Category: Russia

German lawyer Thomas Mundry has been living and working in Russia since 1994. He advises both Western and Russian clients on investment, financing, and other projects in the Russian Federation. His sphere of activity covers a wide range of industries, including automotive manufacturing and supply industry, oil and gas, chemicals, engineering, retail, food and consumer goods, the fashion industry, and IT.

CEELM: Run us through your background, and how you ended up in your current role with Noerr.       

T.M.: I started my career in a law firm which had its main office in Stuttgart – one of the industrial centers of Germany. In the early nineties the Iron Curtain broke down and my firm decided to expand its business activities to Eastern Europe. I started the Moscow office of my firm and later moved to the Moscow office of Noerr. I advise German and other Western businesses on their investments in Russia. Among my clients are Daimler, Continental, Knorr-Bremse, and McDonald’s.  

CEELM: Was it always your goal to work abroad?    

 T.M.: Not really. After having gained several years of experience in a large German law firm I felt that I should do something new. That coincided with the firm’s plans to expand to Russia, so I agreed to open the Moscow office of that firm and head the office for a year’s term. As the business developed successfully I decided to continue without time limitation.        

CEELM: Tell us briefly about your practice, and how you built it up over the years.       

T.M.: I advise Western businesses on all steps of their investments in Russia. Businesses delivering to Russia often wish to establish a representative office branch or subsidiary in Russia to better serve their clients. Russian localization requirements or other business need may make it necessary to produce goods in Russia and/or to co-operate with a Russian partner in a joint venture. The establishment of a production plant or of a joint venture requires a thorough due diligence of land and buildings and/or of the Russian joint venture partner. Often the relevant documentation is the subject of extensive discussion between the investor and his/he business partners. Currently, Western and Russian sanctions as well as Russian localization requirements are major issues. We always look for solutions which comply with the legal requirements and serve the business needs of our clients. We often develop creative and special (e.g., contract manufacturing) structures for our clients. 

CEELM: How would clients describe your style?      

T.M.: The focus of my work is the concrete needs of my clients. I offer efficient and tailor-made advice. Large standard sample agreements do not always meet clients’ needs. I work with small teams in order to keep close contact with each lawyer involved in the client’s work and to keep fees at a reasonable level.   

CEELM: There are obviously many differences between the Russian and German judicial systems and legal markets. What idiosyncrasies or differences stand out the most?   

T.M.: Like the continental European legal system, the Russian system is based more on the law than on court precedent. And Russian courts decide cases on the wording of the law rather than on its spirit and purpose. Therefore, agreements must be drafted very accurately, in order to ensure that all wishes of the parties are clearly expressed. For the same reason, Russian parties are reluctant to accept blanket clauses referring to good faith, business customs, or similar concepts.  

CEELM: How about the cultures? What differences strike you as most resonant and significant?     

T.M.: Germans are well known for long-term thinking and planning. Therefore, their projects are often successful and Germans are welcome as business partners. However, sometimes planning may last too long. I always admire the Russian talent for improvisation and creativity. Unfortunately, Russian businessmen often look for quick success. Usually, they are not patient and willing to wait for long if profits may not be gained immediately. The different cultures often lead to conflicts between business partners. Prospects of a joint venture are high if the different attitudes can be merged.    

CEELM: What particular value do you think a senior expatriate lawyer in your role adds – both to a firm and to its clients?    

T.M.: As a senior expatriate lawyer, I wish to deeply understand the business interests of my clients and to propose solutions which exactly meet their interests and needs. The advice of a senior expat is expected to be well-structured and designed in a form which the client can expect from a lawyer in a Western country.  

CEELM: Do you expect to return to Germany at some point in the future? 

T.M.: Approximately fifteen years ago I planned, upon retirement, to go back to Germany and settle down in a small village. I even bought a small house in the countryside far away from the big cities. Now, much closer to retirement, I cannot imagine stopping working and leaving this great city, with its daily changes, with all its interesting and open-minded people, and with all its great chances and opportunities. So I am looking forward to staying for many more exciting years. 

