Category: Ukraine

DLA Piper has advised the Stillfront Group on its acquisition of 100% of the shares in Game Labs Inc. from its unidentified founders and management. Orrick advised the sellers on the deal.

The transaction combines an upfront consideration of cash and shares including USD 32.5 million payable in cash, out of which USD 9.75 million is payable in 981,813 of Stillfront’s newly issued shares.

In addition, the sellers may receive an earn-out payment for each of the 2021, 2022, and 2023 financial years, depending on the EBIT development of Game Labs during each of those financial years, though not exceeding USD 30 million in aggregate. The earn-out consideration will be payable 70% in cash and 30% in newly issued shares in Stillfront during the subsequent year of the respective earn-out period.

Game Labs is an independent game studio with a team of approximately 30 people located in Ukraine, Russia, Greece, UAE, Italy, and Estonia.

Stillfront is a Stockholm-based developer of free-to-play strategy online games.

DLA Piper’s team in Ukraine consisted of Partner Alla Kozachenko, Legal Directors Anastasiya Bolkhovitinova and Natalia Kirichenko, and Associates Ivan Shatov and Anna Vizniak.

Orrick’s team included US-based Partners Bryan Gadol, Glenn Dassoff, Joe Urwitz, Eric Wall, Daniel Forester, Amanda Galton, Tim Greene, and Lisa Lupion, Managing Associates Nicole Huang and Julien Barbey, and Of Counsel Wendy Kottmeier; and UK-based Partners Faraaz Samadi, Katie Cotton, and Amanda Voss, Corporate Associate Aoife Casey, and Trainee Solicitor Chloe Palios.

Sayenko Kharenko has helped Fiat Chrysler Automobiles N.V. obtain the approval of the Antimonopoly Committee of Ukraine for its merger with Peugeot S.A..

According to Sayenko Kharenko, the merger created the world’s fourth-largest automobile manufacturer by volume, with annual sales of 8.7 million units and combined revenues of nearly EUR 170 billion.

According to Sayenko Kharenko, the merger between FCA and Groupe PSA became effective on January 16, 2021, creating Stellantis N.V., which will be an “industry leader with the management, capabilities, resources, and scale to successfully capitalize on the opportunities presented by the new era in sustainable mobility.” According to the firm, “the combined entity will have a balanced and profitable global presence with a highly complementary and iconic brand portfolio covering all key vehicle segments from luxury, premium, and mainstream passenger cars through to SUVs and trucks & light commercial vehicles.”

Sayenko Kharenko’s team was led by Partner Valentyna Hvozd and included Senior Associate Igor Pomaz and Associate Kateryna Novodvorska.

Asters has advised Elementum Energy Ltd. on the acquisition of a majority stake in the Dnistrovska wind park, in the Odessa region of Ukraine, and advised Elementum and Ukraine Power Resources on the construction of the first phase of the wind park.

Elementum Energy is a UK-based independent power producer focused on developing and operating renewable energy assets in Central and Eastern Europe. It is a subsidiary of VR Global Partners, L.P., a global investment fund.

According to Asters, “with a capacity of 4.0 MW each, the project’s wind turbines are the most powerful wind turbines installed on a fully-commissioned in Ukraine to date. Elementum Energy and Ukraine Power Resources invested  approximately EUR 59 million into the project, which makes the wind farm one of the largest FDI projects executed in Ukraine in 2020. During its operating life, Dnistrovska WP is expected to generate 146 GWh of electricity per year and avoid annual CO2 emissions of 108,000 tons. Elementum Energy and Ukraine Power Resources are currently in the process of constructing the second 60 MW phase of Dnistrovska WP, which is anticipated to be commissioned in Q2 of 2022.”

Asters’ team included Senior Partner Armen Khachaturyan, Partner Yaroslav Petrov, Counsels Anzhelika Livitska and Olena Radko, Senior Associates Maksym Tereshchuk and Marta Halabala, and Associate Olena Sichkovska-Chornobyl.

