A Q&A guide to equity capital markets law in the Russian Federation. The Q&A gives an overview of main equity markets/exchanges, regulators and legislation, listing requirements, offering structures, advisers, prospectus/offer document, marketing, bookbuilding, underwriting, timetables, stabilisation, tax, continuing obligations and de-listing.
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The main stock exchange in Russia is MICEX-RTS, located in Moscow. It trades equities, bonds, derivatives and currencies. MICEX-RTS was created by the merger of the previous two main Russian stock exchanges, MICEX and RTS on 19 December 2011 (see http://rts.micex.ru/en/).
Many Russian companies conducting initial public offerings (IPOs) include an offering of global depositary receipts (GDRs) or American depositary receipts (ADRs), which are listed outside of Russia, for example in London or New York. Russian companies listing GDRs or ADRs are required to list the underlying shares on MICEX-RTS first.
2011 was a mixed year for equity offerings. There were a number of successful IPOs in the early part of the year, but very few in the latter part of the year, mainly due to adverse market conditions. Significant IPOs in 2011 include:
Of these IPOs, only Utinet.ru was a solely domestic (MICEX-RTS) listing. PhosAgro and Nomos Bank involved listings of GDRs in London together with a MICEX-RTS listing of shares. The others were flotations of offshore holding companies rather than of Russian companies. Yandex's US$1.3 billion IPO (as at 1 February 2012, US$1 was about EUR0.76), which listed on NASDAQ, was the highest-profile Russian IPO of 2011. In addition to these IPOs, there was a US$3.3 billion secondary public offering of shares and GDRs by VTB Bank.
There were also a number of Russian IPOs that were attempted in 2011 but were postponed or cancelled, due to pricing dynamics and market conditions.
In December 2010, United Company RUSAL completed the first ever offering of Russian Depositary Receipts (RDRs).
In 2011, there was an emerging trend of natural resource companies that had done GDR IPOs re-domiciling in non-Russian jurisdictions and upgrading their London listings from standard GDR listings to premium share listings. Companies taking this route include Polymetal and Evraz. A number of other Russian companies have expressed intentions to follow this path.
The main regulatory body is the Federal Service for the Financial Markets (FSFM) (www.fcsm.ru). The FSFM is a federal executive body, which controls and supervises activity in the financial markets. The FSFM regulates:
Transactions involving securities.
Admission of securities to public placement, circulation, quotation and listing.
Central securities depositaries.
Professional activity in the securities market including the activity of exchanges.
Share issue registration.
Clearing, settlement and depository activities.
The FSFM also oversees matters related to insider information.
Depending on the offering structure, certain other bodies may be involved in an equity offering, including the Central Bank of the Russian Federation (CBR) and the Federal Anti-monopoly Service.
The following are the main laws applicable to the Russian equity markets:
The Federal Law On the Securities Market, 22 April 1996 (Securities Law). This provides a legal basis for the Russian securities market and is the key law which, among other things:
sets out rules for issuance and circulation of issuance securities (such as shares, share options (which are rare), RDRs and corporate bonds) and for recording rights to securities;
defines activities of professional participants in the securities market including activities of stock exchanges, custodians (or depositories if using Russian terminology), brokers, dealers and registrars;
regulates trades on stock exchanges;
contains rules governing Russian and foreign derivatives, securities of foreign issuers certifying rights to securities of Russian issuers (such as GDRs).
The Federal Law On Organized Trades, 21 November 2011. This sets out rules for trading at exchanges and rules for trading systems as well as rules governing the activity of exchanges and trading systems. The law will take effect from 1 January 2013 in the relevant parts (relevant parts of the Securities Law will cease to be in effect on 1 January 2014).
The Federal Law On Clearing and Clearing Activity, 7 February 2011. This sets out rules on clearing activity and defining activity of clearing organisations including the central counterparty.
