ARTICLE
13 January 2016

New NBU Legislation Paves The Way For Purchases Of Distressed Assets By Foreign Investors And Cross-Border Restructurings

SK
Sayenko Kharenko

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Sayenko Kharenko enjoys a global reputation as a leading Ukrainian law firm with an internationally oriented full-service practice. Currently, we are one of the largest law firms in Kyiv, with over 100 lawyers, including 14 partners. The firm specialises in complex cross-border and local matters and regularly handle the largest and most challenging transactions involving Ukraine. Sayenko Kharenko has been named Law firm of the year: Russia, Ukraine and the CIS according to The Lawyer European Awards 2019 and Most Innovative Law Firm for Ukraine by IFLR European Awards 2019.
The National Bank of Ukraine (NBU) passed a new Regulation No. 996 lifting the ban on registration of transfers and assignments of cross-border loan agreements from 11 January 2016.
Ukraine Finance and Banking

The National Bank of Ukraine (NBU) passed a new Regulation No. 996 lifting the ban on registration of transfers and assignments of cross-border loan agreements from 11 January 2016. This effectively allows foreign lenders to sell their Ukrainian exposures, and increases the variety of instruments available to Ukrainian borrowers for restructuring their debt.

The requirement to register with the NBU a cross-border loan agreement and any changes in its material terms, including changes in the parties, i.e. lender and/or borrower, is a well-known feature of the Ukrainian restrictive currency controls. From August 2015, the NBU has temporarily refused to register transfers and assignments of such agreements, which has effectively amounted to a prohibition of changes in the parties to existing cross-border loan transactions. Furthermore, sales of domestic loans to non-Ukrainian counterparties (which also entail registration of the resulting cross-border relationship with the NBU) were also restricted, which limited the options available to Ukrainian parties to restructure their debt.

The new Regulation No. 996, while revoking the ban on registration of transfers and assignments, introduced additional documentation requirements. Document package submitted to the NBU will now have to include:

  • information on the ownership structure and ultimate beneficial owners of the new lender and/or borrower;
  • documents confirming the "economic rationale (sense)" of the proposed transaction;
  • documents evidencing the source of funds to be used for purposes of repayment of the loan and payment of interest; and
  • opinion of the borrower's Ukrainian servicing bank that the transaction will not result in the servicing bank's involvement in risky activities threatening the interests of its depositors or other creditors.

The NBU has allocated up to 30 calendar days to review the filing, and another 7 business days to carry out the registration (previously 5 business days), which should be factored in when planning a transaction.

Despite the lift of the ban, currency controls in Ukraine remain restrictive. In particular, the changes introduced by Regulation No. 996 do not affect other temporary restrictions, such as the prohibition on prepayment of cross-border loans. This restriction is currently scheduled to remain in place until March 2016, but will likely be rolled over for subsequent 3-month periods until the economic situation in Ukraine improves.

Regulation No. 996 sets a framework that is expected to be followed by borrowers seeking to restructure their existing loans and investors with the risk appetite for Ukrainian distressed assets.

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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