, platinum group of metals and certain other minerals
• Containing as of January 1, 2006 the following reserves: (i) core gold – over 50 tons; (ii) copper – over 500 thousand tons
New Restrictions of Foreign Investments in Russia
Strategic Deposits (II)
Hydrocarbons:
• Containing as of January 1, 2006 the following reserves: (i) recoverable oil reserves 70 million tons and above; (ii) gas reserves 50 billion cubic meters and above
• Deposits located in the inland sea waters, territorial sea waters, or on the continental shelf (off-shore deposits)
New Restrictions of Foreign Investments in Russia
Strategic Deposits (III)
• Those which can only be developed using defense lands
List of strategic subsoil plots to be published by
Federal Agency for Subsoil Use
Conservatively, a deposit meeting the requirements
need not be on the list to qualify as federal (strategic)
New Restrictions of Foreign Investments in Russia
Restrictions
Control means:
As regards strategic companies:• > 50% of voting shares• Right to appoint CEO and/or >50% of the management board or board of directors• Act as management company (manager)• Determine decisions of the strategic company
Strategic natural resources companies:
• 10% and more of voting shares• Right to appoint CEO and/or 10% or more of the management board or board of directors• Act as management company (manager)• Determine decisions of the strategic company
Foreign states, international organizations and organizations controlled thereby cannot acquire control over strategic companies
New Restrictions of Foreign Investments in Russia
Approvals
Strategic companies
• Acquire more than 50% of voting shares
• Get right to appoint CEO and/or >50% of the management board or board of directors;
• Act as management company (manager)
• Any other right to determine decisions by the governing bodies and the business
Foreign investors and groups (non-state controlled) require special approval to:
New Restrictions of Foreign Investments in Russia
Approvals
Strategic natural resources companies
• Acquire 10% and more of voting shares
• Get right to appoint CEO and/or 10% or more of the management board or board of directors
• Act as management company (manager)
• Any other right to determine decisions by the governing bodies and the business
New Restrictions of Foreign Investments in Russia
Approvals
As regards foreign states, international organizations and organizations controlled thereby:
• >25% of voting shares in a strategic company (or other right to block decisions) (but cannot buy more than 50%)
• >5% of voting shares in a strategic natural resources company (but cannot buy more than 10% minus one share)
New Restrictions of Foreign Investments in Russia
Approvals
Restrictions also apply to cases when control is established through a change of shareholding as a result of share conversions, buy-back, charter capital decrease, etc.
Foreign investor must file for approval within 3 months, and if
approval is denied, must decrease its shareholding
New Restrictions of Foreign Investments in Russia
Restrictions
• Transfer of subsoil rights (transfer of licenses) to federal plots to companies under the control of foreign investors is prohibited (intra group transfers?)
• Foreigners are prohibited to hold subsoil rights with respect to federal deposits
• Off-shore deposits may be used by Russian companies in which Russian state holds more than 50% shares
New Restrictions of Foreign Investments in Russia
Conversion of Exploration Rights into Production Rights
• New grounds for refusal (threat to national security)
• New compensation rules (expenses, return of bonus for grant of rights, plus a premium)
• Generally may be viewed as a positive development
New Restrictions of Foreign Investments in Russia
Approvals
Approval may be sought by the foreign investor or in the case of a group, by any legal entity or individual in the group who intend to do a transaction (or acquire control)
Filing documents:
• Application• Registration certificate, foundation documents• Draft contract for the acquisition of control• Information about key activities of the applicant• Information about the applicant’s group and persons who control it• Draft business plan• Information about shares it already has in the strategic company• Other relevant information
New Restrictions of Foreign Investments in Russia
Notification requirements:
Foreign investors and groups must notify FAS of acquiring 5% and more in a strategic company.
As regards past deals (prior to May 7, 2008) – within 180 days, ie. by November 3, 2008.
Deals done after May 7, 2008, must be notified within 45 calendar days from the date of transaction. The investor must submit a copy of the sale and purchase agreement (or similar document).
New Restrictions of Foreign Investments in Russia
Approvals
Filing should be made with the Federal Antimonopoly Service (FAS),
approval is granted by the Russian Government Commission for Control over Foreign Investments
Timing (3.5 months which may be extended to 6.5 months)
Vladimir PutinPrime Minister
Igor ShuvalovFirst Vice President
Anatoly SerdukovMinister of Defense
Yuri TrutnevMinister of Natural Resources
Igor ArtemievHead of the Federal Antimonopoly Service
New Restrictions of Foreign Investments in Russia
Approvals If it is not clear whether approval is required, a request for clarifications may be filed with FAS.
Time for review: 30 days
FAS asks the Federal Security Service if the transaction poses a threat to state security and defense, determines whether the strategic company has any relevant licenses, access to state secrets, defense orders, dominant position, and defense-related or socially important IP, etc.
FAS then sends all materials to the Government Commission which may reject or grant approval (including conditional approval)
New Restrictions of Foreign Investments in Russia
Approvals
Conditions:
• Appointment to the governing bodies of candidates who have clearance (i.e. Russian nationals)
• Performance of government defense contracts• Maintenance of facilities which may be used for defense
purposes• Provision of services applying tariffs set for natural
monopolies• Implementation of the business plan proposed by applicant• Implementation of measures envisaged in the case of war
or state of emergency• Undertaking not to allow redundancies• Processing of natural resources in Russia
New Restrictions of Foreign Investments in Russia
Approvals
• The Commission should decide which conditions apply and the applicant must agree to such conditions prior to the Commission’s decision to grant its approval.
• The conditions are specified in an agreement signed by the applicant with FAS within 20 days of the Commission’s decision to impose conditions.
• The agreement enters into force on the date the Commission grants the conditional approval.
New Restrictions of Foreign Investments in Russia
Sanctions
• Transactions executed in breach of the Law on Strategic Activities are null and void.
• The parties to a void transaction may be ordered to return everything received under such transaction.
• If it is impossible to reverse a deal, a Russian court may rule to deprive the foreign investor of voting rights at general shareholders meetings of the strategic company.
New Restrictions of Foreign Investments in Russia
Appeals Procedure
• FAS decisions and actions in connection with applications for strategic acquisitions may be appealed with a Russian court
• The Commission’s decision may be appealed with the High
Arbitration Court.
Presentation to British Russian Law Association
Sergei Voitishkin 24 November 2008 Baker & McKenzie – CIS, Limited is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm.
New Restrictions of Foreign Investments in Russia