Amendments to the regime for international offerings by Russian issuers

Practical Law UK Articles 3-501-0380 (Approx. 4 pages)

Amendments to the regime for international offerings by Russian issuers

by Simon H.P. Morgan and Dmitry Lapshin, White & Case LLP

Order No. 09-21/pz-n of the Federal Service for Financial Market

This Special Update discusses Order No. 09-21/pz-n dated 10 June 2009 of the Federal Service for Financial Markets (FSFM) approving the Regulation on the Issuance of a Permit by the FSFM for the Placement and (or) Arrangement of Circulation of Securities of Russian Issuers Outside the Russian Federation (Order).

The Order will enter into force on 1 January 2010 replacing the current Regulation approved by the FSFM Order No. 06-5/pz-n dated 12 January 2006 on the same matter.

The Order establishes new requirements and procedures for the issuance by the FSFM of permits for placement and (or) arrangement of circulation of shares of Russian issuers (Issuer) outside Russia, including by way of placement and circulation of depository receipts (FSFM Permit). In particular, the Order:

Sets out new thresholds for the number of shares admitted to placement and (or) circulation outside Russia.
Extends the list of documents to be provided by the applicant to obtain the FSFM Permit.
Establishes an obligation to notify the FSFM on the results of an offer to purchase securities within and outside Russia.
Lists cases when the FSFM Permit becomes invalid.

Offering thresholds

According to the Order, the maximum number of shares to be placed and (or) circulated outside Russia, including by way of placement and circulation of depository receipts, must not exceed 25% of the total number of the Issuer's shares, if any of the following apply:

The shares are included into the quotation list "A" (either the first, or the second tier) of a Russian stock exchange.
The applicant is the issuer of depository receipts incorporated in a jurisdiction where the securities market regulator has entered into a co-operation agreement with the FSFM. (Currently the FSFM has entered into co-operation agreements with the regulatory authorities of Syria, Germany, Venezuela, Turkey, Kyrgyzstan, Brazil, Belarus, China, Cyprus, India and United Arab Emirates.)
The Issuer is a joint stock company carrying out activities of strategic importance for national defence and security of Russia and a decision has been adopted on the prior approval of transactions aimed at the placement and (or) circulation of the relevant number of shares in accordance with Russian Federal law No. 57-FZ "On the Procedure for Making Foreign Investments in Business Entities of Strategic Importance for the National Defence and Security of the Russian Federation" dated 29 April 2008, as amended (Federal Law No. 57-FZ).

In other cases, the number of shares to be placed and (or) circulated outside Russia, including by way of placement and (or) circulation of depository receipts, must not exceed either:

15% of the total number of the Issuer's shares if the shares are included into the quotation list "B" of a Russian stock exchange.
5% of the total number of the Issuer's shares if:
- the shares are included into the quotation lists "V" or "I" of a Russian stock exchange; or
- the Issuer is recognised as a joint stock company carrying out activities of strategic importance for national defence and security of Russia, and engaged in geological survey of subsoil deposits and (or) exploration and extraction of minerals from the subsoil deposits of federal significance in accordance with Federal Law No. 57-FZ.

In addition, only 50% (previously 70%) of the total number of shares of the respective issue (additional issue) can be placed outside Russia, including by way of placement and (or) circulation of depository receipts (the same threshold applies if such shares are offered outside Russia in a combined offering together with shares of the same Issuer and category that are already in circulation and in the secondary offering of shares already in circulation).

Obtaining the FSFM Permit

Under the Order, the FSFM Permit may be granted only if the conditions below are met:

The shares of the relevant issue (additional issue) of the Issuer have been successfully registered.
The issuance securities of the Issuer have been included into the quotation list of at least one of the licensed stock exchanges in Russia.
The maximum number of shares to be placed and (or) admitted to circulation outside Russia, including by way of placement and circulation of depository receipts, does not exceed the thresholds listed above.
The agreement which regulates the placement and (or) circulation of the Issuer's shares outside Russia provides that any voting rights on the shares of the Issuer are exercised in accordance with instructions of the holders of the depository receipts.
Any other requirements under any federal laws are complied with.

The Order details and extends the list of documents to be submitted to the FSFM in order to apply for the FSFM Permit. In particular, the Order requires the Issuer to provide the following documents:

The application to obtain the FSFM Permit (Application) which, among other things, must contain the description of the transaction relating to the offering of the Issuer's shares onshore and outside Russia, including the anticipated time-frame of the transaction.
A document confirming the listing of the Issuer's shares on a licensed stock exchange in Russia.
A certified copy, together with a Russian translation, of the agreement pursuant to which placement and (or) circulation of the Issuer's shares outside Russia are arranged (such as a depository agreement in case of placement and circulation of depository receipts).
An extract from the register account/deposit account of the Issuer's shareholder, if the Application is signed by the shareholder who holds the Issuer's shares.
A document containing information on the carrying out by the Issuer of activities of strategic importance for the national defence and security of Russia, including engagement in geological survey of subsoil deposits and (or) exploration and extraction of minerals from the subsoil deposits of federal significance in accordance with Federal Law No. 57-FZ.
Payment orders confirming payment of state duties charged on the examination of the Application and for the issuance of the FSFM Permit (both payment orders must contain a bank stamp on the receipt confirming payment of a state duty).

Additionally, if the Issuer is a joint stock company carrying out activities of strategic importance for national defence and security of Russia and engaged in geological survey of subsoil deposits and (or) exploration and extraction of minerals from the subsoil deposits of federal significance, the Issuer is required to submit a document confirming prior approval of transactions for the placement and (or) circulation of shares outside Russia in accordance with Federal Law No. 57-FZ.

The Order requires the FSFM to review the submitted documents and to issue the FSFM Permit no later than 30 days after all the required documents are submitted by the applicant. The FSFM has the right to suspend the period of the examination of the submitted documents for a maximum of 30 days if either:

The submitted documents or information contained in them are inconsistent with the requirements of the Order.
Not all of the required documents have been submitted (except for the document confirming the listing of the Issuer's shares on the Russian licensed stock exchange).

Once the FSFM decides on the issuance of the FSFM Permit, the applicant will receive a notification and a copy of the Application marked to confirm the issuance of the FSFM Permit on a particular date. If the FSFM refuses to issue the FSFM Permit the applicant will get the notification of such refusal together with reasons for it. The FSFM Permit is issued in relation to the number of shares of a particular issue (type) mentioned in the Application which are intended for the placement and (or) circulation outside Russia.

Notification on the results of the offering

The Order establishes an obligation of the Issuer or the Issuer's shareholder to notify the FSFM of the results of the offering to purchase the shares within and outside Russia within 30 days after the expiry of the term during which the shares were offered for purchase. On the instruction of the Issuer or the Issuer's shareholder, such notification may also be made either by the stock exchange on which the shares have been placed or offered for purchase or by a broker rendering services on the placement or purchase of the shares.

Invalidation of the FSFM Permit

The Order also lists cases when the FSFM Permit becomes invalid, namely the following:

A failure to place and (or) arrange for the circulation of the issuance securities outside Russia, including by way of placement and circulation of depository receipts, within one year of obtaining the FSFM Permit.
A failure to provide to the FSFM a notification on the results of an offer to purchase securities within and outside Russia when due.
The cancellation (invalidation) of the issuance securities with respect of which the FSFM Permit has been issued.

The FSFM Permit becomes invalid as of the date a respective FSFM decision is adopted.

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