Category: Russia

White & Case has advised PetroNeft Resources, an oil and gas exploration and production company, on a sale of 50 percent non-operating interest in its License 61 project to Oil India Limited.

License 61 is located in Russia’s Western Siberia basin. The value of the transaction was USD 85 million, consisting of a USD 35 million cash payment, USD 45 million of exploration and development expenditure on License 61, and a USD 5 million performance bonus. 

PetroNeft, which is listed on the AIM market of the London Stock Exchange and on the Irish Stock Exchange Enterprise Securities Market, will remain as operator of Licence 61 and Oil India will be able to book 50 percent production and reserves from the project. This is the first investment in Russia by Oil India, the second largest Government-owned exploration and production company in India.

“We were very pleased to support our longstanding client PetroNeft on this successful transaction,” said White & Case Partner Marc Polonsky. “The commitment of Oil India and the Indian government towards this joint venture with the company reflects the strength of the License 61 project and the opportunities for foreign investors in Russia.”

The transaction was announced in mid-April and was approved by shareholders in May; Russian regulatory approvals were received in June. The transaction enables PetroNeft to repay its outstanding loans (from Macquarie Bank and Arawak) and to have significant funds available to invest directly in License 61 over the coming years.

The team was led by Polonsky, supported by London Associates Natalya Bremen and Adnan Chida and Moscow Associates Peter Kotelevtsev, Rimma Izmaylova, Ekaterina Palagina, Ksenia Tyunik, Ekaterina Tulaeva, and Alexey Butusov.

Debevoise has advised Zurich Insurance pursuant to the company’s decision to sell its Russian retail business and focus on its corporate business.

Zurich has announced its intention to sell its retail business in Russia to the OLMA Group, while retaining and further building on its well-established Russian corporate business. According to Zurich Insurance, “the transaction is in line with Zurich’s strategy to prioritize investments where it has distinctive positions.”

According to a well-written Zurich Insurance Group press release, “Zurich Insurance Group (Zurich) and OLMA Group (OLMA) have signed an agreement under which OLMA will acquire Zurich’s general insurance retail business in Russia. OLMA has stated ambitions to further develop the retail insurance business in Russia as well as building its own corporate business by leveraging its existing customer base. Zurich’s retail portfolio comprises around 1.2 million policies representing gross written premium volume of RUB 7.1 billion (about USD 220 million) in 2013. Its products include casco, motor third party liability, property and personal accident and are sold to individuals and small and mid-sized companies via agencies, partnerships and direct channels. Subject to regulatory approvals, the transaction is expected to close in the third quarter 2014. The sales price amounts to RUB 1 billion (about USD 30 million). On disposal, unrealized currency translation adjustment (CTA) losses of approximately USD 265 million, currently reflected in shareholders’ equity, will become realized. Mainly as a result of this accounting charge, the transaction is estimated to generate a loss through net income of about USD 300 million, but with only a small impact on the Group’s shareholders’ equity. The CTA loss recognized on disposal reflects the revaluation of investments made into the Russian retail business since the acquisition of Nasta Insurance Company in 2007 primarily due to the depreciation of the Russian Ruble versus the U.S. dollar. The exact amount of the CTA loss will be calculated at the closing of the transaction, which is expected to be in the third quarter of 2014.  Zurich will retain its corporate business, which is primarily focused on underwriting large Russian and multi-national commercial customers, energy business and financial lines. It has been an active player in the Russian corporate market since 1996.  Mike Kerner, CEO General Insurance, says: ‘The transaction is a proof-point of our 2014-2016 strategy. While we invest in priority markets, we either turn around or exit those that are under-performing. When announcing our Annual Results 2013, we said that the Russian retail business had not developed according to our expectations and that we would explore options for it. We believe that the sale to OLMA is in the best interest of our customers, employees and shareholders.’”

Debevoise did not identify its lawyers working on the matter.

Editor’s note: On July 8, 2014, Debevoise identified the firm’s lawyers on the matter as New York-based Partner John Vasily and Associate Mathias Iranzo and Moscow-based Partner Alyona Kutcher and Associate Anna Maximenko.

Egorov Puginsky Afanasiev & Partners (EPAM) has announced that it advised the Housing Finance Bank (ZhilFInans) on the two transactions to securitize its mortgage assets (a transaction reported on by CEE Legal Matters yesterday).

According to EPAM, “each transaction involved placement of three classes of subordinated bonds by special purpose vehicles (mortgage agents). The senior tranche was placed by public offering, middle (mezzanine) tranche was placed for the benefit of the Agency for Housing Mortgage Lending OJSC, and the equity tranches for the benefit of Bank ZhilFinance, acting as the originating bank partially assuming the transaction risks.”

