Corporate Bond Issuance In Belarus

In times of crisis, and most importantly, in the post-crisis period, businesses are in need of alternative sources to finance their own commercial projects.

A legal entity created and registered in Belarus is entitled to raise available cash assets on the capital market by issuing its own corporate bonds. The procedure is particularly beneficial to Belarusian companies that want to mobilise their working capital, but are not ready to overpay for bank loans and/or admit third-party members (shareholders) as co-owners of the business.

FOR REFERENCE:

Bond is an emissive security evidencing the right of its holder to receive from the issuer of the bond, within the period indicated therein, of its par value or other property equivalent. A bond may also evidence the right of its holder to receive interest determined therein from the par value of the bond and other property rights. Income on a bond is interest and/or discount (Article 1 of the Law of the Republic of Belarus of 05.01.2015 No. 231-З «On the securities market»).

Interest bearing bonds certify the obligation of the bond issuer to pay to the bond holder, within the time specified, their par value, as well as to pay on a periodic basis interest income.

Discount bonds certify the obligation of the bond issuer to pay to the bond holder, within the time specified, their par value, and they are sold to the investor at a price below their nominal one: the bond holder gains income from the difference between the nominal value and the actual purchase price.

Issuance of corporate bonds may be carried out by means of public or private sale: 

• public sale is placement of bonds among unlimited range of persons through conclusion of purchase and sales transactions on the over-the-counter securities market and/or stock exchange market; 

• private sale is effected only among specified in advance range of persons (not exceeding 100) through conclusion of purchase and sales transactions on the over-the-counter securities market. 

Nominal value of bonds can be both in Belarusian rubles and foreign currency (clause 64 of the Instructions No.78). Nominal value of bonds in Belarusian rubles shall be a multiple of one Belarusian kopeck.

Belarusian legal entities can issue:

A. secured bonds;

B. unsecured bonds.

А).  MEANS OF SECURING bonded obligations of the bond issuer towards the investors:

a) pledge, - bonds are issued in an amount up to 80 % of the pledged property value, and Edict № 277 contains detailed requirements for the assets to be pledged:

  • government securities (except for name-bearing privatization checks "Property"), 
  • securities of the National Bank of the Republic of Belarus, 
  • bonds of local executive and administrative bodies, banks, mortgage and deposit certificates, 
  • vehicles (including road, construction and other special-purpose machinery) registered in Belarus in accordance with the established procedure, 
  • real estate registered in the Unified State Register of Real Estate, Property Rights and Related Transactions;

and/or

b) guarantee – bonds are issued in an amount of a guarantee not exceeding the net assets value (amount of legal (equity) capital) of a guarantor calculated as at the first day of the quarter preceding the date of decision on public (private) sale of bonds;

and/or

c) bank guarantee - bonds are issued in an amount of a bank guarantee;  

and/or

d) insurance of liability for the non-fulfilment or improper fulfilment of the bond issuer’s obligations; 

and/or

e) right of claim in relation to loans granted by banks for housing construction, reconstruction or buying against property (up to 70 % of the loan principal).

Such pledged items as securities, and/or vehicles (including road, construction and other special-purpose machinery), and/or real estateare subject to independent valuation conducted in accordance with the procedure established by the legislation of the Republic of Belarus not earlier than six month before the date of the bond issuer’s decision on bonds issuance.

В). UNSECURED can be issued:

a) over-the-counter (OTC) bonds, provided the following conditions are met:

  • the bond issuer has neither negative financial result from selling of products, goods  (works, services) nor net loss as at the date of decision on bonds issuance, as well as within two years preceding such a decision making (if a legal entity has been carrying out its business activities for less than three years – for the whole period of such activities);
  • such bonds issuance volume does not exceed the amount of bond issuer’s capital (net assets) calculated in accordance with the legislation as at the first day of the month preceding the date of decision on bonds issuance (Instructions on procedure for  for calculation of the net assets value approved by the Resolution of the Ministry of Finance of the Republic of Belarus of 11.06.2012 No. 35).