The Federal Law On the Central Securities Depository, 7 December 2011 (CSD Law). This establishes the legal framework for the central securities depository (CSD) including rules on the regulatory control and supervision over the CSD's activity. The CSD Law has been in effect since 1 January 2012 (except for a few provisions that will come into effect at later dates). The Securities Law and certain other laws were amended in connection with adoption of the CSD Law. Some of the most significant changes will become effective on 1 July 2012, while others will take effect on 1 January 2013. The CSD Law requires that all settlements of securities (except for settlements between share owners who both have direct accounts with the registrar) be made through the CSD and establishes rules on the finality of settlements. The FSFM gives CSD status to depositories that fit within the parameters established by the CSD Law. The CSD Law is not explicit on whether there could be only one CSD or a number of CSDs. It is expected that the National Settlement Depository (www.nsd.ru) will be designated as the CSD at some point in 2012.
The Federal Law On Stock Companies, 26 December 1995 (Company Law). This provides a legal basis for the issuing, converting and cancelling of shares (equity) and bonds by Russian stock companies and sets out rules on dividend distribution and voting at shareholders' meetings and tender offers, among other things.
The Civil Code of the Russian Federation (Civil Code). This contains general rules on forms of securities and recording rights to securities and on entering into transactions, among other things.
The Federal Law On the Protection of Rights and Lawful Interests of Investors in the Securities Market, 5 March 1999. This contains, among others, certain marketing and publicity rules and selling restrictions.
The Federal Law On Advertising, 13 March 2006. This contains certain marketing rules and restrictions.
The Federal Law On Counteracting the Unlawful Use of Insider Information and Market Manipulation and on Introducing Amendments to Certain Legal Acts of the Russian Federation, 27 July 2010. This sets out insider trading rules and prohibitions applicable to securities traded on exchanges.
Russian corporate laws must also be complied with in conducting an equity offering. These include, among others, laws related to pre-emptive rights, tender offers, corporate governance and approval of major transactions and interested party transactions.
The entire body of implementing regulations includes orders, letters and information letters issued by the FSFM. There exist about 100 primary regulations and several hundred secondary ones. There are certain key features of the legislative framework applying to equity securities. These include:
Non-documentary form. Shares are issued in non-documentary form only, which makes securities clearing and settlement quicker and more efficient.
Share registration system. There is a multi-layered registration system. The Securities Law provides that the ownership of shares must be registered in a holder deposit account with a depository (which in turn will be registered as a "nominal holder" of relevant shares) or in a holder personal account with a registrar (or issuer as the case may be).
Therefore, share title can be confirmed by a registrar (or issuer in certain cases) in its shareholder register or by a depository in its books, depending on where the share account is opened. Registrars and depositories are licensed by the FSFM. Additionally, the settlement depository operates a system for the central handling of book-entry for all shares traded on it (for example, the National Settlement Depository for MICEX-RTS trades).
The Securities Law as amended to reflect the CSD Law introduced the concept of a foreign nominal holder which is a non-Russian company authorised by the laws of its jurisdiction to register title to securities. However, the Securities Law is not clear on whether documents issued by a foreign nominal holder could be viewed as documents confirming title to shares of Russian issuers.
After the CSD is created (see above), only it will provide mandatory central settlement and transfer facilities for securities traded via exchanges, and registrars will not provide any settlement services. All settlements will occur within the CSD system. Reconciliation procedures between the CSD and registrars are mandatory on a daily basis and must also take place after each transaction. In case of a discrepancy between the books of the CSD and the books of a registrar, the books of the CSD (the most recent confirmed reconciliation results) will prevail.
In addition to the registration of the share issuance and related documents (including a prospectus for public offers and listings) with the FSFM, a share offer can be subject to other regulatory approvals and limits, including:
An offer of shares of a Russian company outside of Russia (including through the issue of depositary receipts (DRs)) requires the approval of the FSFM. Current FSFM regulations contain limits on the amount of Russian shares (or DRs in respect of Russian shares) that can be offered outside of Russia (for example, listed on a foreign exchange via depository receipts).
