Lawyers spoke about the difficulties in coordinating transactions with foreigners

When coordinating transactions with foreigners, the authorities may impose additional requirements on sellers and buyers, lawyers say. Lately, for example,

The subcommittee of the Ministry of Finance on issuing permits for transactions of residents with foreign companies from unfriendly countries takes into account not only formal criteria, but also a number of informal aspects, lawyers working in the mergers and acquisitions market said at the XIII Russian M&A Congress organized by Cbonds.

These aspects relate to the circle of persons making decisions on the approval of transactions, as well as additional requirements on the methods of financing transactions and the working conditions of new owners of the assets of departed foreigners. In the future, they can be formalized, experts admit.

A representative of the government apparatus redirected RBC's questions to the Ministry of Finance. The ministry indicated that information about the work of the subcommittee, including approaches to the approval of transactions, is disclosed on the website of the Ministry of Finance. “All the positions of the interested federal executive authorities and the Bank of Russia on the applications under consideration are submitted to the subcommittee in an official manner signed by representatives of departments and are considered in the prescribed manner,” the representative of the Ministry of Finance added.

What formal requirements have already been established by the subcommittee of the Ministry of Finance

The need to obtain permission from the subcommittee to conduct transactions with residents of unfriendly countries was approved by the government back in March 2022, after Western countries imposed sanctions on Russia in connection with the start of a special military operation in Ukraine.

In December, a subcommittee of the Ministry of Finance announced four criteria that formally guide the approval of transactions for the sale of assets in Russia by foreigners:

the availability of an independent assessment of assets (the Ministry of Finance also published a list of recommended appraisers); the availability of installment payment for the buyer for one or two years or the payment of a voluntary contribution to the federal budget in the amount of at least 10% of the amount of the transaction; sale of an asset at a discount of at least 50% of the value determined in the course of an independent assessment; setting key performance indicators (KPI) for new shareholders (owners).

What else should be considered when coordinating transactions with foreigners

Influence of officials

Formally, the decision to issue permission to conduct a transaction with a resident of an unfriendly country is made only by members of the subcommittee of the government commission for monitoring foreign investment in Russia, which is headed by Finance Minister Anton Siluanov. In reality, it is also influenced by a much wider range of interested parties (stakeholders), said Yury Panasik, partner at Kesarev Consulting.

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Such persons, in particular, can be the relevant ministries that regulate the sector in which the company being sold operates (for example, the Ministry of Construction). Panasik. According to him, some industry regulators “have an informal ban on certain companies, certain jurisdictions, so as not to miss deals.” In addition, the governor of the region in which the asset being sold is located can have an informal but significant influence on decision-making, adds Panasik.

Additional requirements for the seller or buyer

As part of obtaining consent, transactions can also be “sewn up” with additional requirements for the seller or buyer, Panasik continues. “For example, demands from the government to take on additional investments that can significantly reduce the purchase price,” the expert said in the presentation. Additional requirements may also be the appointment of exclusively Russian management in the company or the localization of the enterprise, Panasik lists.

There are also formal requirements that may be presented to the buyer. Previously, a subcommittee of the Ministry of Finance allowed the establishment of key performance indicators (KPI) for new shareholders (owners). We can talk about ensuring a certain level of employment, tax collections, income and production volumes, Panasik listed. “This allows the sectoral ministry and the subcommittee to match buyers with the necessary competencies,” he said.

Company behavior analysis

An important aspect, according to Panasik, is the analysis of the company's behavior after the start of Russia's special military operation in Ukraine. “For example, the regulator receives a letter signed by the global director that we confirm the continuation of activities in Russia, but at the same time, the regulator visits the website [of the company] in March, in its reporting, and it is recorded there that the company is “slowly curtailing activities,” clarifies He. Similar facts are also taken into account when coordinating transactions, the expert says.

Complicating conditions for asset buyout transactions by management

“Some time ago, in response to the information agenda, we began to hear that the government commission does not encourage management buy-out transactions (MBO, transactions for the purchase of a company by its management. -), if there is no leverage,” said BGP Litigation partner Alexander Panov, implying the provision of financing by banks operating in Russia. According to him, back in October-November of last year, MBO transactions took place, now they are less accessible. “Its (subcommittee. -) logic is quite simple: you need a financial partner who takes an asset as collateral,” Panov argues.

There is indeed a trend of refusal to buy out companies by management, Ilya Shumov, managing director of the large business department of Rosselkhozbank, confirmed: “All transactions that were previously conducted [negotiations] are more likely to be transactions with a real buyer than MVO.” He does not directly link this trend to the leverage requirement. “But in general it seems to be true,” he added.

The listed criteria are still informal, but in the future they can be formalized, as it was previously with a requirement for a discount of at least 50% on the assets of departing foreigners or with an obligation to contribute to the budget in the amount of 10% of the transaction, Panasik said. “First, the regulator tests certain approaches in practice, without fixing them in any way ... and then they are fixed in one form or another,” the expert concluded.

According to the AK&M agency, in 2022, foreign businesses sold their assets in Russia for a total of $16.31 billion, which accounted for 38% of the total annual money volume of the M&A market. During the year, 109 such transactions were made. In 2023, the trend for the exodus of foreign business from Russia may continue, but it will probably not be so massive, since those companies that wanted to urgently leave the market have already done so, experts interviewed by RBC noted.