CEELM: Outside of Russia, which CEE country do you enjoy visiting the most, and why? 

T.M.: I very much like visiting the Czech Republic (in particular, Prague). The Czech Republic did extremely well after the falling down of the Iron Curtain. Being aware of the difficult history of the Czech Republic and Germany in the last century, I feel that the cultures of both countries have very much in common.          

CEELM: What’s your favorite place to take visitors in Moscow?  

T.M.: My favorite places are Kolomenskoye Park and the New Maiden’s Monastery. Both places show great parts of Russian history and are excellent places for a walk.  

CEELM: Finally, although the German team had a disappointing trip, did you manage to see them play in the World Cup in Russia this year?   

T.M.: Unfortunately not. But I watched the game between Belgium and Tunisia in Spartak Stadium. I saw a great Belgian team which, in my view, outperformed the German team by far. In any event, the World Championship was a great happening which was perfectly organized by the Russians. I am sure that many foreign visitors brought home positive reports of Russia which differ greatly from the customary reporting of Western mass media.

This Article was originally published in Issue 5.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Deal: In September 2017, CEE Legal Matters reported that the Moscow offices of Clifford Chance and CMS had advised on USD 850 million pre-export financing provided by 11 international banks for Uralkali, one of the world’s largest potash producers. On July 27, 2018, CEE Legal Matters reported that the two firms had advised on another Uralkali financing, this time involving a USD 825 million facility provided by 14 Russian and international banks.We reached out to both firms for more information about this most recent deal.

The Players:

• Counsel for the Lenders: Victoria Bortkevicha, Partner, Clifford Chance Moscow
• Counsel for Uralkali: Elena Tchoubykina, Partner, CMS Moscow

CEELM: Victoria, how did you and Clifford Chance become involved with the banks in this matter? How were you selected as external counsel initially, and when was that?

V.B.: For the past few years we have represented many banks from the syndicate on various other financings, including several English law governed pre-export facility agreements, and I believe that our experience was the reason for sending us the RFP and choosing our team to work on that transaction. Another reason was that we worked as bank counsel on pre-export financing arranged by the lenders for PJSC Uralkali last year and were very delighted to be approached by the parties to act as the bank legal counsel on the current transaction. We were approached by the banks in May 2018. As the timing of the closing of that transaction was rather limited, we were selected very quickly after we provided our proposal.

CEELM: How about you, Elena? How did you and CMS come to represent Uralkali in this matter?

E.T.: Uralkali is a long-standing client of mine, and we have been representing them in their finance transactions for a while now. These include similar pre-export finance transactions, ECA-backed arrangements, bilateral loans and factoring. Since CMS advised Uralkali on their previous PXF deals, they came to us for assistance with this new financing.

CEELM: What, exactly, was your initial mandate when you were first retained for this particular project?

V.B.: We were appointed by the banks once the term sheet was agreed. It was also agreed that first draft of the facility agreement would be prepared by the borrower’s legal counsel and we would prepare first drafts of the security and other documents. We assisted the banks during the negotiations with PJSC Uralkali and their legal counsel and in the course of signing of the finance documents.

E.T.: It was rather straightforward – advising the borrower on its repeat PXF facility which has a fairly standard structure previously accepted by the parties. Availability, adherence to the tight timetable for closing, and our ability to navigate through the documentation, having all necessary background knowledge, were among other conditions for our appointment. 

CEELM: Who were the members of your team, and what were their individual responsibilities?

V.B.: The transaction team, which worked under my direct coordination, included Senior Associate Jan Galin and Associates Arina Skrebkova and Anna Semenova. I (as English law-qualified Partner) and Jan were primarily dealing with the reviewing and negotiating of the facility agreement, and Arina and Anna were primarily responsible for the drafting and negotiating of the security documents and CPs.

E.T.: The core team was rather compact: Ana Radnev, a Prague-based partner, Alexander Zhuravkov, a Moscow associate, and myself. I was responsible for co-ordination and day-to-day assistance.

