Moscow Exchange IPO Guide

Preparing
for IPO

«The Securities Prospectus is a key document of an IPO both for marketing purposes and meeting information disclosure requirements»

PART 2. LEGAL FRAMEWORK OF MOSCOW EXCHANGE IPO

Chapter 1. Russian Legal Requirements and Commercial Practice. General Overview of Documents Prepared for IPO

1. General overview of an IPO structure and the corporate procedures

Public share offerings and admission to trading on a stock exchange may be initial (“Initial Public Offering” or “IPO”) or secondary (“Secondary Public Offering” or “SPO”) depending on whether the shares are admitted to trading for the first time (an IPO), or whether the shares are of the same category or type as those that were previously admitted to trading (an SPO).

In the case of both an IPO and SPO, the shares offered may be primary (if they are issued, but still not placed by an issuer), or secondary (if they are held by the issuer’s existing shareholders). Depending on whether the offered shares are primary or secondary, either the issuer or the selling shareholder receives the proceeds from the sale in an IPO / SPO. Russian statutes use the term “placement” (“razmeschenie”) with respect to a primary offering, and the term “trading” (“predlozhenie”) with respect to a secondary offering.

Thus, the following IPO / SPO structures, depending on the shares offered, may be initiated:

  • Primary shares placement by an issuer;
  • Secondary share offering of, i.e. the shares were previously placed and are being offered by a shareholder or several shareholders; and
  • Mixed form, i.e. an offering that includes both placement of primary shares by the issuer, and an offering of secondary shares by selling shareholders.

Any structure requires the active involvement of the issuer in the offering process, however, in the case of a primary offering, as a general rule, the issuer has to undertake a greater scope of work.

Key stages in the preparation process and the required corporate documents with respect to a primary and secondary offering
Documents / actions Placing primary shares in IPO/SPO 1 Offering secondary shares in IPO/SPO
Corporate resolutions and prospectus Resolution of the issuer’s board of directors (Board of Directors) to convene a general shareholders meeting (GSM) to amend the charter with respect to the number of authorised shares 2.

GSM’s resolution to amend the charter with respect to the number of authorised shares 3 and to increase the charter capital / resolution to place securities / resolution to apply for the listing of the Companies’ shares;

Board of Director’s resolution approving the resolution with respect to the (additional) share issue, and the prospectus 4.

Resolution of the issuer’s authorised body determining the placement starting date;

Board of Director’s resolution setting the placement price5.

Report on the exercise of pre-emptive rights (if applicable) and the relevant disclosure 6.

Resolution of the issuer’s authorised body to approve the placement notice or report 7
If the issuer already has a registered prospectus, and the shares described in such a prospectus have already been included in the official list of a Russian stock exchange.

If no prospectus is available, it could be registered without issuing additional shares in order to obtain a listing in Russia.

The new prospectus will require the Board of Director’s approval.
State registration of the securities issue/prospectus Standard requirement 9 Required if a prospectus is not available.
Admission to a listing in Russia Standard requirement; required, without limitation, for the purpose of clearance by the Bank of Russia 10 The same requirement if the offered shares have not been listed before.
Disclosure A share placement requires disclosures at each stage of the process; in particular the disclosure of:
  • Registration of a prospectus and securities issuance;
  • Placement opening date and the placement price;
  • Commencement of the placement;
  • Pre-emptive rights;
  • Completion of the placement;
  • Filing of a placement notice, or report.
The scale of disclosure is less and includes, in particular, the disclosure of:
  • Prospectus registration
  • Applying for and obtaining clearance from the Bank of Russia with respect to a foreign offering.

2. IPO / SPO international component

Depending on the commercial decision of the issuer and on the recommendations of the managing banks, the IPO / SPO structure may contain an additional international component involving simultaneous offerings both in Russia and abroad. An IPO / SPO with an international component requires compliance with relevant foreign laws (for example, the laws of jurisdictions where potential investors reside, or where the securities are to be listed ).

Foreign legal requirements that Russian issuers need to pay special attention to include both EU regulations (if the securities are listed on one of the EU stock exchanges and/or if the securities are offered to EU investors) and US regulations (if the buyers of the securities include investors from the US). If securities are to be listed on one of the major European stock exchanges, the issuer is usually obliged to prepare a prospectus in compliance with the requirements set forth in EU Directive 2003/71/EU (on prospectuses). That Directive contains the requirements with respect to, but not limited to, the content and format of a prospectus, its publishing, and PR-matters related to the securities.

