Country Q&A

MULTI-JURISDICTIONAL GUIDE 2014/15

CAPITAL MARKETS

Debt capital markets in Russian Federation:

regulatory overview
Carter Brod, Vasilisa Strizh and Liya Grishaeva
Morgan, Lewis & Bockius LLP
global.practicallaw.com/2-527-2805

LEGISLATIVE RESTRICTIONS ON SELLING DEBT Eurobond market

SECURITIES In 2013, there were more than 50 Eurobond offerings from Russia,
including among others, offerings by:
1. What are the main restrictions on offering and selling debt • Credit Bank of Moscow.
securities in your jurisdiction?
• Domodedovo Airport.

Main restrictions on offering and selling debt securities • Gazprombank.

The prospectus registration requirements for offering bonds in • Gazpromneft.

Russia are generally the same as those applicable to offerings of • Nomos Bank.
equity securities (see Equity Capital Markets in Russian Federation,
Question 11). For information on exemptions from the prospectus • Renaissance Credit.
registration requirements see Question 14.
• Rosselkhozbank.
The general rule is that selling is restricted before full payment of
the securities and registration of a placement report (if required) or • Russian Federation.
filing a notification on the results of placement. • Russian Railways.
Restrictions for offers to the public or professional investors • Sberbank.
Certain types of securities may be sold to qualified investors only,
• Vnesheconombank (VEB).
such as foreign securities that have not been admitted to public
circulation in Russia by the Central Bank of the Russian Federation • VTB.
(CBR) or by a Russian stock exchange and other securities
specifically designated as being for qualified investors in the • Yandex.
corporate decision on their issuance. Securities designated as The Russian Eurobond offerings in 2013 included a number of
being for qualified investors cannot be publicly offered and offerings of subordinated Eurobonds issued by Russian banks to
advertised among an unlimited number of persons. Transactions boost their regulatory capital in view of new Basel III requirements
with securities designated as being for qualified investors can only that became effective in March 2013.
be entered into through a Russian broker.
STRUCTURING A DEBT SECURITIES ISSUE
Market activity and deals
3. Are different structures used for debt securities issues to the
2. Outline the main market activity and deals in your
public (retail issues) and issues to professional investors
jurisdiction in the past year.
(wholesale issues)?

Domestic bond market Domestic bond market

2013 was a strong year for the domestic bond market, with more
Offering structures are generally the same for offerings to retail
than 300 issues registered. Major domestic bond offerings in 2013
investors and offerings to professional investors.
include offerings by the following companies and banks:
• Russian Railways (RUB150 billion).
4. Are trust structures used for issues of debt securities in your
• Vnesheconombank (VEB) (RUB90 billion). jurisdiction? If not, what are the main ways of structuring
• Rosneft (RUB40 billion). issues of debt securities in the debt capital
markets/exchanges?
• VTB (RUB20 billion).
• Rosselkhozbank (RUB10 billion). Domestic bond market
• Rosbank (RUB10 billion). Trust structures do not exist in the Russian debt securities market,
as the concept of a trust is not recognised under Russian law.
• MTS (RUB10 billion).
Domestic bond issues can be structured as direct issuances or as
The Russian Federation also made a number of large offerings of
offerings by a Russian SPV with a guarantee by the company
domestic sovereign bonds in 2013.
and/or its subsidiaries. The structure of a domestic bond issue can