CEELM: How was the financing structured, and how did you help it get there?

V.B.: The project consisted of a pre-export financing for PJSC Uralkali arranged by 14 lenders. This new financing replaces the financing provided by the lenders in 2014. As the current facility agreement and related documents were based on the existing pre-export financing documentation dated from 2017, our work was less substantial than other financing transactions where we have to start from scratch.

E.T.: This is a typical PXF facility secured by a cash stream under assigned export contracts which is accumulating on charged collection accounts. The only difference from the previously used structure was that the collection accounts were opened in the UK so we had to negotiate the relevant security document from scratch. Our key contribution was the good knowledge of the transaction structure and the precedent documentation. We were able to deal with the banks’ requests and queries quickly and efficiently.

CEELM: What would you describe as the most challenging or frustrating part of the process?

V.B.: As we were primarily advising ING Bank N.V., acting as one of the facility coordinators and the documentation agent of the facility provided by a group of 14 banks, the most challenging part of the matter was aligning the interests of all the banks involved in the transaction, along with time, as the transaction was completed less than two months from kick-off. 

E.T.: It is difficult to refer to challenging or frustrating matters in the process of the deal closing except for the sanctions-related matters which always get discussed – but this has become a new norm for the Russian finance market (even LMA has introduced standard sanctions language now). Having said that, sanctions-related provisions always get discussed – whether because the new lenders are entering into the transaction or because of the changing sanctions regime. This happened on this deal too, and the main challenge was to find a compromise that would suit the client and give sufficient comfort to the banks’ compliance teams.

CEELM: Was there any part of the process that was unusually or unexpectedly smooth/easy?

V.B.: Syndicated financings with large number of participants (such as this transaction) may take long between kick-off and closing and usually require a lot of organizational effort from all sides. A very professional attitude and extraordinary organization on all sides allowed us to have all finance documents drafted, negotiated, and signed within six weeks from kick-off, which allowed us to achieve a successful closing within the deadlines set by the parties. 

E.T.: You could say so. This is the second PXF facility for Uralkali which we worked on opposite Clifford Chance, which represented the banks. So the negotiation process was smooth. It’s always a pleasure to deal with their reputable and professional team in Moscow.

CEELM: Did the final result match your initial mandate, or did it change/transform somehow from what was initially anticipated?

V.B.: The mandate was clear from the beginning, as pre-export financing is one of the core types of transactions that our firm usually does on the market, and as everything was on track, the final result matched our original mandate.

E.T.: We did not go beyond our original mandate – the deal closed as originally anticipated.

CEELM: What individuals at the banks directed you, Victoria, and how would you describe your working relationship with them? 

V.B.: On the banks’ side, the coordination was done primarily by Evgeny Gaevskiy (Director, Syndicated Finance) and Adelina Toader (Vice-President, Oil & Gas and Fertilizers Structured Finance). Coordination was perfectly arranged, and it was one of the key reasons why this transaction went so smoothly. In addition, we also worked closely with Credit Agricole Corporate & Investment Bank teams, as Credit Agricole Corporate & Investment Bank acted as the facility agent and the security agent on this transaction. It was very easy to have a good working and personal relationship with both the ING and Credit Agricole teams because they are good communicators – very much to the point and easy to work with. I and my team enjoyed working with them.

CEELM: What about you, Elena? Who at Uralkali directed your work, and how would you describe your working relationship with them? 

E.T.: We work closely with both Uralkali’s corporate finance and legal teams. Our key contacts at Uralkali were Anna Tsaturyan, Head of Corporate Finance, and Maxim Subbotin, Head of Corporate Projects Support Department. All the team members are very experienced and pragmatic and were very clear as to the goals they wanted to achieve in this transaction. We simply had to match the approach. It is important to build a relationship which goes beyond formal communications in order for you to become a “go to” advisor, which we also tried to do.

CEELM: How would you describe the working relationship with your counterparts at CMS on the deal, Victoria?

