Avellum Partners

It is common on the market that any business structuring for a Ukrainian business is conducted mostly by financial advisers and business consultants looking primarilyat the cost reduction and direct tax economy. However, current tax legislation in most countries around the world is eager to fight with structures erected only for tax economy purposes. Ukrainian tax authorities are not exception in this case.

Please highlight any main trends or shifts in the current Ukrainian financing market? Due to limited or no appetite for Ukrainian risk and global finance markets volatility, capital markets and traditional bank lending are no longer easily accessible to Ukrainian borrowers (subject to few exceptions). At the same time, supply of ECA-backed trade financing continues to be available and trade financing seems to be active this year as well.

The manner in which a lending transaction is structured is critical to the overall deal success because it has an impact on: the deal risk assessment; security package reliability; the total cost of financing (e.g., interest rate, commission/fees, taxes/duties payable); deal execution speed; and “post-closing” matters (e.g., manageability of reporting requirements, covenant compliance, debt servicing, etc.).

Capital markets projects always involve a significant amount of effort and stress from all parties of the process. Everybody has a common goal to get everything done just before the ever-urgent “windows” for the issue close. This time of crisis and uncertainty is precious and not to be wasted. Now is a great opportunity for prospective issuers and investors alike to get to grips with preparatory work in time for when the capital markets open their doors for Ukrainian business.

Traditionally M&A transactions involving Ukrainian targets are structured in a specific way in order to reflect peculiarities of the Ukrainian business environment. Enforcement of such structures requires deep knowledge and outstanding expertise in arbitration involving Ukrainian parties. Before drafting any dispute resolution clause, the following issues should be addressed.

From the moment foreign investors enter Ukraine they face a “non-Western standard” business environment, confusing and unstable legislation, and bureaucracy. One would need to spend a lot of time and effort to get a clear understanding of the local “rules of conduct”. That is why many investors prefer to have a local partner rather than be on their own.

On the way to the European integration, and by virtue of the determined Ukrainian policy towards energy independence, the Ukrainian Government is taking significant steps to improve Ukrainian energy sector. Currently, important changes are being introduced in the oil-and-gas industry. This has already encouraged global oil-and-gas companies such as Exxon Mobil, Shell, Chevron, and Eni to commence investment activity in Ukraine.

Sophisticated M&A transactions include not only straightforward share purchase agreements but may also contemplate ancillary agreements (e.g. option agreements, share pledge agreements, repo financing, etc.). Moreover, share purchase agreements may envisage non-compete clauses, which also fall within the ambit of Ukrainian competition law.

Development of efficient tax and corporate structures from the shareholders’ and potential investors’ perspective are key issues in a business restructuring. Each cross-border restructuring usually involves several jurisdiction. Below are some of the most frequently asked questions (and answers) on the cross-border restructuring of Ukrainian business:

Unlike Western developed economies, Ukraine has only recently started to unlock its potential in the area of attracting investments from Private Equity Funds (“PEFs”). Therefore, on the one hand, every more or less serious Ukrainian business (“Business”) has a good chance to attract the attention of a PEF.

In recent months, China has been dominating media headlines in connection with exchange rate disputes with the Unites States and possible participation of China in the bailout of some Eurozone nations. China seems to be proving the truth behind the Chinese proverb that says that ‘the saving man becomes the free man’.

On 4 February 2004, Ukraine ratified the Kyoto Protocol to the United Nations Framework Convention on Climate Change. This gave Ukraine an opportunity to engage in various types of projects purported at reduction of greenhouse gas emissions (the “GHG emissions”), in particular and especially joint implementation projects (the “JI projects”).

The “green” tariff for electricity (also known in many other jurisdictions as the “feed-in” tariff) was introduced in Ukraine relatively recently – only in 2008. Since that time it has evolved substantially and now appears to be quite mature in terms of the legislative base.

With the global financial crisis approaching its end, M&A activity is picking up in Ukraine. Foreign buyers are again looking at the Ukrainian market as sellers have adjusted their pricing expectations to reasonable levels. With this trend in mind, it could be useful to reiterate a few basic aspects of investing in Ukraine.