In general, a Russian company can only offer up to 5%, 15% or 25% of the total number of shares of the same class outside of Russia. The applicable level depends on various factors, such as the level of the local listing of the underlying shares and the jurisdiction of incorporation of the foreign depositary. No more than 50% of the shares being offered in an IPO can be offered outside of Russia. These limits are expected to be removed by 2013 (see Question 26). In practice, these thresholds serve as effective limits on the size of international IPOs by Russian companies.
The Federal Law on Protection of Competition 2006, requires regulatory approval to be obtained before acquiring more than 25% of shares in a Russian company.
The Federal Law on Foreign Investments in Legal Entities of Strategic Importance to the National Defense and State Security of the Russian Federation (2008), imposes certain caps on foreign ownership of issuers in strategic industries and requires government approval before acquiring shares above certain thresholds.
A number of industry-specific laws require regulatory approval to be obtained before acquiring shares above certain thresholds in particular issuers (for example, CBR approval for banks).
The main requirements for listing of shares on MICEX-RTS are contained in the FSFM's Regulation on the Organisation of Trading in the Securities Market (FSFM Trading Procedures Regulation) and the MICEX-RTS Regulation on Listing, Offering and Circulating of Securities on MICEX (MICEX-RTS Regulation).
For Russian regulatory purposes, "listing" means admission of securities to one of the MICEX-RTS's quotation lists, which are:
Quotation list A, level 1 (or A1).
Quotation list A, level 2 (or A2).
Quotation list B.
Quotation list V.
Quotation list I.
It is also possible for securities to be traded on MICEX-RTS but not be listed.
There are share capitalisation requirements for admission to the A level 1, A level 2, B and I quotation lists. The minimum capitalisation ranges from RUB25 million (as at 1 February 2012, US$1 was about RUB30) to RUB10 billion, depending on the quotation list.
The required minimum monthly transaction volume (with shares of the same type on a stock exchange over the three months before admission) ranges from RUB1.5 million to RUB25 million, depending on the quotation list. For a company to retain its listing on a quotation list there must be a minimum monthly transaction volume in the securities ranging from RUB1 million to RUB50 million, depending on the quotation list.
For a MICEX-RTS listing, at least 10% of a joint stock company's shares must be in public hands. In addition, there are requirements related to the maximum amount of an issuer's shares that can be held by a single entity and its affiliates, depending on the quotation list, as follows:
For the A1 and A2 quotation lists: no more than 75% of the ordinary shares of the issuer can be held by a single entity and its affiliates.
For the B quotation list: no more than 90% of the ordinary shares of the issuer can be held by a single entity and its affiliates.
There is no express limit on the number of shares that can be owned by members of the issuer's board or management.
Securities of non-Russian issuers are eligible to be listed in Russia if certain requirements are met (see Question 8). However, as yet no such equity securities have been listed.
There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.
An IPO can involve a listing of the shares on MICEX-RTS only, or a simultaneous listing of GDRs or ADRs on a non-Russian stock exchange. In addition, a number of Russian businesses that are organised under non-Russian companies have conducted IPOs by floating the non-Russian company.
A Russian IPO with a listing on MICEX/RTS can involve an offering of new shares (via a capital increase) or an offering of existing shares by current shareholders. IPOs can be structured in the following ways:
An issue of new shares, which are placed by way of public subscription.
An offer by shareholders of existing shares, which are placed by way of a subscription on the stock exchange, whereby the selling shareholders are "topped up" in part or in full through a subsequent (post-IPO) issue of new shares by the issuer.
Both an issue of new shares and an offer by shareholders of existing shares, without a top-up of the existing shares that were sold by the selling shareholder.
Secondary equity offerings are generally structured in the same way as IPOs (see Question 5).
There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.