V.B.: All communication with CMS was very professional and productive. I believe we understood each other very well throughout the negotiation process, which was helpful given the challenging timeframe of the transaction.

CEELM: And what was the working relationship with your counterparts at Clifford Chance like, Elena?

E.T.: This and last year we have worked opposite Clifford Chance on a number of finance transactions and we have always managed to find solutions that were satisfactory to both sides. So it’s definitely a good working relationship – we would be happy to cooperate with them on other projects.

CEELM: How would you describe the significance of the deal?  

V.B.: Given the current complex political situation and the sanctions regime imposed on Russia, syndicated financings of this type and magnitude are less frequent these days. We believe that this deal sends an important message that the international banks are still interested in the Russian market, and it can also act as example for other major Russian companies looking to finance their operation by international financial institutions.

E.T.: The deal indicates that notwithstanding the current political climate and sanctions regime there are Russian borrowers like Uralkali who can successfully raise financing with international lenders, and such lenders are still willing to accommodate their borrower’s requests as to the commercial terms of transactions and timing. I guess this also makes international law firms in Moscow “cautiously optimistic” about their potential work.

This Article was originally published in Issue 5.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

During the last decade, customary business processes have been disrupted by new financial technologies such as blockchain, cryptocurrencies, blockchain tokens, and smart contracts. The appropriate regulation is on its way in Russia, as Russian regulators have recently shifted their focus from imposing a ban on cryptocurrencies to looking for ways to regulate the new relationships. As a result of prolonged discussion about the legal nature of tokens and cryptocurrencies, the authorities have come up with two bills designed to set a cornerstone for Russian regulation of the digital economy.

In October 2017, Russian President Vladimir Putin expressed his view on cryptocurrency, acknowledging it as a full-fledged means of payment and investment but also noting the associated risks, including money laundering, tax evasion, financing of terrorism. and fraudulent schemes. Such risks have also repeatedly been mentioned by the Central Bank of Russia (CBR). Mr. Putin has stressed that the risk factors should not lead to a ban of cryptocurrencies, but that these risks should be addressed in appropriate regulations.

The first drafts of these regulations were bills on digital financial assets published by the CBR and the Ministry of Finance in January 2018. The more rigorous approach of the CBR was later reflected in the bill on digital financial assets (the “Bill on DFA”) submitted to the State Duma (Russia’s legislative body) on March 20, 2018.

The Bill on DFA recognizes cryptocurrencies and tokens as so-called “digital financial assets” (DFA) constituting “other property” under Russian civil legislation but denying their status as a legal means of payment in Russia. The Bill on DFA provides that tokens can be exchanged for rubles or foreign currency only via exchange operators acting as certain professional securities market participants or trading institutions. The Bill on DFA does not permit the exchange of tokens for cryptocurrency or other type of tokens. The rules of DFA-organized trading applicable to trading institutions are to be adopted by the CBR. The proposed legislation sets forth requirements for initial coin offerings (ICO) as well, including disclosure duties of token issuers, the publication of an investment memorandum (a document similar to a “white paper”), and the description of risks connected with the project for which an ICO is arranged.

In addition, on March 26, 2018, a bill on amendments to the Russian Civil Code regulating tokens as so-called “digital rights” (the “Bill on Digital Rights”) was submitted to the State Duma. The Bill on Digital Rights addresses the procedure for the transfer of rights to “digital rights” and the execution and enforceability of smart contracts. It provides that the transfer of title evidenced by a digital right will occur solely by an entry made to the relevant information system. A digital right may be transferred on the same terms and conditions as the underlying object of civil law rights; the transfer of the digital right will result in the simultaneous transfer of the right/claim represented by such digital right.

The Bill on Digital Rights recognizes smart contracts as legally binding and enforceable but limits the available remedies to the parties. Transactions providing for automatic performance can be challenged in exceptional circumstances only if there is evidence that the parties to the transaction or any third party have interfered in the process of performance.

On May 22, 2018, the Bill on DFA and the Bill on Digital Rights were adopted by the State Duma in the first reading and, going forward, will be considered jointly. The bills are likely to be adopted in September 2018 after further revision.  