b) exchange bonds, provided the following conditions are met:

  • bonds shall be nominated in Belarusian rubles, issued in book-entry form, with a maturity of not more than two years;
  • placement and circulation of bonds shall be only through the trading platform OJSC “Belarusian Currency and Stock Exchange”;
  • the bond issuer’s net assets value shall be not less than 100 thousand basic amounts;
  • the bond issuer has neither negative financial result from selling of products, goods  (works, services) nor net loss as at the date of decision on bonds issuance, as well as within two years preceding such a decision making (if a legal entity has been carrying out its business activities for less than three years – for the whole period of such activities);
  • securities of the bond issuer are admitted to trading on OJSC “Belarusian Currency and Stock Exchange”.

It is important to bear in mind that when issuing bonds (secured and unsecured) Belarusian bond issuers shall provide the calculation of current liquidity ratio (К1) and working capital to current assets ratio (К2) made in accordance with the law on economic insolvency (bankruptcy) as at the last day of the last month of the quarter preceding the quarter in which the decision on bonds issuance was taken. If the values of current liquidity ratio and working capital to current assets ratio, calculated as at the last day of the last month of the quarter preceding the quarter in which the decision on bonds issuance was taken, are lower than the statutory values of solvency ratio established in accordance with the law on economic insolvency (bankruptcy), legal entities are refused the state registration of bonds.

FOR REFERENCE:

Belarusian issuers of corporate bonds are entitled to place them on foreign markets. To be effective in attracting investment by placing corporate bonds on foreign financial markets, Belarusian bond issuers shall analyze the possibility:

  • to have enough currency proceeds for servicing bond loans abroad;
  • to prepare full financial statements under IFRS;
  • to endeavour to obtain the international or internal credit rating in the state where securities are placed.

For example, placement of corporate bonds in a foreign state can be organized in a number of ways:

1.creating by a Belarusian legal entity of a SPV (special purpose vehicle) in another jurisdiction. When issuing bonds in this way, the bond issuer registers in the territory of a foreign state such a SPV that carries out issuance under guarantee of a Belarusian borrower. Drawing up of the issue prospectus, its registration, as well as admission to placement and circulation of securities is made in accordance with foreign legislation governing these procedures for residents of such jurisdiction;

2.by direct placement of bonds of a Belarusian legal entity in another state, if such procedure (possibility) is provided for by the laws and practice, the so-called direct placement of bonds.

In this case bonds are issued by a Belarusian legal entity in accordance with the laws of a foreign state, including drawing up of the issue prospectus, which enables to engage the services of professional participants of the securities market of this state.

General placement algorithm can be as follows:

a. determining bond issue parameters, choosing organizers, concluding agreements with participants;

b. preparing necessary documents, including the bond issue prospectus, preparing materials for investors;

c. assigning internationals codes to the bonds of a Belarusian bond issuer and the bond issuer itself (ISIN, СFI, LEI);

d. obtaining consent of the stock exchange market for placement and/or public trading of securities on the on-exchange trading of a foreign broker;

e. submitting the necessary package of documents to the registering authority of a foreign state for making decision on registration of the issue prospectus and admission of bonds to placement in a foreign state.

Legal entities of the Republic of Belarus that are planning direct placement of bonds on foreign financial markets should keep in mind that within a ten-day period from the date of placement of bonds in a foreign state they shall submit a copy of the bond issue prospectus, or any equivalent document according to the laws of foreign states, to the Ministry of Finance of the Republic of Belarus (subclause 1.13 of the Decree of the President of the Republic of Belarus of 28 April 2006 No. 277 «On Some Issues of Securities Market Regulation»), in which case additional registration of bonds issuance in the Securities Department of the Ministry of Finance of the Republic of Belarus is not required. Where bonds are issued and placed in accordance with the requirements of foreign legislation, such bonds are recorded in a depositary system of a foreign state and, accordingly, transactions with such bonds during their circulation will be conducted in accordance with foreign legislation.