© This article was first published in the Capital Markets Multi-Jurisdictional Guide 2014/15
and is reproduced with the permission of the publisher, Thomson Reuters.
The law is stated as at 1 July 2014.
Country Q&A
vary depending on the obligor's eligibility to conduct a bond issue,
including the length of time the issuer has existed and the intended
size of the offering. Recently, the requirement that the aggregate
nominal value of outstanding bonds issued by a company cannot
exceed its authorised capital was abolished, thereby providing
more flexibility as to the choice of issuing entity.
Eurobond market
For Eurobond offerings, the most commonly used structures are
loan participation notes issued by non-Russian SPVs and notes
issued by subsidiary SPV issuers with guarantees by Russian parent
companies.
Trust structures are the norm, and fiscal agency structures are
uncommon, both because loan participation notes structures
require a trustee (to hold the loan as security) and because of the
advantages a trust structure provides to bondholders in default
scenarios and enforcement.
MAIN DEBT CAPITAL MARKETS/EXCHANGES
5. What are the main debt securities markets/exchanges in
your jurisdiction (including any exchange-regulated market
or multi-lateral trading facility (MTF))?
Russian companies, banks and sovereign and sub-sovereign
entities are active in both the domestic bond market and the
international Eurobond market.
Domestic bond market
The main debt securities market/exchange is Moscow Exchange
(MOEX)). MOEX was created on 19 December 2011 as a result of the
merger of the previous two main Russian stock exchanges, MICEX
and RTS. Major shareholders of MOEX are the CBR (28.26%),
Sberbank (9.992%), VEB (8.395%), EBRD (6.063%) and
Shengdong Investment Corporation (5.616%).
Eurobond market
Eurobonds of Russian companies are normally listed on an EU-
regulated market of a European stock exchange. The most
common are Ireland (LSE), London (ISE) and Luxembourg (LUXX).
Approximate total issuance on each market
Based on publicly available information, in 2013 the volume of
domestic bond placements on MOEX increased by 25% as
compared to 2012 and constituted RUB2.659 trillion. In total, more
than 2,000 issues of domestic bonds are currently traded on
MOEX. 458 issues of Eurobonds from Russia were outstanding as
of 19 June 2014.
6. What legislation applies to the debt securities
markets/exchanges in your jurisdiction? Who are the main
regulators of the debt capital markets?
Regulatory bodies
Domestic bond market. As with the equity securities markets, the
domestic debt securities markets are principally regulated by the
CBR. Debt securities offerings by Russian banks are also subject to
regulation by the CBR.
Eurobond market. Eurobond issuances by Russian companies are
subject to minimal regulation in Russia, as they are generally
structured as offshore issuances with the proceeds of the offering
being loaned by the non-Russian issuer to the Russian obligor. In
offerings of loan participation notes by banks where a subordinated
loan is intended to be eligible for inclusion into the regulatory
capital of the bank under CBR regulations, the CBR must approve
the loan agreement and the loan.
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Legislative framework
The legislative framework for regulation of the debt securities
markets is generally the same as it is for the equity securities
markets (see Equity Capital Markets in Russian Federation,
Question 2).
7. What are the main listing requirements for bonds and notes
issued under programmes?
Domestic bond market
Main requirements. Domestic bonds listed on MOEX must meet
the same listing rules as and follow a similar listing procedure as
equity securities (see Equity Capital Markets in Russian Federation,
Questions 3 and 8), subject to several additional requirements
established by the Moscow Exchange Regulation.
Types of domestic debt securities. The main types of domestic
debt securities are:
• Corporate bonds (unsecured or secured).
• Sovereign (federal and sub-federal) bonds and municipal
bonds.
• CBR bonds, which can only be placed with and traded by
Russian banks.
• Stock exchange bonds (birzhevaya obligatsiya).
• Rouble commercial paper.
• Mortgage-backed securities.
• Convertible bonds.
Minimum size requirements. The minimum volume of an issue of
domestic bonds to be included in the first (primary) or second level
quotation lists is RUB2 billion and RUB500 million, respectively.
Minimum denomination. There is a maximum denomination
requirement: RUB50,000 for both the first (primary) and second
level quotation lists.
Eurobond market
Eurobonds from Russia are typically listed on the EU-regulated
market of a European stock exchange, most often Ireland, London
or Luxembourg. Each of these exchanges has listing and disclosure
rules consistent with Directive 2003/71/EC on the prospectus to be
published when securities are offered to the public or admitted to
trading (Prospectus Directive) and related regulations.
Some Russian Eurobonds have been listed on the SIX Swiss
Exchange and are subject to its listing requirements. Eurobonds of
Russian companies and banks typically take the form of loan
participation notes or guaranteed notes, in each case with the
notes issued by a non-Russian special purpose vehicle (SPV).
Eurobond offerings from Russia are most often denominated in US
dollars but they may be denominated in any other freely
convertible currency, including roubles. There have been some
recent Eurobond offerings by Russian companies denominated in
Swiss francs and Chinese yuan.
The Ministry of Finance of Russia acting on behalf of Russia is a
regular issuer of sovereign Eurobonds. Additionally, euro
commercial paper ECP programmes have been set up by certain
Russian companies. Convertible Eurobonds can also be issued by
Russian companies although they are not issued frequently.