With effect from 27 April 2021, the Ukrainian entities have been granted the right to make regular interest payments and final capital repayment under Eurobonds and other own debt securities traded on foreign stock exchanges in excess of a so called EUR 2 mln e-limit. In addition, the entities are now allowed to accumulate and periodically replenish foreign currency on the bank accounts in the amount of principal and interest due on the notes on the nearest repayment date.

Historically, Eurobond offerings by the Ukrainian issuers have been structured through an offshore SPV issuing the notes and on-lending the proceeds to the Ukrainian company. In turn, the offshore SPV applied the proceeds from the loan to fund payments due on the notes. Now, the Ukrainian companies may directly issue Eurobonds and pay interest and principal to the noteholders which reduces the overall costs for the Ukrainian issuer. The accumulation of foreign currency by the issuer on debt service and reserve accounts to make debt repayments is typically required by the lenders and noteholders in project financings.  

Relevant changes have been introduced by the Resolution of the Board of the NBU of 23 April 2021 No 34 that amended the Resolution “On approval of the Regulations on protection measures and determination of the procedure for carrying out certain operations in foreign currency” of 02 January 2019 No 5.

By Igor Krasovskiy, Partner, and Oleh Zahnitko, Partner, Integrites

For nearly 20 years, private land owners, agricultural producers, and investors have been waiting for Ukraine’s government to cancel the moratorium on the sale of agricultural land in the country.

When it was introduced back in 2001, the government declared it to be a temporary measure to stimulate the establishment of fair, transparent, and non-discriminatory rules for the operation of the land market. However, as the saying goes, there is nothing more permanent than something temporary, and as a result of the moratorium, the alienation of agricultural production land or land of individual agricultural households allocated to the owners of the land shares (except for exchange or inheritance), contribution of the land into charter capital, or change of designated use has been blocked for decades, affecting 96% of Ukraine’s agricultural land.

Finally, on March 31, 2020, after years of heated debate, Ukraine’s parliament approved a law that removes the current ban on the sale of private farmland in Ukraine. Although the law does not take effect until July 21, 2021, it is already possible to analyze the effect the ban’s lifting will likely have on the agricultural land market in Ukraine.

Positive Changes

Ukraine’s agricultural land market will be liberalized in several stages. Ukrainian citizens will be the first to enjoy the benefits of the lifting of the moratorium. They will finally be able to dispose of, acquire, and rezone privately owned agricultural land. The contribution of such land into the charter capital of Ukrainian entities will also become possible. At the same time, beyond land that they already own, individuals will not be able to acquire more than 100 hectares of agricultural land.

Ukrainian banks, including banks with foreign capital, will also be allowed to acquire agricultural land by way of mortgage enforcement, subject to the mandatory sale of such land through auction within two subsequent years. Unlike other legal entities, banks may own an unlimited amount of agricultural land.

In order to maintain prices on the land market and to protect the interests of sellers, the sale price of agricultural land cannot be lower than its normative value until January 1, 2030. To protect the rights of agricultural producers, who often work on leased land, tenants are granted a priority right to buy-out leased land, which is then transferable.

At the same time, as of January 1, 2024, legal entities owned by Ukrainian citizens will be allowed to acquire privately owned agricultural land and to accumulate a land bank of up to 10,000 hectares.

What About Foreigners?

Despite the significant pressure on the Ukrainian government from the IMF and lobbying by the World Bank and the international business community, foreign nationals still appear to be locked out of Ukraine’s land market, as the ban against foreign nationals directly acquiring and owning agricultural land in Ukraine remains in place. Under the new law, foreign nationals are only allowed to act on the land market in Ukraine indirectly, by purchasing shares in Ukrainian companies that own agricultural land. Such Ukrainian companies owned by foreign nationals will be allowed to acquire agricultural land starting on January 1, 2024, subject to the approval of a national referendum. When or even whether such a referendum will actually be held remains to be seen.

We Wanted the Best, You Know the Rest

Despite expectations that the new land market law will create new opportunities in Ukraine, it actually limits existing possibilities, such as the use of the two-tier corporate structure and the acquisition of shares in land-holding companies by foreign nationals and stateless persons.

