Russian Federation: Anti-Trust And Strategic Approval Requirements For Investments In Russia

Last Updated: 28 April 2014
Article by Valentin Petrov and Petr Shevtsov

Like other jurisdictions, Russia has a set of requirements which may impact upon persons considering investing or investing into Russian businesses. This article sets out a brief description of certain issues any such investor must be familiar with. These are: (i) Russian antitrust issues; and (ii) Russian strategic law issues that are potentially applicable to the direct or indirect (i.e. via an off-shore holding structure) acquisition of interests in Russian businesses. This article does not address regulatory issues applicable to specific industries such as banking, insurance, gas export, etc.

  • RUSSIAN ANTITRUST ISSUES

Broadly speaking, Russian competition legislation (the "Competition Law") may impact upon any investor entering the Russian market provided certain financial and other thresholds are met. The proposed investment into a Russian business may require either a preliminary approval from or post-completion notification (although the number of triggering events is very limited and mostly relates to intragroup transfers) of the Russian antitrust authority (the "FAS").

The establishment of a new Russian entity through contribution of "shares (equity interests) in and/or property of another business entity" or direct/indirect acquisition of a Russian company's stake will require a preliminary approval from the FAS if one of the thresholds set out in paragraph 2.4 below is met and one of the following conditions is satisfied:

(A) (i) the aggregate balance sheet value of assets of the company founders (and their respective) "groups of persons") and the company whose shares are being contributed (and its respective "group of persons") exceeds 7 billion Russian roubles (approximately 233.3 million US dollars) and (ii) the balance sheet value of assets of the company whose shares are being contributed (and its subsidiaries) exceeds 250 million Russian roubles (approximately 8.3 million US dollars); or

(B) (i) the aggregate revenue of all the persons mentioned under (A) above for the last calendar year exceeds 10 billion Russian roubles (approximately 333.3 million US dollars) and (ii) the balance sheet value of assets of the company whose shares are being contributed (and its subsidiaries) exceeds 250 million Russian roubles (approximately 8.3 million US dollars); or

(C) any of the above persons, whose share of a given market exceeds 35%, is included in the Russian antimonopoly register of persons.

The preliminary approval requirement applies only to those contributions and/or acquisitions which exceed certain thresholds established for the acquisitions of shares. These thresholds are 25%, 50% and 75% of the voting shares in a Russian joint stock company and 1/3, 50% or 2/3 of the charter capital of a Russian limited liability company. Similarly, the preliminary approval requirement is triggered when the value of the contributed property (assets) exceeds 20% of the balance sheet value of the "main production assets and intangible assets" of the disposing entity.

Generally, it could take up to 3 months to obtain the FAS clearance. The sanctions for breaking Russian anti-monopoly requirements are potentially very high. Transactions that are entered into in violation of the antimonopoly clearance requirements (i.e. both preliminary consent and notification requirements) are voidable within one year.

  • RUSSIAN STRATEGIC LAW ISSUES

The framework for regulating foreign investments in strategic sectors of the Russian economy is established by certain Russian legislation (the "Strategic Investment Law"). The Strategic Investment Law applies to investments into companies engaged in activities of "strategic importance" listed in the Strategic Investment Law (the "Strategic Companies" and each a "Strategic Company"). It lists the following four (4) main categories of "strategic activities":

(A) exploration of and extraction from "subsoil blocks of federal importance". For example, oil fields with over 70 million tons of oil or gas fields with over 50 billion cubic meters of gas constitute a subsoil block of federal importance;

(B) defense-related activities;

(C) mass media; and

(D) certain monopolies and dominant market players.

The Strategic Investment Law sets out different filing and strategic approval thresholds for private foreign investors and government controlled foreign investors.

Private foreign investors

Acquisition by a private foreign investor of a controlling stake in a Strategic Company triggers a filing obligation for such private foreign investor. A private foreign investor will also require the relevant government commission's strategic approval in order to control a Strategic Company. For these purposes, "control" means:

(A) having more than 50% of the voting shares;

(B) having the right to appoint the CEO (chief executive officer) and/or more than 50% of a management board or other management body;

(C) having the right to appoint more than 50% of the board of directors; or

(D) managing or otherwise directing business operations.

Thresholds are reduced from 50% to 25% when the "control" test is applied in respect of a Strategic Company engaged in exploration of and extraction from "subsoil blocks of federal importance".

A private foreign investor who has acquired more than a 5% interest but less than a controlling stake in a Strategic Company is required to file a notification to the FAS. The notification shall be filed within 45 calendar days following completion of the acquisition.

A strategic approval requirement does not apply to acquisitions by private foreign investors of stakes in Strategic Companies operating in exploration of and extraction from "subsoil blocks of federal importance" in which the Russian government directly or indirectly owns more than 50% of the voting shares. This exemption does not apply to government controlled foreign investors.

Government controlled foreign investors

A government controlled foreign investor will require the relevant government commission's strategic approval if it decides to acquire:

  • 5% or more of Strategic Companies involved in exploration of and extraction from "subsoil blocks of federal importance"; and
  • 25% or more of the other Strategic Companies,
  • except that no such investor is allowed to acquire more than:
  • 25% of Strategic Companies involved in exploration of and extraction from "subsoil blocks of federal importance"; and
  • 50% of the other Strategic Companies.

Another piece of Russian legislation (the "Foreign Investment Law") may also trigger a strategic approval requirement. Pursuant to the Foreign Investment Law, an acquisition by a foreign government controlled investor of 25% or more of any Russian company (i.e., even if the company is not a Strategic Company) requires a strategic approval.

Generally, it could take up to 6 months to obtain the relevant approval. Transactions that are entered into in violation of the strategic filing requirements may be declared void within three years. Further, if a foreign investor acquires control over a Strategic Company in a foreign-to-foreign transaction, the Russian authorities may seek the court injunction restricting the relevant foreign investor to vote its shares in the Strategic Company or challenge corporate decisions approved by the foreign investor.

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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