Russian law provides regulations for initial public offerings. Thus, in regard to any legal actions within an IPO of Russian companies, general regulations provide for share issuance and the corporate approval of transactions. However, the regulations in respect to IPOs have certain specifics. Therefore, we would like to focus on the most significant side of an IPO -- corporate approval of IPO transactions. This issue is a complicated one, so we will only highlight some key points:
?€?? Corporate approval of the underwriting agreement
?€?? The placement agreement that is concluded by the company and banks/underwriters and the approval of this agreement as a major and/or interested-party transaction.
The underwriting agreement and the agreement on the additional issue of placement are the core documents in the course of any IPO. Thus, the approval or failure to approve any of these agreements as a major or interested-party transaction will enormously influence the well-being of the transaction in particular and the IPO structure in general. Failure to obtain the necessary approval will undoubtedly doom the IPO.
As is common practice, both of the agreements should be entered into at the same time as the IPO bid price for shares is set. Negotiations on the wording of certain other agreements often continue right down to the date of signing. Sometimes even parties to the agreements (especially the underwriting agreement) may be subject to change shortly before signing. Nevertheless, it's a must that the above agreements shall be duly approved beforehand. It may require approval by a general shareholders' meeting of the issuer, making the process more time-consuming. On the date of the shareholders' meeting when the wording of the future shareholders' decision on approval is finalized, it is impossible to consider all the conditions of the subsequent transaction. This was revealed in the first IPOs of Russian companies and within recent years companies have created a common practice to solve this issue -- standard clauses for approval have been delivered that comply with law and meet the interests of the parties to the subsequent IPO.
Certain difficulties may arise during the approval of major transactions, according to Russian law, if the shareholders voted against the approval of the subsequent IPO transaction or voted for an independent appraisal to determine the share purchase price. Thus, the value of shares so appraised would be fixed much earlier then the IPO bid price.
The approval becomes still more complicated when the underwriting and/or agreement on the additional issue placement are recognized as an interested-party transaction. For some issuers approval may appear impossible. For example, there may be uncertainty in the attitude towards the approval of independent shareholders'.
The above difficulties can be overcome, and a number of options to solve the problem have been practically elaborated (by means of changing the transaction structure, payments scheme and shares allocation scheme amending, acquisition of additional issue as result of preemptive right exercise, etc.).
The influence of some Coke's Institutes (English law) on corporate approvals deserves some comment as they regulate the essence and structure of the underwriting agreement. This particularly relates to the provisions in which the issuer provides certain presentations and warranties to the underwriter and accepts the responsibility to reimburse and compensate possible expenses, charges and losses (indemnity and contribution). Russian law is not familiar with such concepts, thus it is difficult to qualify such concepts under Russian law. On one hand, indemnity provisions possess all the principal criteria on the liability for default on obligations, though it still possesses the criteria for the single securing of obligations (due to the particularity of certain presentations and warranties, and also due to the fact that indemnity may be given for third parties activities). In virtue of the complexity and publicity of IPO transactions, the risk of recognizing indemnity as a separate liability (which because of its unlimited size often requires a general meeting of shareholders to approve the underwriting agreement) is taken unto account.
Above we have highlighted only some of the many complicated issues related to corporate approval of transactions within an IPO in Russia. It is becoming more obvious that the practice itself can find effective solutions that enable the constantly increasing number of Russian companies going for IPOs to overcome any handicaps.
?€?? Corporate approval of the underwriting agreement
?€?? The placement agreement that is concluded by the company and banks/underwriters and the approval of this agreement as a major and/or interested-party transaction.
The underwriting agreement and the agreement on the additional issue of placement are the core documents in the course of any IPO. Thus, the approval or failure to approve any of these agreements as a major or interested-party transaction will enormously influence the well-being of the transaction in particular and the IPO structure in general. Failure to obtain the necessary approval will undoubtedly doom the IPO.
As is common practice, both of the agreements should be entered into at the same time as the IPO bid price for shares is set. Negotiations on the wording of certain other agreements often continue right down to the date of signing. Sometimes even parties to the agreements (especially the underwriting agreement) may be subject to change shortly before signing. Nevertheless, it's a must that the above agreements shall be duly approved beforehand. It may require approval by a general shareholders' meeting of the issuer, making the process more time-consuming. On the date of the shareholders' meeting when the wording of the future shareholders' decision on approval is finalized, it is impossible to consider all the conditions of the subsequent transaction. This was revealed in the first IPOs of Russian companies and within recent years companies have created a common practice to solve this issue -- standard clauses for approval have been delivered that comply with law and meet the interests of the parties to the subsequent IPO.
Certain difficulties may arise during the approval of major transactions, according to Russian law, if the shareholders voted against the approval of the subsequent IPO transaction or voted for an independent appraisal to determine the share purchase price. Thus, the value of shares so appraised would be fixed much earlier then the IPO bid price.
The approval becomes still more complicated when the underwriting and/or agreement on the additional issue placement are recognized as an interested-party transaction. For some issuers approval may appear impossible. For example, there may be uncertainty in the attitude towards the approval of independent shareholders'.
The above difficulties can be overcome, and a number of options to solve the problem have been practically elaborated (by means of changing the transaction structure, payments scheme and shares allocation scheme amending, acquisition of additional issue as result of preemptive right exercise, etc.).
The influence of some Coke's Institutes (English law) on corporate approvals deserves some comment as they regulate the essence and structure of the underwriting agreement. This particularly relates to the provisions in which the issuer provides certain presentations and warranties to the underwriter and accepts the responsibility to reimburse and compensate possible expenses, charges and losses (indemnity and contribution). Russian law is not familiar with such concepts, thus it is difficult to qualify such concepts under Russian law. On one hand, indemnity provisions possess all the principal criteria on the liability for default on obligations, though it still possesses the criteria for the single securing of obligations (due to the particularity of certain presentations and warranties, and also due to the fact that indemnity may be given for third parties activities). In virtue of the complexity and publicity of IPO transactions, the risk of recognizing indemnity as a separate liability (which because of its unlimited size often requires a general meeting of shareholders to approve the underwriting agreement) is taken unto account.
Above we have highlighted only some of the many complicated issues related to corporate approval of transactions within an IPO in Russia. It is becoming more obvious that the practice itself can find effective solutions that enable the constantly increasing number of Russian companies going for IPOs to overcome any handicaps.