Belarusian News - April 2013
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  Maksim Salahub
   
  Maksim Salahub
Partner
maksim.salahub@sorainen.com
   
  Alesia Tsiabus
   
  Alesia Tsiabus
Associate
alesia.asiabus@sorainen.com
   
  Yuliya Liashenka
   
  Yuliya Liashenka
Associate
yuliya.liashenka@sorainen.com
   
  Karina Modnik
   
  Karina Modnik
Legal Assistant
karyna.modnik@sorainen.com
   
Dear clients and cooperation partners,

The skiing season in Belarus this year has indeed exceeded all expectations: it seemed like winter was never going to leave our beautiful country. One might say that Belarus has been having a much longer investment winter as during the past two years the Government has virtually brought to a close all its privatization plans, and investors began to see yet more financial and political risks in the country than before.  However, events in the M&A market in 2012 prove the opposite, as suggested by the review prepared jointly by leading Belarusian investment consulting company EnterInvest and SORAINEN. In fact, the review says that 2012 has been the busiest year for the Belarusian M&A market in the past five years.  Yet more remarkable is the fact that equity investments by Belarusian business composed 92% of the market. Key Belarusian industries such as Telecommunications & Internet, Machinery, Food, Retail, Banking, and others saw a number of high-scale acquisitions. More information about deals (broken down by sector), aggregate market data, and analysis of the main peculiarities of structuring and implementing M&A transactions in Belarus are available in the full version of the review published here.

This spring is a special time for SORAINEN as we are celebrating five years of hard work for our clients in the Belarusian market.  We would like to take this opportunity to thank both clients and cooperation partners for their confidence and cordial collaboration during the past five years, and express hope for further development of our relations in a spirit of partnership.

In the spring of 2008 SORAINEN was one of the very first foreign law firms to open its doors in the Belarusian market. In December 2009, the office became the first law firm in Belarus with a certified quality management system according to ISO 9001.

Currently SORAINEN Belarus deploys one of the largest teams of lawyers in the legal market with a professional administrative unit headed by three experienced partners. During its presence in the Belarusian market SORAINEN has advised more than 500 international and Belarusian clients on legal aspects of doing business in Belarus. Projects implemented by Minsk lawyers include the most notable investment projects in various sectors of the economy, large-scale mergers and acquisitions, provision of financing, acquisition and construction of real estate, corporate restructuring and major court disputes.

For five years, SORAINEN Belarus has repeatedly been recognised as the market leader in international legal directories including Chambers Global, Chambers Europe, The Legal 500, IFLR1000 and PLC Which Lawyer?. The SORAINEN Belarus office also became the first foreign firm recognised as the best provider of legal services by the Belarusian Ministry of Justice.

In addition, we would like to offer you some of the most notable changes in Belarus legislation which will come into effect in the coming weeks and months.


Privatisation in Belarus remains constrained
Return of the golden share rule? New laws to grant special powers to the state on management of privatized companies
Protection of commercial secrets: regulation has become more precise
Laws becoming more flexible for advertising in foreign languages and on vehicles
SORAINEN advises EBRD on financing expansion of Evrotorg and A-100


 

Privatisation in Belarus remains constrained

After a year of practicing “selective privatisation”, Belarus has not progressed much with divestment of government assets.  The legal framework has become less consistent and guidance from the government authorities is very scarce.  According to clarifications by the State Property Committee, investors are welcome to select privatisation targets themselves and send brief letters of interest to the Committee, the Council of Ministers, or a branch ministry.  However, this way the investor will initiate the privatisation tender procedure with regard to the enterprise, i.e. finally find themselves bidding along with competitors.  On the other hand, direct sale without holding a tender is not ruled out, but that normally takes a special decision of the President.    

At the beginning of the year the President by Edict expanded from 54 to 61 the list of state enterprises to be reorganised into open joint stock companies whose shares will not be sold to employees at a reduced price (first adopted in January 2012).  The list mainly includes enterprises subordinated to the Ministry of Industry (29) and Ministry of Agriculture (7 large bakeries).

So it is no wonder that asset deals and joint ventures with government enterprises in various industries (from machine building to pharmaceuticals) have gained popularity as compared to share deals during the past year.  Joint ventures established from scratch do have several advantages, such as:

  • Establishment normally requires fewer approvals and is faster than privatization.
  • A joint venture does not have a long and tangled corporate history, while the risk of government interference in corporate governance is lower.
  • State assets may be contributed to the joint venture selectively, while fewer social and other non-commercial commitments are expected of the private investor.