The main steps for a primary listing of shares on MICEX-RTS include the following:
Register securities' prospectus.
Register report on results of securities issuance, or notify FSFM of the results of the securities issuance.
Submit application for admission of shares to trading and necessary documents.
Shares are examined by the listing department of MICEX-RTS for compliance with securities market legislation, FSFM regulations and quotation list requirements. An opinion letter is issued by the listing department of MICEX-RTS approving the listing of (or refusing to list) the shares on a particular quotation list.
The general director of MICEX-RTS makes a decision on admission of shares to a quotation list and approves amendments to the list of securities admitted to trading on the stock exchange.
MICEX-RTS notifies the FSFM of the amendments to the list of securities admitted to trading on the stock exchange.
MICEX-RTS notifies the applicant and the issuer of the admission of shares to a quotation list.
Information on the admission of shares to a quotation list is disclosed.
MICEX-RTS's decision comes into effect and trading on the stock exchange begins.
Listing shares of foreign issuers is subject to the following additional requirements:
The shares must have been assigned an International Securities Identification Number (ISIN) and an international code of classification of financial instruments.
The shares must qualify as securities under a procedure established by the FSFM.
The shares must already be listed on a foreign stock exchange included in the list of foreign stock exchanges approved by the FSFM or a decision of the FSFM, on the public placement and/or circulation of the shares in Russia. Also, the shares must be able to be publicly offered according to the applicable laws of the country of the foreign issuer's incorporation.
A Russian-language prospectus of the foreign issuer must be registered with the FSFM. The prospectus must be signed by the foreign issuer and a licensed broker who confirms that:
there are no restrictions on the circulation of the foreign shares in Russia;
such shares have international codes and are qualified as securities; and
the information contained in the prospectus is consistent with the information disclosed by the foreign issuer on a foreign stock exchange or otherwise.
Any foreign company can issue RDRs representing foreign shares or bonds. To place and list RDRs they must be eligible for inclusion in quotation lists A1, A2, B and V. There are separate criteria and thresholds for admission of RDRs to quotation lists, including:
Minimum monthly volume of transactions with the RDRs on a stock exchange for the three months before the listing.
Admission of the underlying securities or securities certifying the right to the underlying securities to trading on a foreign stock exchange.
An IPO of RDRs on a stock exchange or with the involvement of a broker.
Minimum monthly trading volume in RDRs to maintain the listing and market maker arrangements.
The main advisers in an equity offering are the lead managers, legal advisers, auditors and an appraiser (where required). A public relations consulting firm may also be appointed. The roles of the advisers are generally the same regardless of whether the offering is an IPO or a secondary offering.
A lead manager typically exercises the following key functions:
Structuring the IPO in co-operation with the issuer.
Agreeing the IPO participants with the issuer, including the stock exchange, depositaries, legal advisers, auditors and the members of the underwriting syndicate.
Preparing an IPO timetable and managing the overall transaction process.
Interacting with the stock exchanges and depositaries as necessary.
Assessing the issuer's financial status.
Managing the process of drafting the prospectus and preparing marketing materials.
Organising and managing road shows.
Analysing the market and advising the issuer or selling shareholders, on the price range and offering price of the shares.
Conducting bookbuilding and placing the shares.
Undertaking market maker functions.
The legal advisers exercise the following main functions:
Advising the issuer or the lead managers, as the case may be, on the legal issues arising in the IPO, including securities laws, listing matters, offering structure, timetable and corporate law matters.
Drafting documents related to the issue and offering of new shares (see below, Documents).
Drafting statements and letters for purposes of disclosure in the prospectus.
Conducting legal due diligence on the issuer and delivery of legal opinions.
Interacting with regulatory authorities as necessary.
The issuer's auditor is responsible for the reliability of the financial reports contained in the prospectus and for compliance of the issuer's accounting policies with applicable standards. In an international offering the auditor will also advise the issuer regarding financial disclosure issues and will deliver various comfort letters to the lead managers.
