Once attractive areas of legal practice — support of investments and M&A, transactions in the financial and banking sectors, not to mention the capital markets, have not yet reached the pre-crisis level of workload. The objective stagnation, however, can be regarded as a rehabilitation period and the pos-sibility to reformat the practice by bringing it into line with new market conditions and legislative realities. Those law firms that have managed to pass this way successfully will receive a distinct competitive advantage when activating, I dare to hope, the national economy.
Last year’s optimistic forecasts of a relatively quick recovery for the Ukrainian economy and, consequently, activation of transactional practices of law firms, have failed. Now all eyes are fixed on the beginning of 2017. The outgoing year, in terms of business activity of the legal market, is similar to the previous year: experts note the almost complete absence of projects under new financing and stable demand for debt restructuring support. Ukrainian investments abroad were almost closed in an administrative way. In the meantime, the practice of mergers and acquisitions is mainly represented by transactions on the withdrawal of individual players from the market and/or sale of non-core assets. Moreover, the price is more and more enticing, but the high country risk and a delay in reforms are scaring off potential investors.
M&A is not for everyone
In 2015, the legal services market in the M&A segment was rather weak. This is confirmed by the reduction in the number of publicly announced transactions by the leading law firms. Mykola Stetsenko, Managing Partner at Avellum Partners Law Firm, points out that law firms were busy mostly with corporate servicing of their regular customers, namely local investors, who showed little activity, consulting in the process of withdrawal of foreign investors, support of the Ukrainian component in the global M&A transactions, which were quite plentiful this year. Those few M&A transactions went to leading law firms, which had already confirmed their reputation as trusted M&A counselors.
Legal regulation in the M&A sphere is little changed. Oleksandr Polonyk, Associate at Avellum Partners Law Firm, notes the following to be among the main innovations in legal regulation points: introduction of mechanisms for tax compromise and antitrust amnesty; accelerated procedure for increasing the authorized capital stock during the process of banks’ recapitalization and, as a consequence, acceleration of cash-in transactions in the banking sector; restrictions on the foreign exchange market; requirement to disclose beneficial owners of legal entities.
According to Oleksandr Polonyk, some legislative changes over the past year, although irrelevant to the M&A regulation, can stimulate M&A activity. For example, a new law on licensing provides that control over the Ukrainian licensee by persons from any aggressor state may serve as a reasonable ground for revocation of the license. This provision stimulates Russian owners to sell Ukrainian licensed businesses. By the way, adoption of the 2014 Law on sanctions, which was reinforced by the introduction of personal sanctions in September 2015, has a similar effect. Furthermore, in May 2015, a government decree announced transparent privatization, which was postponed till 2016. If there is no other postponement in 2016, M&A activity in Ukraine may experience a significant revival through the sale of public sector assets.
Illya Muchnyk, Legal Director at the international law firm DLA Piper, qualifies demonstration of confidence about the future of the country on the part of private equity funds (Horizon Capital, Europe Virgin Fund), which managed to implement new investments in 2015 (acquisition of shares in Outlet and VENBEST), and on the part of foreign strategic investors, such as Asino Pharma, which in October completed the acquisition of the Kiev-based pharmaceutical maker Pharma Start, as positive signals.
With regard to M&A transactions in specific sectors, Mykola Stetsenko believes that the leader is the banking sector, where despite mass liquidation of banks, acquisition and attraction of investors were also observed. In particular, the expert points out the acquisition of 100 per cent of Astra Bank shares by NCH, the announced sale by UniCredit Group of Ukrsotsbank shares to Alfa Group, and also plans announced by the EBRD to invest in OTP Bank and Raiffeisen Bank Aval. Among the most global transactions, Mr. Stetsenko regards as worth noting the merger of cement producers Holcim and Lafarge, as well as the complex exchange of assets and the establishment of a joint venture between GlaxoSmithKline and Novartis, where in both cases Avellum partners LF provided legal advice on Ukrainian issues.