THE BOND ISSUANCE PROCESS, BRIEFLY

1. your Belarusian company issues debt bonds with fixed maturity and interest, at which you borrow funds from investors;

2. interested legal entities and individuals buy your bonds on the securities market (public or private sale);

3. invested by investors funds pass into the ownership of your company as operating assets;

4. your Belarusian company repays funds to investors according to the maturity terms of bonds.

Before issuing bonds WE will conduct audit of the business to assess and confirm the equity capital of a Belarusian issuer, preferable interest rate and maturity in the existing market environment:

  1. We perform preliminary analysis and assess optimal issuing conditions: private (public) placement, exchange (over-the-counter) bonds, type of security, interest and maturity period;
  2. We prepare drafts of source documents (issue prospectus, decision on issuance, brief information, etc.) for state registration of bond issuance in the Ministry of Finance of the Republic of Belarus;
  3. We submit to and support you documents before the registering authority for state registration of bond issuance;
  4. We prepare drafts of source documents for their admission to circulation on OJSC “Belarusian Currency and Stock Exchange”;
  5. We submit to and support a package of source documents before OJSC “Belarusian Currency and Stock Exchange” for introduction on the stock exchange;
  6. On your behalf we inform potential investors of sales and circulation terms and conditions.

NOTE: All corporate bonds shall be registered in the Securities Department of the Ministry of Finance of the Republic of Belarus, and in case of exchange bonds issuance – in OJSC “Belarusian Currency and Stock Exchange”. 

FOR YOUR INFORMATION: DOCUMENTS NECESSARY FOR ISSUANCE:

  • a decision on bonds issue stating the information enough for establishing the scope of rights certified by emissive securities;
  • an issue prospectus (only in case of public sale and placement) with detailed description of all terms and conditions of issue, circulation and redemption of bonds together with information on the bond issuer, its financial status and upcoming placement of securities, as well as other information determined by the Law № 231-З and the Ministry of Finance of the Republic of Belarus;
  • brief issuance information for media publications about main conditions for investors (also only in case of public sale and placement) together with general information on the bond issuer, bonds being issued, place, time and procedure for familiarization with the issue prospectus, as well as other information determined by the Ministry of Finance of the Republic of Belarus;
  • an agreement for purchase of bonds by investors.

FOR YOUR INFORMATION: INITIAL MINIMUM EXPENDITURES:

  • payment of state duty for registration of securities issuance; 
  • fees of a professional participant (consultant) for organization of issuance;
  • fees of a depository; 
  • payment for insurance or bank guarantee (if any). 

FOR YOUR INFORMATION: ISSUANCE ALGORITHM, BRIEFLY:

  1. to perform audit of your business and make arrangements for bonds issuance;
  2. to conduct independent valuation of the pledged property value for securing performance by the bond issuer of its bonded obligations;
  3. to choose a professional consultant who will prepare the documents necessary for issuance and support registration thereof in the Ministry of Finance of Belarus;
  4. to take and approve the decision, to draw up and approve the issue prospectus, documents on bonds issuance prepared by the authorized body of the bond issuer (the general meeting of the shareholders, meeting of the members, supervisory board, etc.), observing all the procedures and requirements of the legislation and articles of association of the bond issuer;
  5. to choose a broker and conclude with a broker, admitted to trading by the securities market operator, the agreement for conducting public sale of bonds;
  6. to choose a  depository that will keep the register of bondholders;
  7. to register the issue prospectus in the Securities Department of the Ministry of Finance of Belarus, - it is important that a professional consultant provides you with  full support of this process in order to promptly resolve comments of the registering authority;
  8. to certify and publish brief information on sale of bonds in mass media (in case of private sale of bonds this step is not available);
  9. to place (sale) bonds to potential investors on the stock exchange or over-the-counter markets;
  10. to submit the report on bonds placement on or prior to the fifth day of the month of the quarter following the quarter on which the date of placement falls (clause 48 of the Instructions № 78).

For additional information please contact:

Managing Partner of Collegia Law Firm

Certified Lawyer Igor Stukanov
E-mail: stukanov@collegia.by