Under FSFM regulations, an independent appraiser may be required to sign the prospectus in certain transactions to certify certain information in the prospectus (for example, if additional shares are paid in kind).
The principal documents produced in an IPO are:
Decision on the increase of the issuer's authorised capital.
Decision on the additional issue of shares.
International (English language) prospectus.
Report on the results of securities issuance (notification of the results of the securities issuance).
Documents to be submitted to the FSFM for approval of the placement or circulation of securities abroad, if applicable.
Documents necessary for the execution of shareholders' pre-emptive rights to purchase additional shares.
Resolutions of the issuer on the placement start date and offering price.
Decisions on approvals of interested party transactions entered into as part of the placement.
Subscription agreement or equivalent document entered into between the issuer and investors, if applicable.
Deposit agreement between the issuer and the GDR or ADR depositary, if applicable.
Legal opinions from counsel.
State registration of a prospectus is required if securities are being offered in either:
An open subscription (public offering).
A closed subscription (private placement) to over 500 investors.
State registration of a prospectus is also required for a listing of securities on a Russian stock exchange or for the placement of securities abroad (including in the form of GDRs or ADRs).
The prospectus must be:
Affirmed by the issuer's competent authority.
Signed by the persons specified in the Securities Law and FSFM regulations (see Question 13).
Registered with the FSFM.
Published on the issuer's website.
The issuer must provide access to information contained in the prospectus to any interested party by making a copy of the prospectus available at the issuer's registered office.
State registration of a prospectus is not required for a private placement that is made to 500 or fewer persons.
A prospectus used for a Russian listing is a more formalistic document than a typical international prospectus. A Russian securities prospectus must contain, among other things:
Information on the volume, timing, procedure for and conditions of the placement of the securities.
Information on the issuer and its business, bank accounts, financial and economic activities.
Information on the issuer's financial and economic position and risk factors.
Information on the issuer's management, auditor, appraiser and other persons who have signed the prospectus.
Information on persons in the issuer's management bodies and the bodies of the issuer that are responsible for monitoring its financial and economic activities, and brief information about the issuer's officers.
Information on the issuer's shareholders and on interested party transactions.
Three years of audited financial statements prepared according to Russian Accounting Standards.
The prospectus is usually drafted by the issuer's legal advisers and/or the issuer itself.
The prospectus must be signed by:
The person acting as the issuer's sole executive and the issuer's chief accountant (or another person exercising this function), who each assume liability for the accuracy and completeness of the information in the prospectus.
The issuer's auditor, who assumes liability for the reliability of the financial (accounting) reports of the issuer that are contained in the prospectus, as well as for compliance of the issuer's accounting policies with applicable law.
An independent appraiser, if required under FSFM regulations, who is liable for the reliability of the information contained in whichever part of the prospectus that is specially designated by the appraiser as being its responsibility.
At the issuer's discretion, the prospectus can also be signed by a:
Financial adviser on the securities market, who is liable for the accuracy and completeness of all information contained in the prospectus, other than the parts that are certified by the auditor and/or appraiser.
Rating agency, where a credit rating is assigned to the issuer and its securities.
The signatories of a prospectus and the members of the board of directors (or supervisory board) who voted for the approval of the prospectus bear joint and several liability for any losses incurred by the issuer that affect an investor and/or holder of securities, due to inaccurate, incomplete or misleading information in the prospectus.
IPOs are marketed using the following methods:
Publication of the Russian prospectus.
Publication or circulation to investors of a preliminary and final international (English-language) prospectus.
Publication of the research reports by analysts.
Pre-marketing procedures including certain communications with international and domestic institutional investors before the road show.
Conducting investor road shows.
There is no specific statutory liability for brokers publishing research reports, although general restrictions on publicity apply to the distribution of research reports, and standard verification techniques are applied to protect against general liability in connection with an offering.