If the issuer’s shares are not expected to be registered in the US (no separate prospectus needs to be prepared in compliance with US SEC requirements), they could be offered to US investors in accordance with the relevant exemptions from the requirements of the compulsory securities registration and prospectus preparation as stipulated by US law. In particular, Rule 144A under the US Securities Act of 1933 allows US investors to acquire foreign securities subject to certain conditions. Rule 144A requires, among other things, that foreign securities not registered in the US be offered and sold only to a certain group of investors: Qualified Institutional Buyers, or “QIBs”. Any subsequent sales of securities to US investors are to be conducted in compliance with Rule 144A and, in particular, are subject to the requirement with respect to their buyers (only QIBs are eligible).

If securities are not expected to be offered to US investors, in order to avoid registration of the prospectus prospectus in the US, the offering should be conducted in accordance with any other exemption from the prospectus registration requirement, e.g. in accordance with Regulation S pursuant to the US Securities Act of 1933. To avoid registration of securities in the US, this rule requires, inter alia, that the offering of shares is conducted outside the US, and that the shares are not acquired by US investors. Consequently, any subsequent sales of shares outside of the US should also be conducted in accordance with Regulation S.

3. IPO documents and stages

The transaction documents specified below are fairly standard in the existing practice of Russian issuers conducting an IPO / SPO, including an IPO / SPO with an international component, and slight modifications are used irrespective of the abovementioned variants of the offering structure (whether primary or secondary shares).

1. Transaction documents that the issuer is a party to.

1.1. Mandate / engagement letter with underwriting banks is an agreement governed by foreign law (usually by English law), whereby the issuer engages underwriting banks to provide services in connection with an IPO / SPO; however, this agreement does not bind underwriting banks with a firm obligation to conduct the IPO / SPO. Such a letter could be executed both in the case of an international offering or a Russian offering.

This agreement describes the general parameters of an offering (the type of securities, the stock exchange where they will be listed, etc.), the scope of the counsel services provided by the banks before the underwriting agreement is executed, the performance fee charged by the banks and their expenses to be reimbursed, and confidentiality and payment undertakings. The mandate letter could be executed at any stage of the IPO / SPO process before the execution of the underwriting agreement.

NB: Issuers should pay special attention to one of the provisions of the mandate letter setting forth the obligation to indemnify underwriters for any amount, expenses, and costs incurred in connection with the work on the IPO / SPO (indemnity obligation) that may need to be discharged even if the IPO /SPO is not completed for some reason. The amounts to be indemnified are often defined quite broadly and may include losses and claims asserted against the banks and their officers, as well as any associated expenses and other amounts.

1.2.An Underwriting Agreement is an agreement governed by foreign law (usually by English law), whereby the underwriting banks undertake to place a specific number of shares at a certain price, and the issuer and / or selling shareholder undertakes to sell the relevant number of securities at a certain price and perform other obligations, including payment of consideration, maintain the listing and provide the underwriters with information, and provide representations and warranties with respect to the accuracy of the information included in the prospectus, the securities themselves and the title thereto, its business situation, and the accuracy of all legal documents prepared by the issuer / selling shareholder in connection with the transaction. Such an agreement is necessary if the transaction involves international underwriting banks and / or if securities are offered to international investors, but it could also be executed if the offering is conducted in Russia only, if for instance, the managing banks include international underwriting banks.

The parties to such an agreement are selling shareholders (holders of secondary shares) and / or the issuer (with respect to primary shares) on the one hand, and the underwriting banks, on the other. In the event of a secondary offering only, the Underwriting Agreement , depending on the structure of the offering, is executed between the selling shareholder as one party and the underwriting banks as the other party. In addition to the underwriting agreement the issuer and the underwriting banks may enter into an indemnity agreement whereby the issuer in addition to the selling shareholder gives representations and warranties with respect to itself and assumes other obligations, including obligations to indemnify the underwriting banks for their potential costs connected with the IPO / SPO.

Negotiation of the underwriting agreement continues, traditionally, during the whole period of preparation for an IPO / SPO and should be generally completed by the time of the roadshows. The Underwriting Agreement is usually executed right after the approval of the securities sale price when, after the roadshows it is certain that the agreed number of securities will be sold at the agreed price.