8. Are there different/additional listing requirements for other
types of securities?
Other types of securities including securities issued by foreign
issuers are generally subject to the same listing requirements, with
different thresholds applicable to each type of securities.
9. What are the main areas of continuing obligations
applicable to companies with listed debt securities and the
legislation that applies?
Generally, an issuer of debt securities listed on MOEX must comply
with the following continuing obligations for its debt securities to
be eligible for inclusion in the first (primary) quotation list:
• The issuer must maintain a board of directors.
• The issuer must maintain an audit committee performing
internal audit and maintain a policy on internal audit.
The issuer must prepare and disclose its annual financial
statements prepared under International Financial Reporting
Standards (IFRS) or other internationally accepted standards, for
not less than three years (for the first (primary) level quotation list)
or for not less than one year (for the second level quotation list)
before inclusion into the relevant level quotation list. The secure
disclosure obligations set out in the Securities Market Law that
apply to issuers of equity securities also apply to issuers of debt
securities (see Equity Capital Markets in Russian Federation,
Question 21)
10. Do the continuing obligations apply to foreign companies
with listed debt securities?
There is no distinction between Russian and foreign issuers when it
comes to continuing obligations.
11. What are the penalties for breaching the continuing
obligations?
Breaches of continuing obligations in respect of debt securities are
subject to the same liability and penalties that apply to breaches of
continuing obligations in respect of equity securities (see Equity
Capital Markets in Russian Federation, Question 23).
ADVISERS AND DOCUMENTS: DEBT SECURITIES
ISSUE
12. Outline the role of advisers used and main documents
produced when issuing and listing debt securities.
Domestic bond market
The principal advisers in a domestic bond issue are the lead
manager, legal advisers, auditors and paying agents, who perform
similar roles to such advisers on an international offering of
Eurobonds. The role of external legal advisers and auditors on a
Russian domestic bond issue is generally significantly more limited
than is the case for Eurobond offerings.
The main documents in a domestic bond offering include:
• Decision on placement of bonds.
• Decision on issue of bonds.
Country Q&A
• Russian prospectus.
• Information memorandum or equivalent marketing materials.
• Bond certificate.
• Issue results report (notice on placement results).
• Issuer's resolutions on the bond placement date.
• Determination of the bond placement price.
• Corporate approvals necessary for the bond placement.
• Internal documents and amendments to the constitutive and
internal documents of the issuer to meet the requirements of
the particular quotation list.
Eurobond market
In a Eurobond offering by a Russian company, the principal
advisers (and their roles) and the main documents are generally
the same as those in a typical international offering of Eurobonds.
Documents include among others a trust deed, agency agreement
and subscription agreement and the terms and conditions of the
bonds. Russian Eurobond offerings that are structured as loan
participation notes also include a loan agreement, certain
additional fee and indemnity side letters and certain documents
related to the charge that is granted over the loan.
DEBT PROSPECTUS/MAIN OFFERING DOCUMENT
13. When is a prospectus (or other main offering document)
required? What are the main publication/delivery
requirements?
The prospectus requirements for domestic bonds are generally the
same as those applicable to offerings of equity securities (see
Equity Capital Markets in Russian Federation, Question 10). In
contrast to standard practice for Eurobond offerings, in a Russian
domestic bond offering the prospectus is generally not used as a
marketing document. Prospectuses for Eurobond offerings from
Russia are prepared in line with international standards and are
published and delivered in line with international requirements.
14. Are there any exemptions from the requirements for
publication/delivery of a prospectus (or other main offering
document)?
Offerings of the following types of domestic bonds are exempt from
the prospectus registration requirements:
• Bonds in an aggregate principal amount (in one or more
tranches) of less than RUB4 billion (applicable only to credit
organisations).
• Sovereign bonds.
• CBR bonds.
• Stock exchange bonds (birzhevye obligatsii) meeting certain
criteria (at least three years' existence of the issuer, open
placement, mandatory centralised custody of the bonds,
repayable only in cash).
15. What are the main content/disclosure requirements for a
prospectus (or other main offering document)? What main
categories of information are included?
Domestic bond market
For a domestic bond issue, the prospectus content requirements
for debt securities are generally the same as they are for equity
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Country Q&A
securities (see Equity Capital Markets in Russian Federation,
Question 12). Additionally, the issuer must provide in the
prospectus certain information related to any third party providing
security (including a guarantee) for the bonds and information
related to the security itself.
Eurobond market
The disclosure requirements applicable to a Eurobond issue from
Russia vary depending on the market into which the bonds are to
be sold or listed. The prospectus in an offering that includes a Rule
144A (under the US Securities Act of 1933) tranche into the US
must meet US disclosure standards.
16. Who is responsible for the prospectus (or other main
offering document) and/or who is liable for its contents?
A domestic bond prospectus is prepared in the same way as an
equity prospectus, and responsibility and liability for the content of
the prospectus is generally the same as well (see Equity Capital
Markets in Russian Federation, Question 13). Additionally, where
bonds are secured by a third party (including a guarantee), the
decision on the issuance and the prospectus must be signed by the
third party securing the bonds and that party assumes joint and
several liability for the completeness and accuracy of the
information contained in the prospectus.
TIMETABLE: DEBT SECURITIES ISSUE
17. What is a typical timetable for issuing and listing debt
securities?
The process of offering and listing Russian domestic bonds or
Eurobonds typically takes several months but the timetable can be
significantly shorter if the issuer has issued bonds previously or if
the transaction is not complex. Typical timetables are as follows:
Domestic bond market
Stage one (about one month). This stage includes:
• Issuer's decision on the placement of bonds.
• Preparation of prospectus, which may be filed with the CBR for
pre-review (the pre-review takes no longer than 30 days).
• Drafting documents for listing and quotation list admission.
• Mandate letter signed with lead managers.
• Agreement signed with the depositary for mandatory
centralised custody of the bond certificates.
Stage two (about one month). This stage includes:
• Registration of the bond issue and the prospectus with the
regulatory authority (within 30 days of the regulatory authority's
receipt of the registration application).
• Admission of the bonds to trading and to a quotation list on
MOEX.
• Determination of the date on which the placement will begin,
the placement price and coupon against coupon periods.
Stage three (about one month). This stage includes marketing
and bond placing.
Stage four (about one month). This stage includes registration of
the report on the results of the issue or filing a notification with the
CBR if the placement had certain specified characteristics.
Eurobond market
Stage one (about two months). This stage includes:
• Appointment of lead managers, other advisers and agents.
• Establishing an SPV, if needed.
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• Conducting due diligence.
• Drafting of the prospectus and transaction documents.
• Stock exchange review process.
• Obtaining necessary corporate approvals of transaction, if any.
Stage two (about two weeks). This stage includes:
• Marketing and road show.
• Signing of the subscription agreement.
• Approval of the final prospectus by the stock exchange
regulator.
Stage three (two to three days after signing). This stage includes
closing and listing.
In cases of subordinated Eurobond offerings by Russian banks the
funds raised that are expected to be included into the bank's
regulatory capital, additional steps to be taken are:
• Draft loan agreement should be reviewed by the CBR before the
marketing of the offering (this review may take up to 30 days).
• The issuance by the CBR of its approval on inclusion of the
subordinated loan into the bank's regulatory capital to be done
post-closing, that is, after the funds have been transferred to
the bank (can take about one month).
TAX: DEBT SECURITIES ISSUE
18. What are the main tax issues when issuing and listing debt
securities?
Domestic bond market
A Russian company that pays interest on its domestic bonds to
individuals and foreign entities previously acted as a tax agent and
was required to withhold tax on those dividends and remit the
amount of tax due to the Russian budget. Now, this role is
performed by custodians. The applicable withholding tax rate
depends on the status of the recipient of the interest payment.
Eurobond market
Amendments to the Russian Tax Code introduced in 2013 and
effective from 1 January 2014 introduced a permanent exemption
for Eurobond offerings from withholding tax on interest income
provided that both:
• An SPV issuing Eurobonds is a tax resident in a jurisdiction that
has a double tax treaty with Russia and confirms that residence.
• The Eurobonds are governed by foreign law and are listed on a
foreign stock exchange approved by the FSFM and\or cleared
through clearing houses approved by the FSFM.
The list of approved exchanges includes many major exchanges
including the London Stock Exchange (LSE), Irish Stock Exchange
(ISE) and Luxemburg Stock Exchange (LUXX).
CLEARING AND SETTLEMENT OF DEBT SECURITIES
19. How are debt securities cleared and settled and what
currency are debt securities typically issued in? Are there
special considerations for holding, clearing and settling
debt securities issued in foreign currencies?
Russian domestic bonds are normally denominated in roubles but
they can be denominated in other currencies. There is mandatory
centralised custody of bond certificates, so a custodian (currently,
NSD) is involved in each offering.