Bookbuilding can be used in a domestic equity offering but it is not compulsory. Generally, a bookbuilding procedure is carried out during a securities placement that is done by way of subscription. Where bookbuilding is used in a transaction that includes a retail offer, retail investors submit offers to buy the placed securities and orders are confirmed on a first-come first-served basis or at the discretion of the issuer.
There are two main ways of structuring underwriting in a domestic IPO:
Firm commitment. The underwriter agrees to purchase any shares not placed when due.
Best efforts. The underwriter has no obligation to purchase shares not placed when due but agrees to do its best to place as many shares as possible.
The key terms in an underwriting agreement include:
The underwriting commitment (see above).
The underwriter's fees and expenses.
Representations and warranties from the issuer and, as applicable, certain shareholders to the underwriter.
Lock-up provisions applicable to the issuer and certain shareholders.
Conditions precedent documents, including legal opinions and comfort letter from auditors.
To the extent that the offering includes an international offering to investors outside of Russia (either in the form of GDRs or shares), a broad indemnity in favour of the lead managers from the issuer or certain shareholders.
Information on the underwriting fee must be included in a Russian prospectus.
A typical equity offering with a listing on MICEX-RTS takes four to six months or longer. The length of time required depends on the method of the offering and the characteristics of the issuer.
The following is a typical timetable for an IPO (the timetable is generally the same for an IPO and a secondary public offering):
Stage one (about two months). This stage includes:
Start drafting the Russian prospectus.
Start drafting the international (English language) prospectus.
Start due diligence on the issuer.
Draft documents necessary for FSFM approval of the placement and circulation of securities abroad, if applicable.
Decision is made on the increase of the issuer's authorised capital.
Approval of the decision on the issue of new shares and the Russian prospectus.
Draft the application for the admission of shares onto a quotation list.
Stage two (about two months). This stage includes:
Register the issue of new shares and the prospectus with the FSFM.
Continue drafting the international prospectus and undertaking due diligence.
FSFM issues approval of placement and circulation of securities abroad, if applicable.
Enter into an agreement with the stock exchange regarding the listing.
Approval of the underwriting agreement as a major transaction under corporate law.
Stage three (about one month). This stage includes:
Corporate approval of the international prospectus.
Conducting the road show and bookbuilding.
Issuer's decision on the placement start date and the placement price.
Signing the underwriting agreement.
Purchase of shares by shareholders executing their pre-emptive rights.
Placement of new shares and, if applicable, GDRs or ADRs to investors.
Delivery of legal opinions and other closing documents.
Stage four (about one month, post-closing). This includes the following:
Approval and filing of the placement report on the results of the securities issuance to the FSFM or filing of a notification with the FSFM of the results of the additional securities issuance.
Admission of shares onto a quotation list.
Registration of the placement report on the results of the securities issuance with the FSFM.
Registration of amendments to the issuer's charter in connection with the increase of authorised share capital.
The underwriter can (if provided for in the decision on the issue of new shares or any agreement on market maker obligations between the stock exchange, the issuer and the underwriter):
Maintain the share price at a certain level for a time on placement completion.
Purchase earlier placed shares (stabilisation).
Act as a market maker.
MICEX-RTS sets mandatory requirements on market making activities. The market maker can submit purely unaddressed bids and settle transactions in its own name and at its own expense, or in its own name but at the expense of the client giving instructions. A bid must specify that it has been submitted through the market maker with no disclosure of information to other trading participants.
Share transactions are not subject to VAT. Proceeds received by an issuer from the sale of primary shares are not subject to income tax.
A company that pays dividends is obliged to act as a tax agent and withhold tax on those dividends and remit the amount of tax due to the Russian budget. The applicable withholding tax rate depends on the status of the dividend's recipient.
Taxation of capital gains on the disposal of shares also depends on the status of the relevant shareholder. Stamp duty is not payable by investors when carrying out share transactions, except for transactions involving the receipt of an inheritance.