The underwriting bank’s primary purpose in executing the underwriting agreement and possible additional indemnity agreement is to obtain economic and legal protection in case that possible issues and costs may arise during the IPO / SPO process (for example, as a result of actions and claims that acquiring investors may assert against the underwriters in accordance with the laws of the jurisdictions that provide for such liability), as well as to comply with the legal requirements of various jurisdictions. This purpose is achieved by obtaining a certain scope of representations and warranties (for example, representations with respect to the accuracy and completeness of the information disclosed in the international prospectus) from the issuer and / or selling shareholder, and various obligations they assume including the above-mentioned obligation to compensate for the underwriters’ expenses and to indemnify them against any amounts, expenses, and possible losses associated with the IPO / SPO. The scope of representations and warranties, as well as the indemnity obligations is mostly determined by the existing market practice, because international underwriting banks seek to ensure that the scope of the obligations assumed by the issuer / selling shareholder is consistent with the established market standards in similar transactions.

NB: one of the key issues that needs to be taken into account is that the Underwriting Agreement, will have to receive the relevant corporate approval. The background work should start at the earliest stages of the IPO / SPO process. Depending on the volume of the proposed IPO / SPO, the book value of the issuer’s assets, and the requirements of its internal regulations, the underwriting agreement, as a rule, will require approval as a major transaction either by the Board of Directors or at the GSM (should the amount of the issuer’s obligations under the transaction exceed the 50% threshold of the book value of its assets).

Moreover, the assessment of the issuer’s obligations assumed by it under the underwriting agreement, i.e. the price of the transaction, may raise certain issues. The approaches to a resolution of these issues are discussed in detail amongst the issuer, the underwriting banks, and the legal advisers, as the validity of the issuer’s corporate approvals with respect to the transaction documents is of paramount importance for the preparation of legal opinions with respect to the transaction (see below).

It should also be noted that in certain circumstances the required approval by the GSM of the underwriting agreement as a major transaction may significantly impede the offering process (especially in the case of an SPO), should the relevant resolution fail to receive the required number of votes, or should minority shareholders demand a buy-out of their shares. In this connection, generally, in the case of an SPO and where the issuer has a lot of minority shareholders, the structure of the transaction and its parameters may be developed with a view to minimizing the number of necessary approvals.

Moreover, if the IPO / SPO structure provides for the issuer’s guarantee or an additional indemnity obligation to the underwriters with respect to their costs and possible losses under the transaction, the interested party transaction factor may arise in the context of the underwriting agreement. In this situation, the selling shareholder may be deemed to be interested in the transaction for the purposes of Russian corporate law, depending on the assumed volume and conditions of the indemnity obligation or the guarantee and obligations assumed by it. This may lead to the necessary approval of the transaction documents by non-interested shareholders. If the number of non-interested shareholders is significant (for example, in the case of an SPO), and there can be no certainty as to the quorum and the required number of votes, the transaction could be structured to avoid the approval of the documents as an interested party transaction.

1.3 The Broker Agreement is executed in accordance with Russian law with a licensed Russian broker to place the retail tranche and / or to offer the shares to the public at large in the Russian Federation, including the case of a simultaneously conducted foreign offering, which should be complied with in order to obtain clearance from the Bank of Russia with respect to the placement / organisation of securities trading abroad.

1.4 The Market-Maker Agreement is executed if the offering includes a post-offering stabilisation.

2. Due diligence documents

Legal due diligence is conducted by legal advisers of both the issuer and the underwriting banks, as well as by the underwriting banks themselves. The primary objective of the due diligence exercise is to assist with the preparation of required disclosures in the form of an international prospectus, which in turn will provide the issuer and underwriting banks with the required legal protection against possible claims from prospective buyers. Proper disclosure and descriptions of the issuer’s business, its securities, and possible risks associated with their acquisition included in the prospectus seek to protect the issuer and the underwriting banks from claims should prospective buyers incur any losses, the risk of which has been properly described in the prospectus.

The due diligence exercise starts from the list of required documents which is delivered to the issuer by the underwriters and legal advisers. The documents provided by the issuer are reviewed by the advisers and underwriters within a certain time frame, following which the issuer may receive an additional list of requested documents and information. The legal due diligence may help identify the issuer’s legal risks which could be mitigated before the IPO. Should it be impossible to eliminate such risks, and should they be deemed material by participants of the due diligence exercise, their relevant disclosure is prepared for inclusion in the international prospectus.