The EPAM team advised on the introduction of the middle tranche into the deal structure, which mitigated the risk assumed by the originating bank and allowed it to increase the number of senior tranche bonds placed. The firm explained that “other specifics of the deal affecting the contents of the contractual and emission documents include depository accounting of the mortgage bonds constituting the mortgage coverage (the property pledged on bonds), as well as monthly bond coupons.”

Ruslan Iseev, the Chairman of the Management Board at Bank ZhilFinance,  commented that, “the successful completion of the transaction is an important step in implementing the bank’s strategy, aimed at increasing pools of mortgages issued, refinanced and served by the bank.” 

EPAM Partner and Head of the Capital Markets Practice Dmitry Glazunov supervised the firm’s team on the deal, assisted by Senior Associate Oleg Ushakov and Associate Vladimir Goglachev.

Liniya Prava has announced that it acted as tax advisor to Bank ZhilFinans on the offering of July 26 mortgage bonds of MA Sunrise 1 and MA Sunrise 2 at the Moscow Exchange, “as part of securitization transactions in relation to a portion of Bank ZhilFinans mortgage loan portfolio components.”

The total amount of the offer was RUB 2.4 billion. According to the firm, “the securitization projects included 2 transactions, each consisting of three class A, class B and class C mortgage bond tranches.” The transactions were organized by VTB Capital, CJSC.  

Liniya Prava lawyers provided a detailed review of the Bank’s documentation, transaction tax structuring, transaction tax effect review, and issuance of a Tax Opinion based on the project. According to a Zhilfinans press release, “the transactions are noted for a mezzanine bond tranche included in the issuance structure. Such experience is rather rare for Russian market and provides new opportunities, for issuers to increase the amount of raised funds, for investors to place funds in a more lucrative instrument.”

Hogan Lovells has advised Nordea, Commerzbank, ING Bank, SG Group (Rosbank and SGBT Asset Based Funding), and UniCredit Bank on a USD 450 million unsecured club loan facility to Uralkali.

Nordea was Mandated Lead Arranger, Bookrunner and Documentation Agent. Commerzbank was Mandated Lead Arranger and Facility Agent. ING Bank, SG Group, and UniCredit Bank were Mandated Lead Arrangers and Bookrunners

Uralkali is one of the world’s largest potash producers and exporters. Uralkali’s assets consist of 5 mines and 7 ore-treatment mills situated in the towns of Berezniki and Solikamsk, in the Perm Region of Russia. Uralkali employs around 11,300 people in the main production unit, and its shares and GDRs are traded on the Moscow Exchange and London Stock Exchange, respectively. 

The loan facility is a debut unsecured facility for Uralkali. It has a five-year term and will be used to refinance Uralkali’s existing financial indebtedness and for general corporate purposes. 

Moscow-based Partner Alexander Rymko, who led the Hogan Lovells team along with London-based Partner Andrew Taylor, feels that the deal is significant, as it “demonstrates the ability of international financial institutions to make funds available to Russian top-tier borrowers in the current difficult market conditions.” Rymko and Taylor were assisted by Moscow-based Senior Associate Alexander Gasparyan and London-based Associate Emma Milne. The team also included Partners Aleksandar Dukic, Philip Harle, and Louise Lamb, Of Counsel Catherine Robert, and Associate Tom Eyre-Brook.

Liniya Prava has successfully defended the interests of Sberbank of Russia in a dispute against the Russian Antimonopoly Authority (Department of FAS) in the 15th Arbitrazh Court of Appeal.

The firm persuaded the 15th Arbitrazh Court to deny the appeal of the Department of FAS for the Rostov Region against a decision by a court of first instance stating that the antimonopoly authority’s complaints for loan repayment through annuity payments were illegal, as groundless.

In 2012 the Department of FAS for the Rostov Region found that Sberbank of Russia had violated sub-p.3, p. 1, cl. 10 of the Russian “On Protection of Competition” Law, which prohibits the imposition of unfavorable contract terms, and obtained a remedial order. During their initial consideration, the court of first instance and court of appeal supported the antimonopoly authorities. However, the FAS for the North Caucasus sustained a cassation appeal prepared by Liniya Prava lawyers and referred the case to a first instance court for reconsideration. There, the efforts of Liniya Prava lawyers Vadim Novikov and Svetlana Avdasheva, as well as the economists and sociologists the firm engaged as experts, resulted in full satisfaction of Sberbank of Russia’s claim to invalidate the antimonopoly authority’s decision and order, by the decision issued by the Arbitration Court for the Rostov Region that reconsidered the case.

