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
Definition of Foreign Investor Control Over Subsoil Strategic
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
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.
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
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
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
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
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guide to the subject matter. Specialist advice should be sought
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