The Belarusian Government is working on several large scale joint ventures, mainly with selected Russian investors:  alliances between Grodno Azot and Evrokhim, Belgips and Volma, MAZ and KamAZ, Minsk Wheel Tractor Plant and a Russian defence industry enterprise, while certain others are now being actively discussed at the intergovernmental level. 

At the same time, there is a possibility that several “crown jewels” will be sold via privatisation tenders, including a 51% stake in telecom company MTS, a minority stake in the country’s largest brewery Krinitsa, and various stakes in eight industrial enterprises selected for the “pilot privatisation” project supported by the World Bank and administered by the National Agency for Investments and Privatisation.  However, in all cases the processes are very slow due to regulatory and administrative constraints, gaps between the expectations of the Government and investors, and high risks perceived by investors.

There is no reason to suppose that privatisation in Belarus will accelerate in 2013.  We encourage you to follow our publications and stay in the loop of new developments in this area.

Maksim Salahub
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Return of the golden share rule? New laws to grant special powers to the state on management of privatized companies

Privatization laws in Belarus may soon be changed so that the state will be able to exercise certain control over formerly state-owned companies. 

The first changes were introduced by Presidential Edict 74 of 8 February 2013 (coming into force May 2013) which slightly modified the procedure for governmental supervision over companies whose shares are owned by state or local authorities. According to Edict 74, government representatives who may be appointed for the purposes of governmental supervision will include higher ranking officials such as vice premiers, ministers, and their deputies. State representatives at banks will be appointed with approval of the National Bank of Belarus.

More radical changes are anticipated in connection with amendments to the Law on Privatization of State Property and Reorganization of State Unitary Enterprises in Open Joint Stock Companies (the Amendments). As of today, the Amendments have been approved by parliamentary committees. The Amendments are expected to be signed by the President before mid-2013.

The Amendments affect the corporate management of companies established on the basis of state enterprises in the following ways:

  • decisions of joint stock companies in which 100% shares belong to the state will be substituted by the decision of the supervising state body (normally, the ministry concerned);
  • there will no longer be supervisory boards (boards of directors) in joint stock companies with over 50% shares in state or local authority ownership. The day-to-day management of these companies will be performed by their directors, and the most important issues (such as liquidation / reorganization of the company, issue of securities, major transactions) will be decided at the shareholders meeting;
  • supervisory boards will be created in joint stock companies where 50% or fewer shares are in state or local authority ownership. State representatives will without fail be appointed as members of supervisory boards.

The government will be able to appoint representatives to formerly state-owned companies.  The Amendments as they are now do not specify to which corporate bodies these representatives will be appointed, but in any case they will have the following powers:

  • in companies where 50% or fewer shares are in state or local authority ownership, state representatives will vote at the shareholders meeting using the votes of minority shareholders (those holding less than a 2% share in the company) that fail to show up and register at the shareholders meeting;
  • in companies with no shares in state or local authority ownership, state representatives will also be able to vote using the votes of absent minority shareholders and will also have a veto right with regard to the following decisions: liquidation, reorganization of the company, change of authorized capital, amendment of articles of association, distribution of profits, issue of additional shares, payment of dividends, establishment of other legal entities.

The Amendments also establish a special procedure for remedying the rights of the state violated during privatization of a company. In the case of such violations the state may demand issue of additional shares in its favour, thus increasing its share in the company without making any investment.

We are waiting for the Amendments to be adopted to provide a more exhaustive analysis of the changes, which may concern a considerable number of foreign investment projects in Belarus.

Alesia Tsiabus, Maksim Salahub
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Protection of commercial secrets: regulation has become more precise

On 11 June 2013 the Law of the Republic of Belarus On Commercial Secrets (the Law) will come into force. The Law aims to improve protection of commercial secrets, undisclosed information, and trade secrets (know-how).

Although regulation of commercial secrets protection is becoming more precise, it will not bring new substantial negative consequences for violators. Identification of damage and loss of profit in the case of breaches remains a difficult task: we wait for market and law enforcement practice to emerge.

For the first time the Law clearly defines the correlation between the concepts of “undisclosed information” and “commercial secrets”. Undisclosed information will be excluded from the range of objects of intellectual property. “Undisclosed information” will mean information (data) subject to protection, while “commercial secrets” will define how undisclosed information should be protected (the protection regime). Trade secrets (know-how) will remain objects of intellectual property. At the same time the interests of the know-how owner will also be protected by means of the commercial secrets regime.

