This article presents a summary of the principal local requirements for issuers incorporated in Kazakhstan who wish to issue bonds on the international markets. It is intended to be a helpful guide – it is therefore not comprehensive and does not constitute legal advice. It assumes that the bonds are to be issued directly by a Kazakh issuer (rather than indirectly through an off-shore subsidiary or under a loan participation note structure).
FMSC CONSENT: The issuer must obtain the prior written permission of the FMSC to issue and place bonds outside Kazakhstan. The FMSC has 15 days from the date of application to decide whether to give its consent. The FMSC will give its permission if an issuer meets requirements identified below relating to: (i) obtaining a KASE listing; (ii) complying with local offer requirements; and (iii) complying with a gearing ratio. In addition, the issuer must not be in default under its outstanding bonds.
KASE LISTING: The bonds must be listed on the KASE. The KASE listing requirements has two aspects. Firstly, the KASE must consent to admit the bonds to a specified listing category known as “debt securities with rating (highest category)”. Secondly, if an issuer has previously issued bonds or equity, then at least one of those securities must also be admitted to a list maintained by KASE.
In order to be admitted to the official list of KASE, an issuer must comply with certain requirements including:
- a local broker which is a member of KASE must act as a market maker in respect of the bonds;
- the bonds must have a rating of at least a speculative level and such rating must be assigned by either an international rating agency (S&P, Moody’s or Fitch) or a local rating agency (Rating Agency of the Almaty Regional Financial Center, Expert RA Kazakhstan or KZ-rating Agency); and
- the issuer must provide (i) two years of audited financial statements (prepared to IFRS or US GAAP) and, if the audited annual financial statements are more than 6 months old, (ii) interim financial statements (which must either be audited or reviewed by auditors).
LOCAL OFFER REQUIREMENT: The bonds must be offered for sale on KASE to investors in Kazakhstan on the same terms as, and simultaneously with, the international offering. If the local demand is less than or equal to 20% of the total size of the offering, then such demand should be satisfied in full. If the local demand exceeds 20% of the total size of the offering, then not less than 20% of the total size of the offering must be placed to local investors. In addition, subsequent to the listing and offer on the KASE, the local broker will act as a market maker in respect of the bonds and, in such capacity, will be required to maintain mandatory bid and ask quotes.
GEARING RATIO: Where the issuer is not a bank, it must comply with a gearing ratio of 2 to 1. This gearing ratio is calculated as the ratio of all outstanding liabilities of the issuer to own capital. The ratio is tested at the end of the financial quarter immediately prior to the application for FMSC permission and, therefore, does not include any debt proposed to be incurred in connection with the contemplated bond issue. Where the issuer is a bank it must be in compliance with prudential and other requirements of the FMSC.
INTERNATIONAL LISTING: The issuer may obtain and retain an international listing only if the bonds are admitted to listing on KASE.
REPORTING REQUIREMENTS: Following the issue of the bonds, the issuer must provide confirmation to the FMSC that the bond issue complied with the local offer requirements and provide certain information in relation to the local offering. The Issuer must also notify the NBK once it has issued the bonds and, subsequently, make regular quarterly filings with the NBK.
LOCAL PROSPECTUS REQUIREMENTS: There is no legal requirement to publish a prospectus in connection with the local offering. However, the KASE listing rules require the issuer to prepare an information memorandum. In most cases, a Russian translation of the offering document prepared for the purposes of an international offer is accepted by the KASE as the information memorandum.
TAX: Payments of interest to non-residents of Kazakhstan are generally subject to withholding at a rate of 15%. Investors in certain jurisdictions with favourable tax regimes (for example, Cyprus and Luxembourg) are subject to a 20% withholding. However, no withholding is required to be made on payments to non-Kazakh resident holders if the Bonds are listed on the KASE.
Gains on the sale of bonds by non-resident holders are subject to withholding at a rate of 15% (and potentially 20% depending on the jurisdiction of the investor) unless reduced or eliminated by an applicable double tax treaty. Gains realised by non-resident holders in relation to bonds which are listed on KASE or a foreign stock exchange and sold through open trades on such stock exchanges are not subject to withholding tax.
There is no stamp duty or similar tax payable in Kazakhstan.
GOVERNING LAW AND ENFORCEMENT: The choice of English law is enforceable before Kazakhstan courts. However, Kazakhstan is not a party to any treaties with the United Kingdom and therefore any English judgment is unlikely to be given direct effect in Kazakhstan courts. Kazakhstan is a party to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards and therefore a foreign arbitral award obtained in a state which is party to the New York Convention is enforceable by the courts of Kazakhstan.