When reviewing transactions for the “exit” of the Russian market by foreign “unfriendly” shareholders, the Russian Ministry of Industry and Trade has been informing applicants that the Government Commission for Control over Foreign Investment in the Russian Federation (the “Government Commission”) has updated the requirements for approving such transactions. The key updates concern the contribution amount to the federal budget and the compulsory discount.

Contribution to the federal budget

The minimum contribution required to be paid to the budget has been raised to 35% of the market value of the asset being sold (as determined by the asset valuation report). Previously this amount was 15%, although plans to increase it have been informally discussed for some time by the state authorities involved.

The Government Commission sets forth possibility for payment of the contribution to the budget in instalments as follows:

1. 25% of the market value of the asset to be paid within one month of the transaction’s completion;
2. 5% of the market value of the asset – within one year of the transaction’s completion;
3. 5% of the market value of the asset – within two years of the transaction’s completion.

Discount

The compulsory discount applied to the purchase price for transactions aimed at “exit” of foreign “unfriendly” shareholders from the Russian market has been increased from 50% to 60%.

These updated requirements will apply to all applications and transactions that have not yet been decided by the Government Commission. In practice this means that even applications and transactions that have already been submitted to the authorities and are under review by the relevant ministries must be updated to comply with the new requirements.

Approval by the President

“Exit” transactions involving the sale of assets with a market value exceeding RUB 50bn will be subject to approval by the Russian President.

We expect that these new requirements will be soon officially published.

As a result, we recommend that this development and additional financial costs be taken into account when planning an exit transaction involving an “unfriendly” foreign investor.

Authors:

Maxim Boulba, Partner

Elena Andrianova, Senior Associate

Georgy Daneliya, Counsel

The material is also available in Russian and Japanese languages.