What’s Next?

Liberalization of the land market in Ukraine is an instrument rather than a goal. The government may place a premium on attracting large investments to the sector and the development of large agro holdings and producers, or it may develop the sector based on family farming and improving the quality of life in rural areas. As it stands now, the country has arrived at the cancellation of the moratorium without a clear strategy for developing the agricultural market future, and numerous unanswered questions remain. The market needs effective instruments to stimulate and finance small and mid-size agricultural producers, land ownership guarantees, clear and transparent environmental protection requirements that apply to agro producers, and a clear answer on the perspective of the access of foreign nationals to the land market. For this reason, we expect the government and parliament to continue changing the rules and reforming the agrarian land market in Ukraine.

By Oleg Matiusha, Head of Real Estate & Infrastructure, Kinstellar Kyiv

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Ilyashev & Partners, representing the interests of the Ukrainian Red Cross Society, has persuaded the Economic Court of Kyiv to invalidate the trademark of a Ukrainian pharmacy network featuring the image of a red cross.

According to Ilyashev & Partners, “more than 400 pharmacies of the network in question that are located in 100 Ukrainian cities have been using this trademark on their signboards, in advertisements, and on several web-sites on the Internet.”

The Ilyashev & Partners team was led by Attorney at Law Dmytro Nikulesko and Lawyer Olena Sereda. 

Last year Ilyashev & Partners, again working pro bono on behalf of the Ukrainian Red Cross Society, persuaded a network of Ukrainian medical centers in Ukraine to discontinue its illegal use of the Red Cross emblem (as reported by CEE Legal Matters on November 11, 2020).

On April, 6, 2021, CEE Legal Matters reported that the Esquires law firm had persuaded Ukraine’s Sixth Administrative Court of Appeal to revoke an order of the Cabinet of Ministers of Ukraine dismissing former Deputy Head of the State Customs Service of Ukraine Denys Shendryk from that position. CEE In-House Matters spoke with Shendryk to learn more about the case.

CEEIHM: Please give our readers a bit of background with regards to your case. 

Denys: A few words about myself – I have more than 15 years of experience working as a professional tax and customs consultant in a Big 4 company. Also, in Ukraine for several years I led the Customs Committee of a Ukrainian professional association, so I am well known as a customs expert and lobbyer in the interests of transparent business.

With the election of the new President – Mr. Zelenskiy – I agreed to a proposal of the newly appointed Prime Minister and Head of Ukrainian Customs to help to reform the Ukrainian Customs agency. One of the immediate and challenging tasks was to separate the Ukrainian Customs and Tax Service of Ukraine, which previously were combined into one fiscal authority.

Also, together with my team, we started to implement a number of other reforms, including updating the legislation and IT instruments used by the customs service. While the international business community was supportive of many reforms, the bureaucratic system was extremely resistant.

After the dismissal of the Prime Minister and the entire Government, support for the reform began to drain away, and I and my team of reformers become undesired. So the new Prime Minister used controversial provisions of the law to dismiss me, even though I was appointed through the procedures of the public contest for a five-year period.

CEEIHM: What was your main claim? 

Denys: It is worth mentioning that I become aware of my dismissal from the press, as I was sitting at my workplace on a Friday at 8 p.m. There were no communications of reasons, no negative evaluation of my work. Just a formal resolution for dismissal.

Such an attitude is against my principles. I am accustomed to planning my career and appreciate my personal and business reputation. Therefore, I decided to go to court to prove to myself and to demonstrate to the government that this kind of behavior is unacceptable.

CEEIHM: The court ordered you reinstated to your former position. What did they rely on in doing so?

Denys: I believe that the court ruled in my favor by accounting for the following:

– The procedure through which I was appointed. As I mentioned there was a public contest won by me based on clear and transparent rules.

– The fact that my Constitutional rights were disrupted; and finally

– The controversial provision of law that was used as the formal reason for my dismissal had been removed from the law as being in contradiction of the Constitution of Ukraine.

CEEIHM: What are your plans following the reinstatement?