Generally, before the roadshows the underwriting banks receive an unofficial confirmation from the legal advisers that all material risks identified during the due diligence exercise have been reflected in the prospectus, and that the lawyers are ready to render the required opinions.

3. International prospectus

The international prospectus has a twofold purpose it is a marketing document that describes the attractive features of the issuer and its commercial success, and simultaneously provides the issuer and underwriters with protection against liability that may be imposed as a result of the claims from prospective buyers. Such legal protection is established by making accurate disclosure of risks associated with the acquisition of securities. These two above-mentioned functions of the international prospectus define its contents.

The international prospectus (the offering memorandum or the information memorandum) should include all material information which, in the issuer’s opinion, a reasonable investor may require to make an investment decision, including the description of the IPO structure, the description of the company’s business and strategy, information on the company’s management and shareholders, financial information, and summary of key risks, etc.

As a document designed to resolve any issues of legal liability, the international prospectus should offer a balanced description of the company’s economic and financial situation, and ensure full and accurate disclosure of the risks, as well as avoid any material misstatements or omissions. It should also avoid overly optimistic forward looking statements, unfounded representations, assumptions and forecasts with respect to future events, estimates or aggressive advertisement.

As a marketing document, the international prospectus should offer a description of the issuer’s strengths, summing up the advantages of an investment in the issuer's shares.

3.1. The “Risk Factors” section of the prospectus, devoted to the risks associated with investments in specific securities, is of particular importance for an accurate issuer-related disclosure. The description of risk factors is traditionally divided into segments connected with:

  • The issuer’s business (for example, high leverage, restrictions introduced by debt obligations, environmental issues, possible lack of working capital, risk of non-retention of key employees, absence of long-term customers, etc.);
  • The industry and the market where the issuer is conducting its operations (for example, dependency on a certain type of raw materials whose supply is limited, competition in the relevant segment, its consolidation, the effect of economic crisis on the level of demand for the issuer’s product, etc.);
  • The country (for example, contradictions in the laws, problematic enforcement of foreign court awards, standards of corporate governance, political, economic, and social risks, etc.);
  • The type of securities and other risks (for example, the influence exerted by a major shareholder, absence of prospective dividends, internal control issues, absence of mature securities market, restricted market liquidity, taxation issues, etc.).

Each risk factor should provide a description of the key facts sufficient to make an investment decision and specify possible consequences of the risk event. As a rule, such a description usually does not include any soft wording and does not describe information on the steps taken by the issuer to mitigate such risks, or to eliminate them.

3.2. Key information on the issuer’s business is usually offered in the “Business” section that is accompanied by the issuer’s equity story and development strategy. The description included in this section is focused on principal types of products and/or services provided by the issuer, sources and availability of raw materials, intellectual property, relations with customers and suppliers, the competitive situation and principal industry regulations, R&D expenses, the number of personnel, the practice and procedure of execution of material contracts, description of property, and material litigations.

3.3. The “Management Discussion and Analysis” section has always been one of the important sections of any international prospectus. It contains management’s detailed analysis and discussions of the issuer’s operating performance in past periods. This section of the prospectus describes general trends, one-time events in the issuer’s business, and its accounting policy. It offers detailed comments to each item of the Income Statement, provides a discussion of liquidity, and outlines the issuer’s sources of capital.

The international prospectus is a result of joint efforts taken by the issuer, the underwriters, and legal advisers of both the issuer and the underwriters. They hold meetings to discuss various sections of the prospectus with the due diligence being exercised simultaneously, and work together on specific provisions.

4. Legal (and tax) opinions

These documents serve to ensure legal protection for underwriters similar to the due diligence exercise. The protection is based on the fact that the banks, by engaging legal advisers and obtaining the relevant opinions, have conducted the inspection and exercised “due diligence” in reviewing the issuer’s affairs, and thus have managed to obtain a certain level of comfort, including opinions of various legal experts, auditors, etc. with respect to the relevant risks that such opinions deal with. Legal opinions are prepared and delivered to underwriters by the legal advisers of the issuer and the underwriting banks, and may deal specifically with the following issues:

Shares. Legal advisers confirm compliance with statutory procedure for approval of the issue, its registration and placement of securities, the title to the shares of the selling shareholders, and the existence of all necessary corporate and regulatory approvals (including clearance by the Bank of Russia for the placement / organisation of trading abroad if the shares are offered outside the Russian Federation).

