M&A in Kazakhstan
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Business Development and Investing in Kazakhstan, Vienna, Austria, on April 19, 2012 Lawyers of “Linkage&Mind” Law firm: Ms. Aizhan Karzhaubayeva and Ms. Aigerim Seifullina will take part in Business forum on “Business Development and Investing in Kazakhstan” speaking on the topic: “M&A deals in Kazakhstan”, which takes place in Vienna (Austria) on April 19, 2012 and organized by the Commercial Section of the Austrian Embassy in Kazakhstan.
Transcript of M&A in Kazakhstan
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I. INTRODUCTION I. Forms
II. Comparison of forms
III. Stages of M&A transaction
II. LIMITATIONS
III. NEGOTIATIONS
IV. STATE PERMISSIONS
V. DUE DILIGENCE
VI. CLOSING M&A DEALS
VII.TAXATION
VIII.DISPUTES
IX. ABOUT LINKAGE & MIND
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Share deal - purchase of the stock/shares/equity in a company.
Asset deal - purchase of the assets/property of the company.
JV –incorporation of a new company by two and more companies.
Reorganization – mergers (A+B=C) and takeovers (A+b=A).
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Criteria Purchase of shares
Purchase of assets
Founding JV
Basis A Sale and Purchase Agreement (SPA) of the shares of the company shall be concluded. The company should be re-registered in the bodies of justice.
SPA is required. Re-registration in the justice bodies is necessary, if the asset is real estate. Foreign investors cannot be the owners of the real estate (only through a subsidiary).
JVs in Kazakhstan is a form of legal entities when some part of the shares/equity belongs to a foreign investor.
Management Approval of shareholders/participants to sell the interest is required.
Approval of the authorized bodies of the corporation is required.
JVs may be formed in the form of Joint Stock Companies (JSC) or Limited Liability Partnerships (LLP).
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Labour issues Work permits for expatriates are required, except for CEOs of branches/representative offices.
Work permits for expatriates are required, except for CEOs of branches/representative offices.
Work permits for expatriates are required, except for CEOs of branches/representative offices.
Licenses & Permissions
No need to re-register
It is necessary to obtain them again
It is necessary to obtain them again
Tax issues In general, dividends are taxed at 15 % rate for legal entities; 5% - for physical persons.
No taxes for investors during sale-purchase phase, then usual income tax & taxes on capital gains at the exit.
VAT – 12%; CIT/WHT – 20%; branch tax on net income – 15%; dividends on non-residents – 15%, etc.
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1. SHARE DEAL vs ASSET DEAL vs JV
2. NEGOTIATIONS
3. OBTAINING STATE PERMISSIONS
4. DUE DILIGENCE OF M&A DEALS
5. CLOSING OF M&A DEALS
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Activity Limitations for foreign investors
Civil aviation Share of foreigners shall not be more than 49% in the charter capital of an aviation company
Mass media Prohibition on possession/usage/disposition/control of more than 20% of stocks/shares
Telecommunication Prohibition on possession/usage/disposition/control of more than 49% of interest in any form
Trunk communications line
Prohibition on control and operation of trunk communications lines
Security guard activity Prohibition on carrying out of security guard activities in Kazakhstan, participation in security guard organizations
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Insurance activity Prohibition on possession/usage/disposition of shares for offshore companies and their participants
Banking activity Prohibition on possession/usage/disposition of shares for offshore companies
Saving funds * Specified ranking of rating agency is required for participation * Prohibition on possession/usage/disposition of shares for offshore companies and their participants * Overall share capital of foreign saving funds shall not be more that 25% of all saving funds
Incorporated investment fund
Offshore companies cannot be founders/shareholders of the investment funds
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• Protection of trademarks, service marks, inventions, industrial designs, utility models
• Objects protection subject to state protection • Plant protection • Forest management • Protection of selection achievements
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Mandatory forms of legal entities
Restricting rule “one-in-one” for LLPs
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MANDATORY FORMS OF LEGAL ENTITES
JSC LLP
Financial organization (bank, insurance company, saving fund, professional participant of the security market)
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Special financial company Х Х Aviation company Х
Stock exchange Х Financial agency Х Organization of over-the-counter securities market Х Incorporated investment fund Х
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MANDATORY FORMS OF LEGAL ENTITES
JSC LLP
Guarantors of deposits (when mandatory)
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Audit organizations Х
Security broker Х Х
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* 49% 50/50 > 51% 75%
If the investor acquires 49% of the shares, then another participant will have a simple majority. Both can take decision on the general meeting on issues requiring simple majority (for instance, formation of an executive body and early termination of its activity, the approval of annual financial reporting, distribution of net profit).
Decisions of participants (the investor and another participant) should be made unanimously. In such situations none of the participants will have a simple majority. In such cases the shareholders’ agreement should contain provisions on voting and deadlock situations.