Denys: Immediately after my dismissal I was hunted for a managing position by my current employer – one of the leading international audit and consulting companies. So, reinstatement was not the ultimate goal. Moreover, in Ukraine, you need to fight to implement a court ruling. I believe that the current government is not aimed at reform and I am not sure that I will be comfortable working with the acting team.

Nevertheless, I do believe that, at some point, there will be political will and a strong desire to destroy the highly corrupt system around Ukrainian customs.

CEEIHM: Finally, why did you choose the Esquires law firm as your legal counsel on this case? 

Denys: Preparation of homework. This was a key reason I selected Esquires law firm. Their lawyers came to the initial meeting well-prepared, with an already combined set of arguments, and also were honest in evaluating the chances of the case.

Compared to other law firms I had conversations with, Esquires really demonstrated that they cared about my case, and it follows that I made the right choice.

Originally reported by CEE In-House Matters.

Marchenko Partners has advised Western NIS Enterprise Fund on its provision of unspecified loans to Smachni Spravy and Pizza Veterano Kyiv.

The Western NIS Enterprise Fund is a USD 150 million regional fund that invests in small and medium-sized companies in Ukraine and Moldova. Since its inception, WNISEF’s cumulative investments, made to 130 companies employing around 26,000 people, total over USD 186 million.

Smachni Spravy is a manufacturer of meat products that employs persons displaced from Eastern Ukraine by military actions. The company is based in Brovary, in the Kyiv Region of Ukraine.

Pizza Veterano is a social entrepreneurship venture that helps ex-combatants of the war in eastern Ukraine adjust to normal life. According to Marchenko Partners, “ten percent of Pizza Veterano’s profit goes toward supporting Anti-Terrorist Operation combatants and their families.”

Including this transaction, Marchenko Partners has so far assisted the fund with the provision of 25 loans as a part of its Affordable Loans for Social Enterprises in Eastern Ukraine project. One of the most recent transactions was WNISF’s loan to the Printing House in Kramatorsk, Ukraine (as reported by CEE Legal Matters on March 30, 2021). The loan program was initiated in 2016 by WNISEF in partnership with Oschadbank and Kredobank. According to the firm, “it allows social enterprises (businesses that implement social or environmental programs or resolve certain social issues) to get access to hryvnia-denominated low-interest loans.”

Marchenko Partners’ team included Partner Roman Shulyar, Senior Associate Bogdan Burlaka, and Associate Oleksandr Poznyakov.

Latham & Watkins has advised joint lead managers and bookrunners BNP Paribas, Deutsche Bank, Goldman Sachs, and JP Morgan on Ukraine’s USD 1.25 billion notes issuance.

The notes are due 2029 and the issuance was priced at 6.875% annual yield. According to Latham & Watkins, the proceeds will be used for general budgetary purposes.

The Latham & Watkins team included London-based Partners David Stewart, Oliver Browne, and Manoj Tulsiani, Associates Harrison Armstrong, Amina Tsatiashvili, and Clive Wong.

Editor’s note: After this article was published, Avellum announced that that it had advised Ukraine’s Ministry of Finance on the issuance. The firm’s team consisted of Senior Partner Glib Bondar and Associates Oleg Krainskyi, Anastasiia Zhebel, and Mariana Veremchuk.

Lately, one of the key messages of the government to the public, and especially the investors, has been that Ukraine should be the next manufacturing and logistics hub. However, this idea is always followed by another recurrent note — Ukrainian infrastructure is in bad shape and desperately needs renovation.

While promoting large-scale development projects like Big Construction, Ukraine has also improved its legislative basis for large investments in infrastructure development. In this article, we delve into specifics of four legal frameworks the investors wish they knew before investing in the development of Ukrainian infrastructure.

