Kazakhstan: New Antimonopoly Law Establishes New Criteria For Consents

Last Updated: 14 September 2006
Article by Asel Yermekova

Mergers and acquisitions in Kazakhstan are now subject to the new Law "On Competition and Restriction of Monopolistic Activities" (the "New Antimonopoly Law"), adopted on July 7, 2006, which repealed the law that had been in effect since 2001 (the "Old Antimonopoly Law"). The New Antimonopoly Law introduces several significant changes, particularly with respect to prior consent from the antimonopoly authorities for an acquisition. Such changes, however, are not necessarily clear and would benefit from revision.

The New Antimonopoly Law essentially retains the same structure as the Old Antimonopoly Law, defining "Monopolistic Activities" and "Economic Concentration," and addresses the functions and authority of the antimonopoly body. In addition, like the Old Antimonopoly Law, the New Antimonopoly Law addresses the procedure for state control over Economic Concentration, audits of entities with respect to compliance with Kazakhstan antimonopoly legislation, and investigation of antimonopoly violations, as well as the procedure for the execution, review and appeal of the antimonopoly body’s decisions.

Monopolistic Activities are defined in the New Antimonopoly Law, as anticompetitive agreements/agreed actions of market entities, abuse of dominant (monopolistic) position and anticompetitive actions of state bodies.The New Antimonopoly Law clarifies provisions relating to situations in which such Monopolistic Activities are prohibited.

The New Antimonopoly Law defines Economic Concentration as follows:

(a) acquisition of voting shares (share participation, interest) in the charter capital of a market entity as a result of which the acquirer obtains the right to dispose of 25% or more of the voting shares of the given market entity;

(b) acceptance by a market entity with regard to the ownership, operation and use (including by way of payment of charter capital) of tangible production assets or intangible assets of another market entity, if the book value of the assets transferred exceeds 10% of the book value of the tangible production assets and intangible assets of the market entity alienating or transferring the assets;

(c) acquisition by a market entity of rights as a result of one or several transactions (including by way of trust management, agency or co-operation agreement) allowing the determination of the terms of commercial activities of the market entity or conducting the functions of its executive body; and

(d) participation in two or more market entities by the same individuals in executive bodies or boards of directors (supervisory boards).

The New Antimonopoly Law specifies that the acquisition of shares of a market entity by a financial organization is not considered to be Economic Concentration if such acquisition is conducted for the purposes of further resale and provided that the financial organization does not take part in voting in the management bodies of the market entity.

Due to the ambiguous wording of the Old Antimonopoly Law, it was not clear when prior consent of the antimonopoly body ("Consent") was required in connection with acquiring shares or an interest in the charter capital of another legal entity. The Old Antimonopoly Law contained a provision that required consent for a company that had a "dominant position" in a respective market. The New Antimonopoly Law sheds light on this issue, but there is not much relief for entities involved in such transactions because the New Antimonopoly Law requires Consent in more situations than the Old Antimonopoly Law.

The New Antimonopoly Law provides that the above forms of Economic Concentration require Consent if either (i) the balance sheet value of the assets of the entities taking part in the transaction or the aggregate volume of sales of goods for the last financial year exceeds 1.5 million times the monthly calculation index (which is approximately US$12,360,000 at current exchange rates) or one of the entities has a dominant (monopolistic) position in a respective market, or (ii) the acquirer is a group of entities that controls the activities of the market entities referred to in Article 13 (2) of the New Antimonopoly Law. It is not clear from the wording of Article 13 (2) of the New Antimonopoly Law which "market entities" a group of entities would need to control for the Consent requirement to apply.

Moreover, the New Antimonopoly Law expands its application to the acquisition of an interest in any Kazakhstan legal entity, as well as any foreign legal entity (or its branch and representative offices), that conducts entrepreneurial activities. In addition, the percentage value of the voting shares/share participation/interest increased to 25%, compared to 20% specified in the Old Antimonopoly Law.

Under the New Antimonopoly Law, the sales volume of goods, work or services is calculated by the value of income from sales minus VAT and excise tax for the last financial year preceding the year in which an application for Consent is filed should be used. As such, beginning July 28, 2006, Consent is required from the antimonopoly body for any share sale and purchase transaction where the aggregate value of assets of the companies involved in the transaction is more than approximately US$12 million. Furthermore, Consent is required for any share sale and purchase transaction where the aggregate volume of sales, that is, the sum of sales volume of all entities involved for the last financial year, exceeds US$12 million.

At first glance, the US$12 million threshold appears to be a high one. It is likely, however, that a majority of mid-sized companies involved in the acquisition of shares or interest of another mid-sized company would need Consent before proceeding with the acquisition. A market entity’s dominant position is no longer the decisive factor for the Consent requirement.

It is not clear whether the New Antimonopoly Law applies to transactions conducted outside of Kazakhstan, where the relevant agreement is signed and the transaction is closed abroad. The New Antimonopoly Law may be interpreted as applying to such transactions insofar as such transactions may affect the competition of a commodity market in Kazakhstan, and the New Antimonopoly Law provides that the registration body should conduct the state registration/ re-registration of a market entity only if the antimonopoly body consents to such transaction. Registration/re-registration conducted without Consent, where such Consent is required, may be invalidated by the court at the request of the antimonopoly body. For transactions where consent is received, the New Antimonopoly Law establishes that the Economic Concentration should be carried out within one year from the date of the antimonopoly body’s decision to grant Consent.

As was the case with the Old Antimonopoly Law, the New Antimonopoly Law does not list the documents or information that needs to be submitted to the antimonopoly body to obtain Consent. Most likely, the currently effective Instruction on Submission of a Request for Consent will be either amended or repealed with the introduction of a new instruction on the documents and information to be filed. In the event that the new instruction is as onerous as the currently effective instruction, share or interest sale and purchase transactions will continue to be significantly delayed because of the Consent requirement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances

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