Although representing a positive shift in the Russian treatment of cryptocurrencies, the proposed legislation does not fully address the challenges of the digital economy. The definitions and rules of digital rights and smart contracts do not fit within the existing civil law framework. For example, the limitation of remedies under smart contracts violates both constitutional and civil law principles. The Russian government has not yet come up with drafts of subordinate legislation or regulation which would fill the gaps in existing drafts. Nevertheless, the bills, if revised as necessary and adopted, would still bring more certainty in Russian regulation of FinTech and would lay the groundwork for further developments.

By Anna Maximenko, International Counsel, and Elena Klutchareva, Associate, Debevoise & Plimpton  

This Article was originally published in Issue 5.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Below we highlight key developments and challenges related to the new Russian law on syndicated facilities.

Major Developments

Federal Law No. 486-FZ “On Syndicated Facility (Loan) and Amendments to Certain Laws of the Russian Federation” (the “Law”) dated December 31, 2017, came into effect on February 1, 2018. 

A draft version of the Law had been discussed for several years by legal and banking expert communities based on experience gained from various Russia-related syndicated facilities over the last 20 years. Indeed, syndicated facilities (many granted under English law where non-resident lenders are involved) have been common in the Russian loan market for many years, and certainly prior to the Law. There were also a number of Russian law syndicated facilities in later years based on general provisions of the Russian Civil Code and the parties’ intention to follow, where possible, LMA-based facilities.  

Prior to the Law there existed notable uncertainty about many Russian law provisions, including those involving the independence of lender obligations (e.g., the borrower could consider claiming the full loan amount from any lender), voting by lenders, the role of the facility/security agent and treatment of its fees, the registration of the security package in the name of the security agent, the consent of the lenders to transfer their obligations, secondary market issues, participation agreements, and treatment in insolvency. The Law addresses many of these points, but unfortunately not all.  

Cornerstones

The Law establishes a solid legal framework for Russian law-governed syndicated facilities and gives parties broad discretion to agree on various aspects.  

Among other significant elements, the Law introduces the notion of a syndicated facility in Russian law. It limits the scope of persons who may be involved as the parties – for instance by excluding corporate lenders or individuals as original lenders. Generally, each lender is responsible for granting its portion of the facility, and lenders owe no joint and several obligations. The Law recognizes not only the syndicated facility agreement, but also other finance documents such as the facility arrangement agreement and intercreditor agreements. 

The lenders are represented by a facility agent, who is, generally, a member of the lenders syndicate. Any specific lender’s rights transferred to the facility agent may no longer be exercised by the lender on its own. The facility agent may also be appointed as security agent. 

The Law offers helpful provisions on assignment/transfer of the facility, including: (i) the lender’s right to assign any time after funding the borrower; (ii) allowing facility agreements to include a borrower’s consent to a lender’s transfer of its obligations to another person even prior to a drawdown provided that the transferee complies with original lender’s obligations; and (iii) easy assignment of security packages over movable assets based on naming the security agent as the creditor upon perfection of the assignment.

Challenges to Think Over

Unfortunately, the Law does not include some important provisions proposed by the legal and banking communities when it was still in draft Law form. For instance, in contrast to some proposals:

• the Law notably limits the scope of persons who may act as a lender, thereby restricting access of other participants to the primary syndicated facility market. Some comfort may be sought in the ability of lenders to freely assign their rights after loans are disbursed to borrowers, but Russian courts have not yet determined whether this may be safely used as a structuring tool for, for example, involving corporate lenders in syndicated facilities.
• the Law provides that the fees of the facility/security agent are paid by the lenders (contrary to current international market practice). A transfer of this obligation to the borrower might lead to a conflict of interest as the agent acts on behalf of lenders (similar to a representative of bond-holders).
• exclusivity provisions under the Law do not strictly follow the approach of Russian anti-trust law requirements; they require additional attention and clarification. 
• pledges of immovable property and participation interests (shares) in Russian limited liability companies still require naming each of the lenders – and not only the security agent – as the creditor, for instance, in the pledge registers.
• the status of syndicated lenders, the status and powers of the facility and security agent, and other aspects of syndicated facilities in a Russian borrower’s insolvency remain unclear. 