Concession

One of the most promoted frameworks for foreign investors is concession. The new law adopted in 2019 overhauled the public-private partnership legislation in Ukraine and:

1. made it compliant with the best EU industry standards;
2. introduced a transparent and competitive concessionaire selection system; and
3. provided investors and lenders with new guarantees (e.g., direct agreements with step-in rights, free choice of applicable law and dispute resolution mechanism).
An investor may get the concession going by submitting a proposal with a feasibility study to the respective authority. In addition to the time needed to prepare the feasibility study, the concession tender takes nearly 1.7 years under the law (from the decision on concession feasibility until the signing of concession agreement).
The State has extensive plans for concessions. The upcoming projects are expected to be the concessions of a railway-ferry complex in Chornomorsk and six pilot segments of highways with a total length of 1,500 kilometers with availability payments reward.

Privatization of state and municipal property 

Ukraine has over 3,000 state-owned enterprises. Unfortunately, their economic potential, which stems from their assets, is undermined by poor management. To solve this issue, the privatization framework was reworked aiming to attract new investors by electronic auctions and transparent procedure.

Despite the coronavirus crisis, in 2020 privatization was successful with more than 1,900 objects auctioned for a total value of approx. $110 million. The landmark privatization project was the sale of the “Dnipro” hotel in the downtown of Kyiv, whose starting price increased tenfold – up to $40 million.

On 30 March the Parliament adopted a bill unblocking “large privatization” – the sale of assets whose value is equal to or exceeds $9 million. Plans for 2021 are grand – the State Property Fund of Ukraine (SPFU) expects to sell JSC United Mining and Chemical Company (one of the world’s largest titanium ore producers), JSC First Kyiv Machine-building Plant, and JSC President Hotel among many other state assets.

And to top it off, the SPFU has prepared a bill introducing various amendments to privatization laws, including application of English law to the sale and purchase agreements of large privatization objects.

‘Investment nannies’ law

It has been over a year since President Zelensky announced the “investment nanny” program at the World Economic Forum in Davos. Finally, the Law “On State Assistance to Investment Projects with Significant Investments in Ukraine” was adopted and now we can see how “investment nannies” may tip the scales in favor of investing in Ukraine.

First, to be eligible for the state support program, the investor must meet the following criteria:

1. total investment exceeds 20 million euros;
2. term of investment is less than 5 years;
3. the investment will create more than 80 new jobs with above-average salaries; and
4. the investment is carried out through a Ukrainian SPV.

Secondly, the investor should enter into an agreement with the Government which determines the investor’s commitments and the form and scope of the state support. The state support is capped at 30% of the investment value and may take the form of:

1. tax (VAT, CIT, land tax) and customs duties exemptions;
2. preemptive land lease rights;
3. construction of infrastructure at the state’s/municipal’s expense; and
4. assignment of the “nanny” – a state authority to facilitate the investment project implementation.

However, the “investment nanny” does not apply to the investments made under public-private partnership framework, PSAs or privatization procedures.

The “investment nanny” law still requires several bylaws to be adopted by the Government by August 2021. In any case, we will see this program in action not earlier than 2022.

Industrial parks 

The industrial parks are in a strange spot right now. There are 47 registered industrial parks, while only 8 of them have actual members. It is not surprising that the Government took a strong grip on the improvement of the industrial parks’ regulations.

There are 5 bills registered in the Parliament that aim to simplify the creation of industrial parks, introduce additional incentives, and foresee mechanisms for tax and customs duties exemptions.

As of now, the benefits that the industrial park may provide to the investor are:

1. co-financing of investment projects;
2. interest-free loans;
3. no import duties on equipment; and
4. reduction in local tax rates (land, real estate).
In its current wording, the industrial park regulation does not contain a clear mechanism of how such benefits are provided. This should change as soon as the aforementioned bills are adopted and enter into force.

Wrapping it up

Implementation of large-scale infrastructure projects is one of the key priorities of the Government for the upcoming years. The prospects of the infrastructure development look promising, and the sheer number of investment opportunities Ukraine can offer rises steadily.

The improvement of legislation is the key to having more success stories of large investments in Ukrainian infrastructure. We have already seen the success of concession and privatization frameworks, and now we can expect great results from the “investment nannies” program and industrial parks rework.

By Maksym Maksymenko, Partner, and Rostyslav Mushka, Associate, Avellum