Transaction documents Legal advisers confirm the existence of the required corporate or regulatory approvals with respect to the transaction documents, their due execution by authorised representatives of the issuer and the selling shareholders, their consistency with the applicable laws, and the validity of the choice-of-law and arbitration clauses.

Disclosure. Legal advisers confirm that they were involved in the preparation of the disclosure documents and that while they were working on the disclosure, they did not become aware of any information that would render the contents of the international prospectus materially misleading. This type of opinion is usually prepared in accordance with US legal requirements should the potential buyers expect to include US investors (the so-called Rule 10b5 Letter).

NB: the scope of the legal opinions and the nature of the statements (whether these are qualified or not) are of paramount importance for the “comfort” of the underwriting banks; this is why the issues to be discussed in the legal opinions, as well as possible qualifications, need to be negotiated by the parties at an early stage of the IPO / SPO process.

5. Comfort letters
6. Marketing documents

In the preparation for an IPO, issuers may draft various information or marketing documents (for example, presentations for investors or bank analysts), as well as press releases. Traditionally, issuers publish the following press releases at the final stage of an IPO: 1) the intention to float announcement, containing key parameters of the proposed transaction, as well as information on the issuer; 2) the price range announcement, setting the bottom and the ceiling price, which is usually issued right before the roadshows, and 3) the pricing announcement, setting the price, which is issued immediately after the roadshow and right before the offering itself. The above-mentioned press releases and publications may cause legal liability for the issuer should these press releases and publications fail to comply with requirements of the applicable laws on securities-advertising, and should these materials contradict information included in the prospectus.

In particular, Russian legislation on advertisement sets forth a number of requirements related to securities advertising. For instance, Article 29 of Federal Law No. 38-FZ On Advertising, dated 13 March 2006 contains a general prohibition to advertise issuable securities before their prospectus is registered, as well as a prohibition to promise distribution of dividends, yields on other securities, or give growth forecasts of the securities market value. Moreover, relevant laws of numerous countries often provide for a broad definition of a prospectus where any advertisement of securities (including any optimistic statements regarding the perspectives of investments in the securities) may be considered a part of the relevant prospectus which would therefore expose the issuer to liability for the content of such advertisement according to the rules on accurate disclosure of securities-related information in the prospectus. That is why it is important, to the maximum extent possible, to make the contents of all published marketing and information materials consistent with the prospectus.

Chapter 2. Brief Description of Issuance Process

1. Issuance stages

Schematically, the issuance process could be divided into stages, each of which involves disclosures – the scope and the timing of which are set forth in the Regulation on Disclosure Obligations of Issuers of Issuable Securities No. 454-P dated 30 December 2014 (hereinafter, the Disclosure Regulation)11.

  • Corporate approval includes corporate resolution to increase the charter capital and to approve the issue resolution and the prospectus as described above. Approximate timing 25 business days if no GSM convocation is required.
  • State registration of the securities issue at the Bank of Russia. This stage is important because as the rule holds, only the securities that have undergone state registration can be placed. Approximate timing 21 business days (Article 20 of Securities Market Law).
  • Securities placement and subsequent trading. The placement commencement and closing dates are determined in accordance with the terms of an issue resolution (for example, the placement commencement date is fixed by a resolution of the issuer’s authorised body, and the placement closing date occurs upon the expiration of a certain number of business days after the commencement date). In practice, the placement period continues for several business days (for example, from one to five business days) from the placement commencement date. It should be noted that the placement commencement and closing dates shall comply with the general rule that the placement itself can be effected within one year from the state registration of the securities issue (Article 24(5) of Securities Market Law).

Generally, secondary sales of offered securities may be made immediately upon their payment by their initial buyers during the IPO / SPO (Article 27.6 of Securities Market Law). After the placement is closed, the issuer files the placement notice / report with the Bank of Russia, indicating, among other things, the price and the actual number of securities placed during the IPO / SPO (which may be less than the number of the securities issued and specified in the relevant issue resolution) (Article 24(6) of Securities Market Law). Moreover, the issuer is obliged to disclose information on its intention to file a notice on the issuance results before the placement commencement date (Article 25(1) of Securities Market Law).

