Procedures of mergers & acquisitions of Ukrainian non-banking financial institutions will change significantly in early 2012, as on 08 January 2012 the Law of Ukraine “On Amendments to Certain Laws of Ukraine on Regulation of Financial Services” (the “Law”) is entering into force.
The said Law stipulates a number of novelties related to regulation of activity and supervision over Ukrainian financial companies (e.g. insurance, leasing and factoring companies, pension funds, credit unions, pawnshops, etc.) and professional participants of the stock market (e.g. securities brokers, custodians, asset management companies, etc.).
In particular, the Law requires investors, intending to acquire substantial share stake in non-banking financial institutions, to obtain a permit from (i) the State Securities and Stock Market Commission of Ukraine – in case of acquisition of a share stake in the professional stock market participant, or (ii) the State Commission on Regulation of Financial Services Markets – in case of acquisition of a share stake in all other non-banking financial institutions (the “Acquisition Permit”).
The above Acquisition Permit from one of the mentioned regulators will be required for both direct and indirect acquisition of a share stake in the amount of 10%, 25 %, 50 % and 75 % in the registered capital of a non-banking financial institution. In order to obtain such Acquisition Permits investors will have to submit the information on their financial standing and business reputation, as well as their ownership structure for consideration of financial and stock markets regulators.
The Law prescribes an exhaustive list of grounds for refusal from granting the Acquisition Permit by both regulators, for instance: (i) submission of incomplete set of documents by the investor, (ii) in case equity capital of the investor is insufficient for payment of the share stake; (iii) if such share stake acquisition is affecting the interests of depositors and creditors of a non-banking financial institution; (iv) in case business reputation or financial standing of the investor do not meet the criteria established by the laws and regulations, (v) if the transaction is prohibited by the Antimonopoly Committee of Ukraine due to economic concentration as a result of it, etc.
In case of submission by the investor of the full set of documents required by the Law for consideration of the respective regulator, the Acquisition Permit has to be granted within 1 (one) month from the filing date.
It is necessary to highlight that failure to obtain the Acquisition Permit by the investor prior to acquiring a substantial share stake in a non-banking financial institution might prevent the investor from voting at the general shareholders (participants) meeting due to the voting prohibition imposed by the respective regulator.
Given the above it is possible to draw a conclusion that already in early 2012 non-banking financial market will become more regulated. In contrast to currently effective legislation, requiring investors acquiring banks’ shares only, to obtain an approval from the National Bank of Ukraine, the Law significantly impacts M&A procedures in non-banking financial sector of Ukraine, making them longer and more complicated.
The said Law stipulates a number of novelties related to regulation of activity and supervision over Ukrainian financial companies (e.g. insurance, leasing and factoring companies, pension funds, credit unions, pawnshops, etc.) and professional participants of the stock market (e.g. securities brokers, custodians, asset management companies, etc.).
In particular, the Law requires investors, intending to acquire substantial share stake in non-banking financial institutions, to obtain a permit from (i) the State Securities and Stock Market Commission of Ukraine – in case of acquisition of a share stake in the professional stock market participant, or (ii) the State Commission on Regulation of Financial Services Markets – in case of acquisition of a share stake in all other non-banking financial institutions (the “Acquisition Permit”).
The above Acquisition Permit from one of the mentioned regulators will be required for both direct and indirect acquisition of a share stake in the amount of 10%, 25 %, 50 % and 75 % in the registered capital of a non-banking financial institution. In order to obtain such Acquisition Permits investors will have to submit the information on their financial standing and business reputation, as well as their ownership structure for consideration of financial and stock markets regulators.
The Law prescribes an exhaustive list of grounds for refusal from granting the Acquisition Permit by both regulators, for instance: (i) submission of incomplete set of documents by the investor, (ii) in case equity capital of the investor is insufficient for payment of the share stake; (iii) if such share stake acquisition is affecting the interests of depositors and creditors of a non-banking financial institution; (iv) in case business reputation or financial standing of the investor do not meet the criteria established by the laws and regulations, (v) if the transaction is prohibited by the Antimonopoly Committee of Ukraine due to economic concentration as a result of it, etc.
In case of submission by the investor of the full set of documents required by the Law for consideration of the respective regulator, the Acquisition Permit has to be granted within 1 (one) month from the filing date.
It is necessary to highlight that failure to obtain the Acquisition Permit by the investor prior to acquiring a substantial share stake in a non-banking financial institution might prevent the investor from voting at the general shareholders (participants) meeting due to the voting prohibition imposed by the respective regulator.
Given the above it is possible to draw a conclusion that already in early 2012 non-banking financial market will become more regulated. In contrast to currently effective legislation, requiring investors acquiring banks’ shares only, to obtain an approval from the National Bank of Ukraine, the Law significantly impacts M&A procedures in non-banking financial sector of Ukraine, making them longer and more complicated.
Panorama, №12 / грудень 2011
Authors: Denis Lysenko, Yulia Kyrpa