Investor has majority of the votes and can take decisions requiring simple majority.
Investor has qualified majority and can take decisions not only on questions, which require simple majority, but also on those which require qualified majority, with certain exception like change of charger capital, reorganization and liquidation, pledge of all the property, etc.
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1. Managing bodies (structure and authorities)
2. Board of directors
3. Signature rights
4. Control over financial matters
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1. Disposition of strategic assets
2. State priority right over subsoil rights and permission to transfer them
3. Economic concentration
4. Approvals for financial organizations
5. Approval for natural monopolies
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*Government of the Republic of Kazakhstan sets up the list of the strategic assets
*State has the priority right to acquire the strategic assets
*Permissions are required for encumbrance or their alienation
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*"Right of the first night" - the state has a priority right to purchase the subsoil use rights/objects
*Permission to transfer subsoil use rights/objects
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PRIOR PERMISSIONS ARE RUQUIRED FOR: - M&A and the acquisition of more than 25% of the interest in
the company - Acquisition of assets which value exceeds 10% of the book
value of the "seller" - Obtaining the control over the company - Participation of the same individuals in several companies IF: 1. A member of the transaction (including group of persons) is a
dominant / monopoly; 2. Total book value of assets / sales (including group of persons)
during the last year exceeds more than 2 million MCI (~ 21 million USD).
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*Incorporation the organization *Principal participant of the organization/ holding company
*Creation, acquisition of a subsidiary *Significant participation in the charter capital of another legal entity
*Changing the foundation documents *Voluntary reorganization *Voluntary liquidation
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*(Re)registration of natural monopoly & registration of termination of an activity
*Transactions with property which value exceeds 0.05% of the book value of assets
*Purchase of goods/works/services not for their own consumption
*Acquisition of shares in commercial companies
*Acquisition of more than 10% of shares in the charter capital of the natural monopoly
*Reorganization and liquidation
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1. Identifying legal risks, for example, ownership rights of a seller, its authorities, etc.
2. Minimization of risks 3. Providing the buyer with current structure and
activities of the target 4. Identifying the necessity to obtain required
approvals
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•Preparation for the sale (elimination of risks & compliance)
•Getting the expected results in due time
•Assurance and guarantees
•Pricing
•Target evaluation •Ground for negotiations •Structuring the transaction
•Identifying the necessary conditions of the deal
•Identifying of measures on minimization of risks
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Buyer
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Seller
Target of M&A deal Specifics of the target's activities Legal form of the company Cost of the deal Strategic purposes Risks for the buyer Professional consultants Budget
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Ownership rights
Corporate matters
Licenses & permissions
Significant assets
Obligations and debt
Intellectual property
Suppliers & consumers
Essential disputes
Employment issues
Taxation
Customs regulation
Insurance
Anti-trust regulation
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1) Deficiencies in the corporate matters 2) Absence of unified database on current legal
proceedings in Kazakhstan: DD is always limited by letters of guarantee provided by the Company
3) No proof that the target has provided us with all current contracts
4) Deficiencies in the registration of titles 5) Problems with identification of assets which
can be not recorded in balance sheets
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1. Obtaining all permissions 2. Providing with assurance and
guarantees, conditions precedent 3. Signing SPA 4. Payment to the seller 5. Re-registration
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APPLICABLE LAW DISPUTES
DEADLINES
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There is a Double Tax Treaty between Austrian and Kazakhstan made in December 10, 2004, applicable to: In Kazakhstan: - Income tax (corporate & individual) - Property tax In Austria: - Income tax (corporate & individual) - Land tax - Tax on agricultural and forest entities - Tax on the value of free plot of land
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SHARE DEAL: capital gain tax (a tax to be paid by the Seller, however, the duty to withhold it rests with the Buyer) ASSET DEAL: CIT & VAT
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DISPUTE RESOLUTION DEPENDS ON APPLICABLE LAW
IT IS POSSIBLE TO AGREE ON APPLICABLE LAW IN THE SALE & PURCHASE AGREEMENTS
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*Established in 2005
*Offices: Almaty, Astana, New York
*Qualified lawyers with LL.M., MBA, PhD
*Working languages: English, Russian and Kazakh
*Partnership with leading legal firms from 43 countries
*Awarded as the best Public-Private Partnership firm and Corporate Tax Law firm in 2011
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ASTANA 7 Imanova Street 010000, Kazakhstan T + 7 7172 200 701, 200 703 F + 7 7172 200 705 [email protected]
ALMATY 188 Dostyk avenue 050000, Kazakhstan T + 7 7272 596 260, 597 560 F + 7 7272 596 260 [email protected]
AIZHAN KARZHAUBAYEVA Senior associate
AIGERIM SEIFULLINA, LLM Associate
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