The Law is certainly not the final stage of development of Russian syndicated facility legislation, but it represents a major step forward. We look forward to further development of Russian statutory law, official clarifications, and court practice on the subject.

By Vladislav Skvortsov, Partner, Noerr Russia  

This Article was originally published in Issue 5.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In June of this year Russia adopted a law giving the Russian President broad authorization to retaliate for foreign sanctions. The Russian parliament is also currently considering a bill that would criminalize compliance with U.S. and other foreign sanctions against Russian parties. While the practical impact of the additional authorization for the President is unclear, criminalization of compliance with foreign sanctions may have serious negative repercussions for U.S. and European businesses operating in Russia or having other Russian exposure.

Retaliatory Measures: The Federal “On Retaliation Measures (Countermeasures) for Unfriendly Actions by the United States of America and/or Other Foreign States” Law (the “Counter-Sanctions Law”) was fast-tracked by the Russian parliament and signed by President Putin on June 4, 2018. The law was adopted as an apparent response to the latest U.S. economic sanctions imposed by the U.S. Department of the Treasury’s Office of Foreign Assets Control in April 2018.

Following the introduction of the draft law in the Russian State Duma (the lower chamber of the Russian parliament) on May 17, 2018, it underwent substantial modifications. The initial draft law purported to implement rather specific retaliatory measures, many of which attracted the active criticism of the Russian public and certain lobbying groups. These unpopular measures included prohibition of or restrictions on the import of pharmaceutical products, a travel or employment ban on U.S. citizens and citizens of other “unamicable foreign states,” restrictions on the provision of legal and consulting services by foreign-owned advisors, termination or suspension of international cooperation in the nuclear, aviation and rocket-propulsion industries, etc.

As the draft law progressed through the Russian parliament it was revised to omit the unpopular specific measures, and in its final version the law became a blanket authorization for the President to undertake “any measures” that he may consider necessary in response to “unamicable actions” of foreign powers, including, for example, termination of international cooperation, restriction of import/export of products or raw materials, restriction on access to public procurement in Russia, and prohibition of participation in privatization. 

Criminal Liability for Compliance with or Facilitation of Sanctions: On May 14, 2018, a draft law “On Amendments to the Russian Federation Criminal Code” (the “Amendment”) was introduced in the State Duma. The Amendment seeks to impose criminal liability for compliance with U.S. and other foreign sanctions against Russian parties. The Amendment passed the first reading on May 15, 2018. 

The current draft of the Amendment would make it very difficult for U.S. and EU companies to operate in Russia since their compliance with the U.S./EU sanctions would expose their managers in Russia to criminal liability. Many Russian companies and financial institutions also broadly comply with the Western sanctions, which under the current draft of the Amendment could also be characterized as a criminal activity. 

Due to the wide criticism of the bill by the Russian and foreign business community, the second reading of the Amendment in the State Duma, which was initially scheduled for May 17, 2018, has been postponed.

The Amendment introduces criminal liability for two types of crimes: (1) Compliance with Sanctions: Any action or inaction aimed at compliance with foreign restrictive measures resulting in restrictions on, or refusal to engage in, the customary business activities or transactions with Russian nationals, entities, governmental or municipal bodies, and their controlled persons; and (2) Facilitation of Sanctions: Intentional actions by a Russian national facilitating foreign restrictive measures, including by providing recommendations or information that may result in the imposition of restrictive measures on Russian private or public persons or their controlled persons.

Arguably, application of the first type is not limited to Russian parties and may also apply to foreign companies and/or individuals doing business in Russia or with Russian counterparties. 

If the Amendment is enacted in its current form, this may have serious negative repercussions for U.S. and European businesses operating in Russia or having other Russian exposure. In particular, managers and employees of Russian and foreign companies, banks, and other entities operating in Russia may be prosecuted for terminating or suspending contractual obligations with Russian counterparties, refusing to enter into a new contract with a Russian counterparty, or other similar actions.