REFORM
20. Are there any proposals for reform of debt capital
markets/exchanges? Are these proposals likely to come
into force and, if so, when?
There are some general proposed reforms, which may affect both
the equity and debt capital markets (see Equity Capital Markets in
Russian Federation, Question 26).
On 1 July 2014 certain amendments to the Securities Market Law
come into force. Among other things, the amendments introduce
the concept of a bondholders' representative with respect to
domestic bonds. In certain cases, the appointment of such a
representative will be mandatory.
Russian law does not include the concept of a trust; however, the
representative's functions and role are to some extent similar to
those performed by a bondholders' trustee in Eurobond offerings.
Country Q&A
The bondholders' representative must be either a professional
capital markets participant or any other Russian legal entity
incorporated at least three years prior to its appointment, and it
must be included on the list of eligible representatives adopted and
maintained by the CBR.
The representative is appointed by the issuer and acts under an
agreement signed between the issuer and the representative.
However, the representative can be dismissed by the bondholders
in certain cases.
Also effective from 1 July 2014, the concept of a bondholders'
meeting will be functioning with respect to domestic bonds in
Russia. Bondholders will be able to decide and vote on certain
issues regarding the bonds, such as granting consent to amending
the terms of the bonds, waiver of early prepayment rights, going to
the court for enforcement of security or initiating bankruptcy
procedures against the issuer. Duly adopted decisions of the
bondholders' meeting are binding on all bondholders.