Issuers must comply with the corporate governance requirements set by the FSFM Trading Procedures Regulation. These requirements include:
The minimum number of independent directors in the board of directors.
An audit committee headed by an independent director and consisting solely of independent and non-executive members of the board of directors.
Audit committee appraisal of audit reports presented at the general shareholders' meeting.
A compensation committee consisting solely of independent directors.
Formation of the management board.
Disclosure of ownership of, and trading in, the company's securities by directors, members of the management board and the executive officers.
Written policy on disclosure principles and rules.
Written policy on insider trading.
Written policy on internal financial and operational control.
Minimum 30-day notice of an annual shareholder meeting.
In addition, issuers must provide, on an ongoing basis:
A quarterly report.
A report concerning material facts (events).
For A1 and A2 quotation list issuers, financial statements under International Financial Reporting Standards (IFRS) or US Generally Accepted Accounting Principles (GAAP), together with the auditor's report (both in Russian language).
There is no distinction between domestic and foreign companies when it comes to continuing obligations. Additional conditions for an issuer of RDRs are:
The issuer's equity must be at least RUB250 million.
After the prospectus registration, an issuer must disclose certain information about itself and the depositary.
The depositary must provide a quarterly report and a report concerning material facts (events).
The issuer must provide a quarterly notice letter to the FSFM concerning the circulation of securities.
If continuing obligations are breached, or otherwise on receipt of instructions from the FSFM, MICEX-RTS must exclude the issuer's shares from the quotation list within one month or transfer the shares to the list of securities that are admitted to trading without listing.
The Administrative Violations Code of the Russian Federation also sets out financial penalties for breaches.
There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.
De-listing can include transferring securities to non-listed trading with the issuer being able to continue trading its shares on the stock exchange, or exclusion of securities from a quotation list and termination of trading of the securities on the stock exchange.
De-listing is performed voluntarily on submission of an application by the issuer, or mandatorily on the following grounds (FSFM Trading Procedures Regulation):
Share issuance is deemed to be frustrated (nesostoyavshiysya) or invalid.
Maturity of the securities.
Annulment of all shares of that listing category.
Liquidation or reorganisation of the issuer.
Multiple violations of securities market legislation and FSFM regulations.
Non-compliance with orders of the FSFM or of the stock exchange regarding remedying violations within the established deadlines, but no longer than six months.
Insolvency of the issuer.
Losses for the last three years.
Non-compliance by the issuer with or non-conformity of the shares to the listing requirements.
Minimum monthly trading volume below specified amount.
Expiration of listing term.
MICEX-RTS regulations provide for additional bases for de-listing, including:
Annulment of state registration of respective issue of securities or the individual number (code) of an additional share issue.
Judicial or other competent control body's act on termination of trading or delisting of securities.
Termination of operating the securities by a clearing organisation or registrar.
Conversion of securities together with their annulment by the registrar.
Elimination of securities from the clearing list by a clearing organisation.
Early redemption of a securities issue according with conditions of issue.
Breach or termination of the listing agreement.
Termination of operating the securities by a securities depositary.
No actual trading within four months after listing (for quotation lists V and I).
In 2011, more than 30 companies de-listed their shares from MICEX and RTS, including:
Inter RAO UES.
Bank VTB North West.
Central Telecommunications Company.
Comstar United Telesystems.
RBC Information Systems.
Certain de-listings in 2011 were 'technical' de-listings of companies from RTS in connection with the merger of RTS and MICEX.
Several companies de-listed from MICEX-RTS in late 2011-2012, including:
These de-listings were followed by the MICEX-RTS's adoption of amendments to the de-listing rules to introduce a three-month period between the issuer's decision to de-list and the actual de-listing.
Recent major changes in securities legislation will significantly affect all existing and prospective depositary receipt programs for shares of Russian issuers. These reforms, as well as the merger of MICEX and RTS (see Question 1), are part of a broader effort to turn Moscow into an international financial centre.
