Legislative Update January 01 - March 01

Admittance of International Bonds for Circulation
Registration of Bond Issuances by International Financial Organizations
Writing off Securities in Investment Accounts
Authority of the National Bank of Kazakhstan

The National Securities Commission of the Republic of Kazakhstan (NSC) recently adopted a number of regulations which deserve the special attention of securities market participants. This update outlines the most important new rules.

Admittance of International Bonds for Circulation

On January 11 2001 the NSC issued Regulation 93 on the Procedure for Admittance of Bonds Issued by Kazakh Entities under Laws of other States and Bonds Issued by International Financial Organizations for Circulation in the Territory of the Republic of Kazakhstan. The regulation provides that the NSC will view bonds issued by Kazakh companies under foreign laws (eg, eurobonds) and bonds issued by international financial organizations (eg, the European Bank for Reconstruction and Development, or the World Bank) as securities issued by foreign issuers. Therefore, general rules previously established for foreign bonds in the Provision for Admittance of Bonds Issued by Foreign Issuers for Circulation in the Republic of Kazakhstan, approved by the NSC on May 17 1996, shall apply.

Under the regulation the NSC will not admit international bonds issued by a Kazakh company for circulation in Kazakhstan if that company has either domestic or international bonds outstanding at the time of the admittance, except in the following cases:

• if international bonds are secured by the mortgage of real property;
  
  
• if, when the NSC decided to circulate the bonds, there were no instances of default, or incomplete or overdue performance of obligations, with respect to the bonds previously issued by the company;
  
  
• if, when the NSC decided to circulate the bonds, the issuer had at least a 'B' long-term unsecured foreign currency credit rating (as established by Standard & Poor's, Moody's or Fitch); or
  
  
• if, at the end of the last quarter preceding the date on which the documents were filed with the NSC in order to obtain permission for domestic placement, the leverage (ie, the ratio between the amount of the obligations and the issuer's net worth, as calculated in accordance with existing accounting rules) did not exceed 1:0, and will not exceed this ratio as a result of the proposed placement.

The regulation provides that the bonds of international financial organizations (IFOs) may be placed on the Kazakh market without having to undergo any admittance procedure; further, the NSC's board of directors is not required to make a decision on the placement. The circulation of such bonds on the Kazakh securities market is regulated by the rules of the Kazakh Stock Exchange.

Registration of Bond Issuances by International Financial Organizations

According to NSC Regulation 777 on the State Registration of Securities Issuances by International Financial Organizations, dated February 15 2001, the following documents must be submitted to the NSC for the registration of IFO bond issuances:

• an application, including the list of attached documents;
  
  
• a circulation offering for the bonds, containing (i) information about the name, location and contact details of the issuer; (ii) information regarding the nominal value of the bonds, the number of bonds per issuance, the issuance volume and currency, the method of repayment on the bonds (in the form of coupon or discount), the placement and circulation period, the term of redemption, the coupon rate (where remuneration is paid by coupon), any peculiarities regarding the placement (eg, whether placement with discount or bonus is allowed), and the terms and conditions of coupon redemption; (iii) information regarding the method for securing the execution of obligations with respect to the bonds, and for the disposal of funds received as a result of the placement; (iv) a legal adviser's report on the issuer's compliance with applicable legislation while planning for the issuance; and (v) other information which the issuer believes might be of interest to potential purchasers; and
  
  
• a notarized copy of the decision to issue the bonds made by the issuer's management body.

Writing off Securities in Investment Accounts

In order to standardize accounting procedures for securities in the investment portfolios of cumulative pension funds, NSC Regulation 764 on the Method of Writing off Securities in Investment Portfolios of Cumulative Pension Funds was issued on January 27 2001.

Organizations engaging in activities that relate to the investment management of pension assets must now write off securities in the investment portfolios of cumulative pension funds using the 'last in, first out' method - that is, the securities purchased last shall be written off first.

Authority of the National Bank of Kazakhstan

On March 2 2001 the Law on the Introduction of Amendments and Additions to Certain Legal Acts of the Republic of Kazakhstan Concerning Banking Activity was adopted.

The new law has amended the Law on the National Bank of Kazakhstan so that the National Bank of Kazakhstan (NBK) is now expressly permitted to enter into certain transactions involving securities and derivatives, including the following:

• the purchase and sale, and other handling, of securities whose issuers have a credit rating as established by the board of the NBK;
  
  
• transactions involving financial instruments such as inter-banking deposits, repurchase agreements and reverse repurchase agreements, deposit certificates, commercial papers and other debt obligations issued by entities that have a credit rating as established by the board of the NBK; and
  
  
• transactions involving derivative financial instruments such as forwards, swaps and options with counter-agents whose credit rating is not less than that which has been established by the board of the NBK.

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]).