The placement should be conducted on a non-discriminatory basis, and potential buyers should be treated equally with respect to such acquisition (Article 26(7) of Securities Market Law) 12. Moreover, the Issuance Standards expressly provide that securities could be placed by way of a general solicitation to make offers with respect to their acquisition. In this case, upon receiving offers with the proposed price and number of acquired securities, the issuer may send its acceptance to such persons, at its sole discretion, chosen by it from those who have sent such offers (Clause 21(2) of Chapter 21 of the Issuance Standards).

2. Key documents of securities issuance

Issue resolution sets forth the key parameters and procedure for the securities placement, including: the number and the type of the securities, the period of placement, the procedure for determining the placement commencement and closing dates, the procedure for setting the placing price, and the procedure for exercising pre-emptive rights. This document must be discussed by the issuer with its legal adviser, the stock exchange, and underwriting banks before it is approved and registered, since it has to reflect the agreed structure and timing of the offering (Article 17 of Securities Market Law).

The Russian prospectus is generally prepared in connection with the securities issuance, and their placement through subscription, except to the extent specified by law (Article 22 of Securities Market Law). Prospectusis a mandatory document to obtain a Moscow Exchange listing. From the time of registration of the prospectus, the issuer should regularly disclose information in the form of quarterly reports, consolidated financial statements, and statements of material facts (Article 30(4) of Securities Market Law).

The prospectus should contain information on all facts that could influence the decision to acquire securities. The issuer, its relevant officers, and the advisors signing the prospectus assume responsibility for the accuracy and completeness of such information. These persons may be held liable for losses incurred in connection with the reliance on inaccurate, incomplete, and misleading information included in the prospectus and certified by them. The prospectus shall, among other things, contain information on the issuer’s financial and commercial performance, its market capitalisation, obligations, risks associated with the acquisition of securities, controlled entities, officers and other matters.

Since an IPO / SPO with an international component usually involves the preparation of not only a Russian but also an international prospectus, the contents of both prospectuses should be aligned despite the different forms and regulatory requirements of the various jurisdictions, to the maximum extent possible. Best international practice requires disclosure of all material information on the issuer and its securities in the international prospectus, irrespective of whether the prospectus is being prepared in accordance with EU or US regulations, or stock exchange regulations in any other jurisdiction.

A general recommendation in the preparation of an international prospectus is that information in this document should be presented in a comprehensible manner. Despite the fact that the Russian prospectus is drawn on the basis of a clear-cut form, issuers are encouraged to follow the same principles and seek to align both prospectuses to the maximum extent possible. If an international prospectus is filed with a foreign stock exchange or a foreign regulatory authority, a translation should also be disclosed in Russia in accordance with the requirements of the Disclosure Regulation (Clause 2.12 and Chapter 62), which means that the international prospectus (a rather voluminous document) should be first translated into Russian (see Clause 2.1 of the Disclosure Regulation for general Russian language disclosure requirements).

Obtaining a listing on a Russian stock exchange is an important stage of an IPO that precedes the placement, and confirms that the issuer complies with the corporate governance requirements set forth in the Admission Regulation 13. Listing on a Russian stock exchange permits the expansion of the number of potential investors (many institutional investors have the inclusion of securities in various official lists as one of the formal requirements for investing in them) and the procurement of the relevant ratings from investors.

In the case of an IPO with an international component in the form of an issuer’s offering outside the Russian Federation, the issuer should receive clearance from the Bank of Russia (Article 16 of the Securities Market Law). It is important to note that, should the placement be conducted solely in Russia, including an offering to foreign investors, Bank of Russia clearance is not required.

In accordance with Regulation 09-21 14 , the clearance by the Bank of Russia could be issued, and the offering abroad could be affected, subject to the following conditions:

  • Subject to the conditions set forth in Regulation 09-21, any issuer could place / offer for public trading not more than 25% of the total number of its shares of the same category (Clause 11.1 of Regulation 09-21);
  • Along with the possibility to acquire its securities abroad, the issuer should provide for such a possibility in Russia (Clause 11.2 of Regulation 09-21); in practice this requirement is observed with the help of Russian brokers who provide services in offering securities in Russia;
  • Not more than 50% of the total number of offered / placed securities could be placed / acquired outside the Russian Federation (Clause 11.3 of Regulation 09-21).