Activity in the banking and financial sectors was of a distinctly restructuring character. “There were few projects on new financing support (except for a few transactions in the agricultural sector, where financing was almost exclusively provided by international financial institutions — mainly by EBRD) said Serhiy Chorny, Managing Partner at the Kyiv office of international law firm Baker & McKenzie, — but there is a considerable amount of work in the sectors of debt restructuring, transactions with banks’ distressed assets, settlement of situations related to bank debts and experienced by temporary administration or accompanying the liquidation procedure; counseling on various innovations in banking and currency regulation”. Serhiy Chorny says that certain work was carried out on M&A transactions in the banking sector, but much of this work did not result in success (in most cases for commercial reasons, but sometimes as a result of failure to obtain approvals from the regulating authorities).
According to Iryna Pokanay, Partner at Asters Law Firm, in addition to geopolitical and economic factors, the attractiveness to investors is significantly decreased by the unprecedented administrative measures aimed at stabilizing the foreign exchange market: the requirement of compulsory sale by residents of the majority of foreign exchange earnings; the almost total prohibition by the National Bank of Ukraine of any currency operations, with the exception of the most simple. The practice has confirmed the effectiveness of these measures in the process of stabilizing the foreign exchange market. However, it didn’t have a positive impact on normal business operations.
Experts point to the transaction on restructuring debts on transactions involving Eurobonds and loans of such major players as Ukreximbank, DTEK, Metinvest; lending by EBRD to NIBULON, and beginning of restructuring sovereign debt of Ukraine as among the most notable transactions over the past 12 months.
Over the past year, legal regulation in the banking and financial sectors have undergone significant changes. The rules for disclosure of information on the owners of substantial participation in the Ukrainian banks were strengthened, liability of the banks’ owners was enhanced, and moreover, a definition of the urgency of deposit agreements appeared. Severe restrictions by the NBU, which were to stabilize the currency market and the banking system as a whole, provided additional work for lawyers.
The activity of law firms has focused on assistance to the regulator in developing civilized rules of debt restructuring in the banking sector and rules for acquiring substantial ownership in Ukrainian banks.
When it comes to expectations, Gabriel Aslanian, Counsel at Asters Law Firm, reminds us of the intention of the NBU’s leadership to gradually soften the regime of currency transactions in Ukraine. Mr. Aslanian, in terms of the liberalized currency regulation, draws attention to the cancellation or weakening of some prohibitions and restrictions to transactions of individuals, as well as the exclusion from the scope of application of restrictive measures on certain transactions by international financial organizations. “These measures do not affect any major segment of the market. It means that in case of long-term stabilization of the military and political situation inside the country, one may expect cancellation or mitigation of the most painful for the market prohibitions and restrictions, which is an important condition for moving towards economic growth”, Gabriel Aslanian said.
Serhiy Chorny predicts further consolidation in the banking sector, especially when it comes to medium and small banks. Mr. Chorny is convinced of the improved rules for disclosing information on the owners of substantial participation in Ukrainian banks. In addition, new participants are expected to enter the market of financial services — mobile network operators, Internet banks, etc. It will result in the need for significant development of legal regulation in this sphere.
“Nowadays, investing in Ukraine is quite a risky undertaking, even if the flow of reinvestment remains more or less stable”, says Maksym Lavrynovych, Managing Partner at Lavrynovych and Partners Law Firm. Andriy Zablotskyi, Senior Associate at Sayenko Kharenko Law Firm, names attractive areas for investors: growing and processing of crops, infrastructure projects, alternative fuels, and energy-saving technologies.
High investment risks can be explained not least by the lack of qualitative changes as to investment protection. Maksym Lavrynovych emphasizes that at this stage legislation on protection of foreign investment is not implemented properly due to the fact that the Ukrainian judicial system and law-enforcement agencies do not always take the necessary measures to protect investors and their rights: “Fortunately, it happens not so often, but the precedents still exist”.
An increase in investors’ claims might be regarded as another factor affecting the investment attractiveness of the country: claims against Ukraine are considered in international courts and tribunals such as the International Centre for Settlement of Investment Disputes (ICSID), the London Court of International Arbitration and the Stockholm Arbitration Institute of the Stockholm Chamber of Commerce, etc. And investors’ claims often have nothing to do with investing in the occupied territories.
