Legislative Update

Additional Share Issuances
T-Bills
Pension Funds
Government Borrowing

Over the last six months, the government of the Republic of Kazakhstan and the National Securities Commission of the Republic of Kazakhstan (NSC) adopted several legal acts which regulate activities in the Kazakh securities market. These are as follows.

Additional Share Issuances

Government Resolution 656, dated May 4 2000, approved new rules for filing claims for additional share issuances from joint stock companies with tax liabilities or other debts to the state budget. The rules were developed in accordance with the Law of the Republic of Kazakhstan on Joint Stock Companies, dated July 10 1998. The Ministry of State Revenues may now file a claim in order to compel a joint stock company to make an additional share issuance if tax liabilities which have been outstanding for more than three months, together with any other outstanding debts to the state budget, exceed two-thirds of the company's paid-up charter capital. These 'other debts' to the state budget include the following accounts payable:

• relations connected with budget crediting;
  
  
• contractual relations;
  
  
• court judgments;
  
  
• obligations pursuant to borrowing guaranteed by the state; and
  
  
• other relations in which the state budget is a creditor and the company is a debtor.

The proceeds which result from the additional issuance of corporate stock will be used to repay the outstanding tax and other liabilities owed to the government. Resolution 656 does not apply to banks and organizations that carry out certain kinds of banking operations.

T-Bills

Government Resolution 597, dated April 18 2000, approved new rules for the issuance, placement, circulation, repayment and servicing of hard currency-denominated Treasury bills of the Republic of Kazakhstan which have a circulation period of over one year. The rules define 'hard currency-denominated Treasury bills' (T-bills) as state securities issued by the Ministry of Finance on behalf of the government to address deficits in the state budget. T-bills will circulate in the domestic securities market in accordance with applicable Kazakh securities laws. T-bill holders will be entitled to (i) the par value of T-bills, to be received at the time of repayment thereof, and (ii) interest calculated as a certain percentage of the par value, to be paid pursuant to the rules. T-bills will be non-certificated and sold through auction. They will be circulated by making respective entries in the T-bill holders' custodian ('depo') accounts, maintained by the Central Depository and authorized primary dealers. The par value of a T-bill is $100. The National Bank of the Republic of Kazakhstan is responsible for the primary distribution of T-bills.

Pension Funds

In order to protect pension funds and to control investments made by companies that manage pension funds, the NSC directorate adopted Resolution 598, dated May 5 2000. The resolution establishes the procedure by which companies that manage pension funds may transfer monies from investment accounts as payment for acquired financial instruments when making respective investments.

Meanwhile, on June 30 2000 the directorate adopted Resolution 634 on the Procedure for Issuing Permission for the Acquisition of State Securities Issued by Local Executive Organs at the Expense of Pension Funds. The resolution establishes the procedure for obtaining permission from issuers of municipal bonds, and from underwriters of NSC issuances, for the acquisition of municipal bonds from pension funds.

Government Borrowing

Government Resolution 874, dated June 8 2000, approved the rules for government borrowing and borrowing by local executive bodies. The rules were developed in accordance with the following legislation:

• the Law of the Republic of Kazakhstan on the Budget System, dated April 1 1999;
  
  
• the Law of the Republic of Kazakhstan on State and State-Guaranteed Borrowing and Debt, dated August 2 1999; and
  
  
• other legal acts which regulate the acquisition of loans and establish the procedure for borrowing by the government and local executive bodies.

For further information on this topic please contact Yuriy Maltsev at White & Case by telephone (+7 3272 50 74 91) or by fax (+7 3272 50 74 93) or by e-mail ([email protected]).