ToBelarusian News - November 2011
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  Maksim Salahub
   
  Maksim Salahub
Office Managing Partner
maksim.salahub@sorainen.com
   
Dear clients and cooperation partners,

The skies in Minsk are blue (at least at the time of writing these lines), it is moderately cold for this time of the year, the air is clear, and I am hurrying to share the news that this year’s local financial crisis is officially over. What in the second half of the 1990s took roughly five years has now been accomplished in seven months: the Belarusian ruble was officially devalued for the second time this year, bringing the total devaluation rate beyond 250%, and multiple exchange rates and the black currency market have finally been eliminated, in a quite decisive manner. An unpopular solution from the social point of view but good news and a positive signal to business: the Belarusian Government is able to learn at least some economic lessons from the past and acknowledges the need to live by own means.

We are seeing a rigid revision of budget spending at all levels, significant reduction of capital-intensive state programmes (especially construction of subsidised housing), an almost complete incomes freeze in the budget-funded sector, a slight acceleration of privatization, and modest but probably realistic official growth forecasts for 2012. Some other figures may help you understand how Belarus is approaching 2012, which is projected to be very tough in terms of servicing the country’s foreign debt:

  • the Belarusian ruble was devalued again on 20 October 2011 by close to 60%;
  • the refinancing rate of the National Bank has grown from 18% to 40% within four months;
  • the inflation rate during the first 10 months of 2011 was 89%;
  • 9.1% GDP growth in January – August year-on-year, and slowing down;
  • in July 2011, a positive foreign trade balance (USD 167 million, or approx EUR 122 million) was achieved for the first time in years, although the year’s negative balance still remains significant (USD 4.3 billion from January – July, or approx EUR 3.2 billion);
  • gold and foreign currency reserves as at 1 November 2011 stood at USD 4.6 billion (approx EUR 3.4 billion) with a slight decrease in October - the Government expects reserves to increase in 2012 by USD 5 billion (approx EUR 3.7 billion), mainly due to active privatisation.

Interim outcomes of 2012 privatisation campaign in Belarus
New regulations on construction contracts
Improving regulations on withdrawal and allocation of land plots
Simplified procedure for disposal of real estate
Measures against securities market manipulation in Belarus
Unilever acquires Ingman Ice Cream


 

Interim outcomes of 2012 privatisation campaign in Belarus

The State Property Committee is putting up for sale state-owned shares in 178 enterprises in the current year. Most privatisation auctions and contests are over. The main outcomes are:

  • shares in 31 enterprises successfully sold;
  • total revenues from these sales amount to more then BYR 130 billion. Due to exchange rate fluctuations during the year it is difficult to convert this amount into EUR or USD, but at current exchange rates this makes EUR 10.8 million / USD 14.7 million;
  • the overwhelming majority of buyers were local investors;
  • the largest transaction was acquisition of additionally issued shares in Bobruisk Machine Building Plant for approximately USD 10 million (approx EUR 7.3 million) by Russia’s Hydraulic Machines and Systems (resulting in the investor holding 57% of the company);
  • the state-owned 51% in MTS, a mobile operator with over 4.7 million subscribers, was put up for sale (auction scheduled for 1 December 2011) for USD 1 billion (approx EUR 733 million) - the privatisation authority says several bidders are interested;
  • according to the State Property Committee, privatisation will accelerate in 2012.

New regulations on construction contracts

A new version of the Regulations on Making and Execution of Construction Contracts entered into force on 21 October 2011. According to the new Regulations the construction deadline set in the contract should not exceed the deadline set in the construction documentation (design estimates). Exceeding the term should be agreed with the Ministry of Architecture and Construction, Ministry of Economy, or local executive authority depending on the source of construction financing. The Regulations also contain requirements (which used to be licensing requirements until abolition of licences) towards the contractor in construction, such as availability of employed certified construction specialists, certain machines and equipment. Besides, the amounts to be received from each source of financing should now be listed in the contract. The minimum guarantee period for commissioned construction objects is five years.

The Regulations now state that customer and contractor in construction may apply FIDIC provided that Belarusian legal requirements are observed.

The new Regulations apply to contracts concluded after 21 October 2011. A new guarantee term of five years applies to objects commissioned after 21 October 2011 regardless of when the construction contract was made.

Improving regulations on withdrawal and allocation of land plots

The Edict No. 431 on Certain Measures on Improvement of Relations in the Sphere of Withdrawal, Allocation, and Use of Land Plots was issued on 23 September 2011 and enters into force on 1 December 2012. The Edict simplifies the procedure for allocating land plots for construction and maintenance of roadside service objects. Land plots will be allocated without holding auctions by municipal authorities of the lowest level (regional executive committees instead of oblast executive committees).

Privately-owned companies registered in Belarus which hold land plots for maintenance of their buildings will be entitled to buy out their land plots at a price equal to 70% of their cadastral value.

Simplified procedure for disposal of real estate

The mandatory obligation on landlords to inform the local state registration and land cadastre agency about concluding a lease, sublease, or free use agreements was abolished by Presidential Decree No. 7 of 30 August 2011. In case of disposal of a real estate object the owner must inform its counterpart about encumbrances such as lease, sublease, or free use, otherwise the counterpart will be entitled to claim invalidity of the transaction. The new regulations are aimed at facilitating business use of real property.

Measures against securities market manipulation in Belarus

On 20 August 2011 the President of Belarus issued Edict No. 383 which will enter into effect on 6 December 2011, amending several legal acts and countering manipulation of the Belarus securities market.

The Edict bans manipulation, i.e. activities which may affect demand for particular securities, their market price, or trade volumes. According to the definition given by the Edict, these activities may include wilful dissemination of false information on securities, issuers, securities prices, making transactions with securities in collusion with professional market participants or their employees, repeated defaults under transactions with the same securities traded on the stock exchange, and certain other actions.

The issuer’s management, employees, auditors, and other persons having access to the issuer’s financial information are prohibited from disclosing such information and from selling issuer’s securities within six months of acquisition. Transactions in violation of this prohibition are considered null and void.

The legal act provides the securities market regulator with additional powers to prevent manipulation, such as claiming in the commercial courts for invalidity of transactions with features of manipulation, or conducting special inspections.

The Edict expands the range of property usable as collateral to secure obligations under issued bonds to include vehicles, including road and construction machinery. Besides, bonds issued by Belarusian companies abroad do not need to be registered in Belarus.

Unilever acquires Ingman Ice Cream

Unilever has agreed to acquire Ingman Ice Cream, including its subsidiaries in the Baltics and Belarus. Ingman is the oldest major domestic ice cream producer in the Finnish market since Valio divested its ice cream production to Nestlé in 2004. Completion of the acquisition is contingent on securing approval from the relevant competition authorities.

Ingman operates production facilities in Sipoo (Finland), Åhus (Sweden), Mazeikia (Lithuania) and Gomel (Belarus) and employs 700 staff. The company earned approximately EUR 70 million in revenues in 2010 via direct sales through proprietary sales offices in Finland, Sweden, Estonia, Latvia, Lithuania and Belarus, and through international distributors.

SORAINEN advised the Baltic and Belarus part of the transaction.

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