Russian Federation: Recent Amendments To The Strategic Enterprises Law

Last Updated: 9 January 2012
Article by Mikhail Turetsky, Yulia Dementieva and Oksana Uberwolf

With effect from 18 December 2011, Russia's "Strategic Enterprises Law"1 has been significantly relaxed. First adopted in 2008, this law has had a profound impact on the Russian M&A landscape and remains one of the key structuring considerations for various types of transactions, including IPOs, Joint Ventures, corporate restructurings and others. The new amendments aim to limit the broad application of the law and exclude certain types of transactions from the requirement of prior governmental approval.

Definition of Foreign Investor Control Over Subsoil Strategic Enterprises

The Strategic Enterprises Law requires prior governmental approval for the direct or indirect acquisition by a foreign investor of "control" over Strategic Enterprises. A lowered threshold is used to determine "control" over those Strategic Enterprises which are operating subsoil plots of federal significance ("Subsoil Strategic Enterprises"). Before the amendments, the threshold for Control over a Subsoil Strategic Enterprise included: (i) 10 per cent of voting stock; or (ii) rights to appoint more than 10 per cent of the board of directors or other management body or the chief executive officer.

The amendments increase the above percentage thresholds from 10 to 25 per cent. Accordingly, acquisitions by foreign investors of up to 25 per cent in Subsoil Strategic Enterprises would no longer be subject to governmental approval. A lower 5 per cent approval threshold continues to apply to acquisitions of stakes in Subsoil Strategic Users by a foreign state or supranational or entities controlled by them.

As before, acquisition of stakes in Subsoil Strategic Enterprises in which the Russian government controls directly or indirectly more than 50 per cent of the voting stock remain exempt from the approval requirements (once again, except in situations where the acquirer of the stake is or is controlled by, a foreign state or supranational, in which case, the 5 per cent threshold would apply).

Amendments to the List of Strategic Activities

The amendments exclude the following types of activities from the strategic list:

  • Operation of radioactive facilities for civil purposes where this is not a core business for the operating company
  • Distribution and/or technical support of cryptographic equipment or rendering of cryptographic services by banks (except in cases where the Russian Federation is a shareholder)

Companies involved in abovementioned activities are no longer classified as Strategic Enterprises and thus acquisition of control in such companies would not require prior governmental approval in accordance with the Strategic Enterprises Law.

Further Exemptions

The amendments introduce three significant exemptions from the prior governmental approval requirements for transactions with shares of Strategic Enterprises.

International Financial Institutions

The first exemption relates to international financial institutions created under international treaties to which the Russian Federation is a party as well as international financial institutions with which the Russian Federation has entered into an agreement. The list of respective international financial institutions shall be further approved by the Government of the Russian Federation. The international financial institutions included on such list would be exempt from prior governmental approval requirements for acquisitions of stakes in Subsoil Strategic Enterprises (up to 25 per cent) and all other Strategic Enterprises (up to 50 per cent).

Foreign Investors Controlled by the Russian Federation or Russian Citizens

The amendments introduce a further important exemption from the approval requirement for transactions between companies the ultimate beneficial owners of which are the Russian Federation or Russian citizens who are tax residents of the Russian Federation and do not hold a dual citizenship.

This exemption will be widely used in practice since shareholding structures of many Russian groups often include layers of foreign intermediary holding companies. Transactions between such, formally foreign, but, in substance Russian, groups with shares in Strategic Enterprises would no longer be subject to governmental approval.

Existing Shareholders Upon Rights Issues

After the amendments, prior governmental approval is no longer required for transactions by a foreign investor already holding more than 25 per cent in a Subsoil Strategic Enterprise if such foreign investor's stake does not increase as a result of the transaction. This amendment is aimed to simplify subscription to new share issuances by foreign investors in Subsoil Strategic Enterprises.


1 Federal Law No. 57-FZ dated 29 April 2008 "On The Procedure for Foreign Investment in Commercial Organizations of Strategic Significance for The National Security of The Russian Federation"

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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