Generally, the clearance by the Bank of Russia can be obtained within approximately 30 days (Clause 6 of the Foreign Placement/ Trading Clearance Order). This Foreign Placement / Trading Clearance Order also permits simultaneous submission of documents for the registration of the securities issue and for obtaining the Bank of Russia clearance (Clause 3 of Regulation 09-21). In this case, the clearance is issued together with the state registration of the securities issue.

Please see below an approximate schedule of corporate actions and steps to receive regulatory approvals taken as part of the securities issuance and placement.
Step Action Approximate timing (business days - “BD”)
1 Board of Directors resolves to convene a GSM T-52 BD
2 GSM resolves to increase the charter capital T-31 BD
3 Board of Directors resolves 15 to approve the resolution on the issue of additional shares and the prospectus T-31 BD
4 Bank of Russia registers the securities issue 16 T-10 BD
5 Notification of a possibility to exercise pre-emptive rights 17 T — 9 BD
6 General Director / Board of Directors sets the commencement date of the placement, the relevant information is disclosed T-5 BD
7 The pre-emptive rights exercise period expires 18 T-1 BD
8 Board of Directors makes its decision on the offering price of the securities, the relevant information on the offering price and the placement commencement date is disclosed, the placement commences on the day T+1 T
9 The payment period for shares placed as part of the exercise of pre-emptive rights expires; the placement closes 20 Т+5 BD
10 The results of the exercise of pre-emptive rights are disclosed 21 T+6 BD
11 The issuer files its placement report / notice 22 T+6 BD
12 The issuer files documents to have the amendments to the charter connected with the size of the charter capital registered. Within reasonable time after completion of Step 11.
  1. For the purposes of this analysis, we presume that issuers will place their shares by open subscription only. It will be extremely difficult to use closed subscription in a public offering because of its timing and structure. It may be used only in “back-to-back” structures, i.e. in the case of a secondary public offering, where the selling shareholder acts just as an intermediary and uses the proceeds to acquire the issuer’s primary shares placed by closed subscription in favour of this selling shareholder.
  2. If the number of authorised shares is not enough for an offering.
  3. The same.
  4. Clause 3.2 of the Issuance Standards.
  5. Clause 20.16 of the Issuance Standards.
  6. Clause 23.9 of the Issuance Standards.
  7. Article 25(6) of the Securities Market Law.
  8. Clause 60.1 of the Issuance Standards.
  9. Article 20 and 21 of the Securities Market Law.
  10. Clause 10(2) of Regulation 09-21.
  11. If the issuer’s charter needs to be amended to permit an increase in the number of authorised shares, the Board of Directors may approve the issue resolution only after such amendments have been registered, which may take 5 BD.
  12. Securities Market Law permits a provisional filing of the issuance documents with the Bank of Russia (takes up to 30 calendar days). If the final issuance documents are filed with the Bank of Russia within three months after the provisional review, the Bank of Russia must register the issue within 10 BD (Clause 2.1 and Article 20(3) of Securities Market Law, Clause 5.8 of the Issuance Standards).
  13. Paragraph 2 of Clause 23.9 of the Issuance Standards. The timing specified with respect to the pre-emptive rights reflects the offering structure that is customarily used by Russian issuers in an IPO / SPO (open subscription, setting the placing price by the issuer’s authorised body after the roadshows) and may ignore other offering structures and, consequently, the statutory rules defining the procedure for exercising pre-emptive rights.
  14. Paragraph 5 of Clause 23.9 of the Issuance Standards.
  15. Placement of securities through subscription accompanied with a prospectus can start not less than the date when the issuer provides access to the prospectus, in accordance with Clause 4.8 of the Disclosure Regulation.
  16. Paragraph 8 of Clause 23.9 of the Issuance Standards. For the purposes of the law, the placement among the persons having pre-emptive rights may commence on the business day T+1 BD and close on the day T+5 BD. Should the general timing of a placement closing coincide with the timing of payment for shares within the framework of the pre-emptive rights execution, the shares offered to persons holding the pre-emptive rights may not be offered to other persons. In order to offer shares offered to, but not acquired within the framework of the pre-emptive rights, to the general public, the placement should close at least on the day T+6.
  17. Paragraph 7 of Clause 23.9 of the Issuance Standards.
  18. Article 25 of Securities Market Law.