In December 2011, the CSD Law was adopted, and the Securities Law was amended. Some of the most significant changes affecting depositary receipt programs and depositaries will become effective on 1 July 2012, while others will take effect on 1 January 2013.
The FSFM has published a draft regulation (which has not yet been adopted) providing that from 1 January 2013, most of the FSFM's limits affecting depositary receipt programs will be abolished. As a result, up to 100% of a Russian company's shares could be eligible to be held in a depositary receipt program and offered outside of Russia. The FSFM has proposed that the only remaining limits affecting depositary receipt programs will relate to the status of a Russian issuer as a "company of strategic significance" under the Federal Law on Foreign Investments in Legal Entities of Strategic Importance to the National Defence and State Security of the Russian Federation (2008), which imposes certain caps on foreign ownership of issuers in strategic industries.
On 20 February 2012, the Ministry of Finance published a proposal, including draft amendments to the Tax Code, with respect to withholding tax on Russian Eurobonds.
According to the proposal, for bonds issued before 1 January 2013, Russian borrowers will not be required to withhold tax on interest payments made to foreign SPVs provided that the:
SPVs are incorporated in jurisdictions that have double tax treaties with Russia providing for no withholding tax on interest payments.
Bonds are listed on an approved foreign stock exchange or clear through an approved international clearing system.
Importantly, the Ministry of Finance stated that there are no plans to challenge borrowers in connection with interest payments made on Eurobonds issued before or during 2012, and that it had consulted with the Russian Federal Tax Service in this regard.
For bonds issued on or after 1 January 2013, Russian borrowers will not be required to withhold tax on interest payments made to foreign SPVs provided that:
The SPVs are incorporated in jurisdictions that have double tax treaties with Russia providing for no withholding tax on interest payments.
The bonds are listed on an approved foreign stock exchange or clear through an approved international clearing system.
The relevant "first level" holders of the bonds in respect of which the interest payments are being made reside in jurisdictions that have double tax treaties with Russia providing for no withholding tax on interest payments.
According to the draft amendments to the Tax Code, "first level" holders means the relevant account holders in the clearing systems rather than the ultimate holders of the Eurobonds. The determination of the first level holders must be made on a date that is no more than ten business days before the date of the relevant interest payment.
Qualified. State of Georgia (US), 1993; District of Columbia (US), 2002; England and Wales, 1998.
Areas of practice. Capital markets.
Represented TNK-BP in a US$1 billion eurobond offering.
Represented Gazprombank in a US$1 billion eurobond offering (in two tranches).
Represented the joint lead managers in a US$250 million debut eurobond offering by Russian Agricultural Bank.
Represented Bank of Georgia, a Georgian bank, in a US$160 million IPO of GDRs listed on the London Stock Exchange.
Qualified. Russian Federation, 1992.
Areas of practice. Corporate, corporate finance, mergers and acquisitions, project finance and infrastructure.
Advising joint book runners Morgan Stanley and Unicredit on the international IPO on the Official List of the LSE by Acron. The GDRs were offered internationally, including a US tranche under Rule 144A.
Advising lead manager and book-runner UniCredit ATON on Russian and international offering of ordinary shares of RBC Information Systems (RBC).
Qualified. Russian Federation, 1998.
Areas of practice. Corporate, corporate finance, mergers and acquisitions.
Advising Morgan Stanley and CIT Finance on TGK-5's Russian domestic IPO. The shares were purchased by Integrated Energy Systems Holdings for US$453 million.
Advising Novorossiysk Commercial Sea Port (NCSP), Russia's largest commercial sea port operator, on its US$955 million IPO on the London Stock Exchange. The offering consisted of ordinary shares and GDRs. NCSP's existing ordinary shares are listed on MICEX-RTS. The GDRs were offered internationally, including a US tranche under Rule 144A.