According to Mr. Lavrynovych, the actual state of affairs with Ukrainian investment in the economies of other countries is not much better: “The national government has almost completely blocked all opportunities for its citizens to invest abroad. Our country has almost become a zone of alienation, from which not a cent is allowed out”.
Nevertheless, the Managing Partner at Lavrynovych and Partners Law Firm points put that the international community has begun to look at Ukraine from a different angle: “Over the last years our government became more noticeable in the international arena, foreign financial institutions and international organizations still notice positive changes and developments in the government’s structural reforms”. A great many investors are now exploring Ukraine as a potential business partner due to the fact that geographically and economically our country continues to be a promising area for investment, at least in the extraction sector.
Banking & Finance
|2||BAKER & MCKENZIE|
|1||Serhiy CHORNY (BAKER & MCKENZIE)|
|2||Michael KHARENKO (SAYENKO KHARENKO)|
|3||Glib BONDAR (Avellum)|
|4||Nazar CHERNYAVSKY (SAYENKO KHARENKO)|
|5||Armen KHACHATURYAN (ASTERS)|
|OTHER NOTABLE PRACTITIONERS|
|Vsevolod VOLKOV (INTEGRITES)|
|Jared GRUBB (CLIFFORD CHANCE)|
|Oleh ZAHNITKO (INTEGRITES)|
|Yulia KYRPA (AEQUO)|
|Anton KOROBEYNIKOV (SAYENKO KHARENKO)|
|Oleksandr KURDYDYK (DLA PIPER UKRAINE)|
|Helen LYNNYK (GRYPHON INVESTMENT CONSULTING GROUP)|
|Iryna MARUSHKO (Lavrynovych & Partners)|
|Adam MYCYK (DENTONS)|
|Ihor OLEKHOV (BAKER & MCKENZIE)|
|Oleksandr PLOTNIKOV (ARZINGER)|
|Iryna POKANAY (ASTERS)|
|Natalia SELYAKOVA (DENTONS)|
|Olexiy SOSHENKO (CLIFFORD CHANCE)|
|Roman STEPANENKO (Egorov Puginsky Afanasiev & Partners Ukraine)|
|Olexiy KHARYTONOV (ILF)|
Corporate/ Mergers & Acquisitions
|1||BAKER & MCKENZIE|
|1||Mykola STETSENKO (Avellum)|
|2||Viacheslav Yakymchuk (BAKER & MCKENZIE)|
|3||Vladimir SAYENKO (SAYENKO KHARENKO)|
|4||Oleg BATYUK (DENTONS)|
|5||Oleh MALSKYY (ASTAPOVLAWYERS)|
|OTHER NOTABLE PRACTITIONERS|
|Anna BABYCH (AEQUO)|
|Denys BUGAY (VB PARTNERS)|
|Olyana GORDIENKO (BAKER & MCKENZIE)|
|Ernest GRAMATSKIY (Gramatskiy & Partners)|
|Oleksiy DIDKOVSKIY (Asters)|
|Tatiana ZAMORSKA (KPMG UKRAINE)|
|Anna ZORYA (ARZINGER)|
|Oksana ILCHENKO (Egorov Puginsky Afanasiev & Partners Ukraine)|
|Margarita KARPENKO (DLA PIPER UKRAINE)|
|Olena KIBENKO (Kibenko, Onika & Partners)|
|Andrey KOLUPAEV (LEXWELL & PARTNERS)|
|Graham CONLON (CMS CAMERON MCKENNA)|
|Denis LYSENKO (AEQUO)|
|Olexander MARTINENKO (CMS CAMERON MCKENNA)|
|Adam MYCYK (DENTONS)|
|Sergiy OBERKOVYCH (Gvozdiy & Oberkovych)|
|Vadym SAMOILENKO (ASTERS)|
|Illya TKACHUK (GIDE LOYRETTE NOUEL)|
|Dmytro FEDORUK (CLIFFORD CHANCE)|
|Armen KHACHATURYAN (Asters)|
|Maksym CHERKASENKO (ARZINGER)|