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.
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:
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;
c) bank guarantee - bonds are issued in an amount of a bank guarantee;
d) insurance of liability for the non-fulfilment or improper fulfilment of the bond issuer’s obligations;
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:
b) exchange bonds, provided the following conditions are met:
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.
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:
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:
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:
FOR YOUR INFORMATION: INITIAL MINIMUM EXPENDITURES:
FOR YOUR INFORMATION: ISSUANCE ALGORITHM, BRIEFLY:
For additional information please contact:
Managing Partner of Collegia Law Firm
Certified Lawyer Igor Stukanov