ONLINE RESOURCES
President of the Russian Federation
W http://eng.kremlin.ru
The first announcements of any newly signed laws are published here.
Official Legislation
W http://pravo.gov.ru
Description. Materials are available in Russian language only.
Central Bank of the Russian Federation
W www.cbr.ru
Description. Contains current and draft regulations, reports and so on.
Ministry of Finance of the Russian Federation
W www1.minfin.ru/en
Description. Contains basic financial information, statistics and so on.
Moscow International Financial Centre
W http://mfc-moscow.com/index.php?id=41
Description. Contains current information on the development of Russian financial market.
Association of Securities Market Participants (NAUFOR)
W www.naufor.ru/default.eng.asp
Description. The Russian language version of this site is regularly updated and contains legislation, sample documents and so on. The
English version is less informative.

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Country Q&A

Practical Law Contributor profiles

Carter Brod, Partner Vasilisa Strizh, Partner

Morgan Lewis Morgan Lewis
T +7 495 212 2550 (Moscow) +44 3201 5623 T +7 495 212 2540
(London) F +7 495 212 2400
F +7 495 212 2400 (Moscow) +44 3201 5001 E vstrizh@morganlewis.com
(London) W www.morganlewis.com
E cbrod@morganlewis.com
W www.morganlewis.com

Professional qualifications. District of Columbia and State of
Georgia, US, Attorney at Law; England and Wales, Solicitor
Areas of practice. Capital markets, focusing on international debt
and equity securities offerings.
Recent transactions. Representing underwriters and issuers
including corporations, banks and sovereigns on a range of debt
and equity capital markets transactions, including offerings of
Eurobonds, high yield notes, shares, depositary receipts, equity-
linked instruments and regulatory capital instruments.
Professional qualifications. Russian Federation, Lawyer
Areas of practice. Mergers and acquisitions; global financial
services and compliance; capital markets.
Recent transactions. Representing clients in cross-border and
domestic mergers and acquisitions, cross-border investments and
joint ventures, and capital markets transactions, including public
and private equity securities offerings; advising clients on corporate
and securities law, disclosures, anti-corruption and other
compliance matters.

Liya Grishaeva, Senior Associate

Morgan Lewis
T +7 495 212 2522
F +7 495 212 2400
E lgrishaeva@morganlewis.com
W www.morganlewis.com

Professional qualifications. Russian Federation, Lawyer

Areas of practice. Mergers and acquisitions; capital markets;
finance; corporate finance.
Recent transactions. Advising primarily on mergers and
acquisitions, banking and finance, and capital markets matters;
representing major Russian and multinational corporations and
banks in a broad range of cross-border and domestic acquisitions
and restructurings, as well as project and acquisition finance;
experienced in litigation, particularly regarding shareholders'
disputes and general corporate issues.

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