By Konstantin Kroll, Partner, Head of Russia & CIS Desk, Orrick, Herrington & Sutcliffe  

This Article was originally published in Issue 5.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Throughout my career, the only predictable feature of the Russian market has been its unpredictability. Given what has happened in Russia in the first months of 2018, it would appear that foretelling the future is not about to get any easier.

2017 Upturn

2017 was the best year for Russian equity for some time. IPOs alone netted Russian issuers approximately four times the amount they did in the year before. The market for follow-on equity issuances and block trades was also active in 2017. 

High dividend yields helped to fuel investor demand for Russian equities. (In 2017, Russian companies paid some of the most generous dividends available.) High share prices also supported Russian issuers’ capital markets activities.

The Russian debt market built on its 2016 revival (a year in which Russian companies more than doubled their debt issuance over 2015). A number of market players successfully re-accessed or entered the debt capital markets – in certain cases tapping them more than once. Explorations of potential project financing, even though as usual slow and measured, recommenced, which suggests that the loan markets are returning to their pre-2014 state.

2018 Suspense

While 2018 started on a high note with aspirations for big ticket capital markets deals, both in equity and debt, as well as potential significant deals in the loan market, the first days of the second quarter shocked both the Russian and international markets.  For the first time in history the U.S. government sanctioned companies with a significant global reach. 

Even though the initial shock has disappeared, it is far from business as usual in the Russian business world. The Western players, even those that have been loyal to the Russian markets despite all the turmoil of the recent years, have been waiting out the situation, and many deals have either been put on hold or abandoned. The market seems to be slowly adjusting to the post-sanctions world, remaining extremely sensitive to every move of the U.S. administration and the Russian government’s reaction or threat thereof. The chilling (if not freezing) effect of the latest U.S. sanctions has spilled over the Russian border into the C.I.S. capital markets stalling or delaying various capital markets deals previously forecast to be launched in 2018.

Given the difficulties in accessing the more traditional markets, Russian issuers have continued to explore some interesting new sources of funding. Since 2014, the Russian government has sought to build stronger economic ties with China. This so-called “pivot to Asia” has already resulted in some significant Chinese investment into Russia. Though most of that investment has come in the form of off-market acquisitions, Russian companies may soon be able to count on Chinese participation in their capital markets transactions as well. Middle Eastern funds are also looking at potential investment opportunities not only in traditional natural resources industries, but also, more importantly, in infrastructure.

FinTech and initial coin offerings (ICOs) could also offer an opportunity. President Putin’s order in late 2017 that a legal framework be developed for ICOs puts Russia among the frontrunners in ICO regulation and could attract more issuers to the market. It will be interesting to see developments in the Russian legal framework for various FinTech concepts and whether Russian lawmakers can overcome the rigidity of the law enforcement bodies. In the absence of regulations, the Russian courts’ approach to cryptocurrencies culminated in a court decision excluding cryptocurrency from the insolvency estate (the decision was helpfully overturned, however, on the expectation that regulations will soon be coming into force).

As ever, the future for the Russian markets is anything but clear. Over the remaining months of 2018, much will of course turn on the political environment, which remains volatile. In such conditions, it is incredibly important to remain adaptable and nimble. 

By Polina Lyadnova, Partner, Cleary Gottlieb Steen & Hamilton LLP

This Article was originally published in Issue 5.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Vera Kolesnik is Nestle’s Legal Director for Russia and Eurasia. Before joining Nestle in 2007 she worked for four years at Ernst & Young and for five years at the Institute of State and Law at the Russian Academy of Science.

CEELM: What attracted you to the legal profession?  