The Law specifies a list of information concerning which a commercial secrets regime can be established. An important innovation of the Law is that information on the amount of employees' salaries will become protectable (previously, it was not recognized as a commercial secret).

To protect information which can be recognized as a commercial secret, a commercial secret regime must be established by its owner, i.e. the following measures are required:

  • access to a commercial secret must be restricted by establishing a special procedure for treatment of the respective information media;
  • persons who receive access to a commercial secret must be recorded;
  • access by employees to commercial secrets must be regulated by employment agreements (contracts), and additionally, at the request of the employer, by agreements on non-disclosure of commercial secrets;
  • access by counterparties to a commercial secret must be regulated by contracts with them;
  • employees responsible for ensuring confidentiality of information constituting a commercial secret must be appointed.

Counterparties of the owners of commercial secrets will also be able to establish the same protection regime.
The Law also regulates “the employee's non-disclosure commitment” (which has often been applied in practice to protect the employer from disclosure after termination of employment) and “the confidentiality agreement” with a counterparty. Under the Law the “employee's commitment” may include a provision on remuneration to the employee for keeping this commitment.

The Law additionally establishes the possibility to hold liable those who abuse the right of access to a commercial secret granted by law (e.g. prosecutors, investigators, court officials), and the duty of the commercial secret owner’s counterparty to pay damages to the owner for failure to ensure confidentiality of information.

The Law imposes a duty on a violator of a commitment to keep a commercial secret to pay damages and loss of profit. However, the Law does not recognise this remedy as pre-defined compensation or fine for disclosure of information, which in practice is more preferred by businesses.

Yuliya Liashenka
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Laws becoming more flexible for advertising in foreign languages and on vehicles

On 3 January 2013 the Law amending the Laws on Advertising and on Languages in the Republic of Belarus was adopted. The Law will come into force on 10 July 2013.

The Law allows more cases of advertising in a foreign language: advertising of the names of goods, creative pseudonyms, the original names of creative teams, domain names of websites executed in a foreign language.

The Law states that the duration of each interruption by advertisements of a broadcast, including feature films, should not exceed six minutes every hour, except for the period from 18.00 till 22.00. During this period advertising should not exceed 16 minutes every hour. Previously the permitted duration of advertising between 18.00 and 22.00 was up to 18 minutes every hour.

The Law also eliminates the need to obtain permission for placing/distribution of advertising on vehicles. This now requires only coordination of the advertising with the municipal or regional executive committee as well as with the Department of Motor Vehicles.

Under the Law, advertising in respect of bank deposits must show the amount of interest. If the contract allows the bank to reduce the interest rate on deposits unilaterally, the advertisement must contain a warning.

Changes also affect certain advertising aspects of specific goods (e.g. medicines, medical equipment, liquor, low alcohol beverages, beer) as well as work and services (e.g. lotteries, games, advertising and entertainment events). For instance, the Law introduces a provision allowing producers to place/distribute advertising of alcoholic beverages on their Internet websites.

Karyna Modnik
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SORAINEN advises EBRD on financing expansion of Evrotorg and A-100

SORAINEN Belarus acted as local counsel to the European Bank for Reconstruction and Development in two notable banking transactions.

The first transaction is an extension of a EUR 10 million loan for Evrotorg to finance the company’s investment projects – construction and refurbishment of up to seven modern food retail stores in regional cities in Belarus.
Evrotorg (food retailer Evroopt) is the biggest commodity market operator in Belarus. So far, Evroopt has 123 shops throughout the country, including the biggest Evroopt discounter in Minsk with a total area of 20,501 m2.

The second transaction is an extension of a USD 10 million loan for A100 Group (a group of companies with focus on fuel stations, real estate development, restaurant chains) to finance expansion of the company’s fuel station network by 25-30 sites over two years.

SORAINEN performed a corporate check of the borrowers, assisted in developing financial documentation, advised on enforceability of foreign law-governed transaction documents, prepared Belarusian law-governed transaction documents and issued legal opinions.

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Please note that SORAINEN Belarusian News is compiled for general information purposes only, free of obligation and free of legal responsibility and liability. It does not cover all laws or reflect all changes in legislation, nor are the explanations provided exhaustive. Therefore, we recommend that you contact SORAINEN or other legal advisor for further information. Electronic versions of SORAINEN Belarusian News are available and can be subscribed to on the SORAINEN website.

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