Alexey Kostovarov, the Liniya Prava Senior Associate who represented Sberbank of Russia before the courts, said that the order of the court of appeal was predictable: “Lack of grounds in the antimonopoly authority’s claims is quite evident, the first instance court has reasonably confirmed this fact, thus, we could not expect any other order from the court of appeal. It is common practice in the lending market to repay loans through annuity payments, therefore, the courts did not have any grounds for finding such practice illegal. We are glad that the courts have looked into peculiarities of loan repayment options and supported the Bank that, for the most part, defended the interests of the whole banking sector and common borrowers rather than its own interests. We hope that the cassation court will draw a line in this case supporting its colleagues from the lower courts.”

Skadden Arps Slate Meagher & Flom is representing the Russian PIK Group residential real estate developer in its RUB 23.4 billion (approximately USD 673 million) loan agreement with VTB Capital, announced June 17. No other details were provided.

The PIK Group, founded in 1994 by Yuri Zhukov and Kirill Pisarev, is the largest real estate and homebuilder company in Russia. It is involved in the construction and development of residential real estate projects and sales of completed units, including service and maintenance of residential real estate developed by itself or by other developers. It also produces and assembles concrete panel housing in Moscow and the greater Moscow area, as well as producing and selling construction materials. The Company operates through numerous subsidiaries and four affiliated companies located in Moscow, Rostov, Kirov, Kaluga, Tula, Nizhny Novgorod, Kaliningrad, and Cyprus, among others.

VTB Capital created in 2008, is among the top investment banks in Russia, the CIS, and Central and Eastern Europe. In 2013, VTB Capital advised on over 20 Russian M&A transactions with a total volume of  USD 22 billion, and completed 114 DCM transactions in CEE region with a value of approximately USD 17 billion. It is one of three strategic business arms of the VTB Group, along with its corporate and retail businesses. The company is headquartered in Moscow, and has offices in London, Singapore, Dubai, Hong Kong, New York, Vienna, Sofia, and Kiev.

Skadden has represented JSC Gazprom in its June 17 listing on the Singapore Stock Exchange (SGX) through the introduction of up to 4 billion global depositary shares, representing up to 8 billion ordinary shares of JSC Gazprom.

According to the firm, this was the first listing “by introduction of depositary receipts on the exchange and the first listing by a Russian company on the exchange.“

Gazprom, with a market capitalization of USD 99 billion, is one of the world’s largest energy companies. Its major businesses span geological exploration, production, transportation, storage, processing and sales of gas, LNG, gas condensate and oil, sales of gas as a vehicle fuel as well as generation and marketing of heat and electric power.

“This listing of Gazprom’s Global Depository Receipts is an important event for SGX and we are honored to host such a prominent company on our exchange. It will also add significantly to our mineral, oil and gas sector. We look forward to being both a capital raising and business platform for Russian companies expanding their business into Asia,” said Magnus Bocker, CEO of SGX.

Andrey Kruglov, Deputy Chairman of the Management Committee, Head of the Department for Finance and Economics of Gazprom, commented: “We are delighted to announce that Gazprom’s Global Depository Receipts have been granted an introductory listing on the Mainboard of Singapore Exchange. This listing marks a key milestone in Gazprom’s history and further demonstrates the importance of Singapore, and the wider Asia-Pacific region, for Gazprom’s business and future strategy. Gazprom’s first listing in Asia enables us to broaden our global shareholder base in one of the world’s most dynamic financial markets. Gazprom, which benefits from its unique and unrivaled reserve base, geographical scope and transmission infrastructure to be the secure and reliable energy supplier of choice in Europe and Asia, will build on this extended shareholder base to further cement its position as a truly global company”

FBK Legal’s has announced that its Corporate department has assisted SEVERALMAZ in the placing of additional shares in the company by open subscription.

An FBK statement explained in addition that “Owing to the issue of additional shares SEVERALMAZ can attract additional investments to an amount of about RUB 16 billion.” 

FBK Legal prepared a package of documents for the issue registration and a prospectus of the emission of shares. The Bank of Russia registered them on May 13, 2014. According to Dmitry Kudrin, the FBK Legal Corporate Practice lawyer heading the project, the plan is to complete the project by the end of the year, and “the final stage will be to have the report on the results of capital issue registered.”

SEVERALMAZ, in Russia’s Archangelsk Oblast, mines the Lomonosov diamond field, which is believed to have reserves of about 200 billion carats of rough diamonds.