V.K.: During my studies and in the early days of my career I was very lucky to meet great lawyers. These were professors from the Institute of State and Law (Russian Academy of Sciences), judges from the International Court of Justice, and so on. I had the opportunity to observe brilliant professionals, intellectuals, who had their hearts in law, inspiring the younger generation to work hard and to become legal eagles. This gave me confidence, and I wanted to be part of this league: I wanted to be a lawyer. I started my carreer in academics as an assistant professor doing research and teaching international public law at several law schools in Moscow. Then I moved to Ernst & Young Russia and CIS to be part of its in-house legal team. In 2007, I got the great opportunity to join Nestle.  

CEELM: You started your career in law in 1998. How has the Russian market changed since then?

V.K.: For sure, we have come a long way. I’d like to say that you are never bored here. We are still going through significant changes in many areas of the law, including civil, labor, antitrust, and the judicial system itself. Russian law firms have grown into real competitors to international legal brands. Plus, Russian boutique law firms have successfully found their way to big clients. Corporate lawyers, in their turn, have created a powerful professional community. As the legal market develops, the battle for talent has increased significantly.

CEELM: Do you see any specific difference between working in the consultancy business and in FMCG?

V.K.: The switch from the consulting business to the FMCG industry was really smooth. Right after joining Nestle, I became part of a team that aimed to grow the company’s high performance culture. Developing a service culture was one of the core streams. I think that it was a magnificent experience. On the one hand, it opened up Nestle to me and helped me to integrate very quickly. On the other hand, it gave me a chance to share with my new colleagues the sense of a service culture, my skills, and expertise. 

If we speak about the specifics of being a corporate lawyer, they are well-reflected in our legal mission at Nestle. Being a lawyer at Nestle means being a legal guardian of Nestle’s businesses, assets, and values, managing risks and opportunities in a pragmatic and rigorous way, being excellent in delivering Nestle-specific legal and business solutions. Corporate lawyers are integral parts of business decision-making. We are here to make our business more competitive and help it grow faster and in a sustainable way. 

CEELM: What are the biggest challenges in leading the legal department of a company like Nestle? 

V.K.: The FMCG industry is going through a big change worldwide. The competitive environment is becoming more and more demanding. Investors have set the bar high seeking to improve efficiency. Being open to change, mastering it, and leading the team to success by cutting barriers – this is the call of the day. Here I would like to quote Charles Darwin, who said, “It is not the strongest or the most intelligent who will survive but those who can best manage change.”

CEELM: What lawyers most inspired or educated you at the beginning of your career? What did you learn from them? 

V.K.: I would like to commemorate my teacher and my tutor, Professor Igor Lukashuk, who was a prominent lawyer and a remarkable person, and who drove the development of the Russian science of International Law. Mr. Lukashuk made a significant input in the work of the United Nations in different areas of International Law. From 1995-2002 he was a member of the UN International Law Commission. He served on several expert legal councils under the Chairman of the State Duma and under the President of the Russian Federation. I met professor Lukashuk at the Institute of State Law where he headed the Center of International Law Research. He guided my scientific work and always inspired me to go further in the profession. He strived to teach the younger generation all he knew. This was one of my key lessons from him: the importance of developing people. I join those who name Igor Lukashuk the best Russian international lawyer of the 20th century. I miss my teacher. 

CEELM: How do you relax after a long day at work? 

V.K.: The best way to relax after work for me is to have quality time with my family. My husband is also a lawyer. We have a girl of twelve years old and a boy who is nine. As a working wife and mom, I have many challenges there but I try to do my best. Among the things that we like to do together is explore small towns around Moscow on weekends. These short trips can give a lot culturally and historically. One can find real gems there. 

CEELM: What one thing would people be most surprised to know about you? 

V.K.: I was born in Switzerland. 

CEELM: If you hadn’t become a lawyer, what other profession would you be doing? Why? 

V.K.: When I ask my kids what they want to do in life, they get quite confused. So did I at their age. Now I think I could work for an international organization in the human rights or social development areas, to find ways of making people’s life better. Or, I could be a marketer to bring value to a brand, adding creativity and strategic thinking. In any case, being a Nestle lawyer – this is what makes me happy. 

This Article was originally published in Issue 5.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.