RESOLUTION NO. 996
On 30 December 2015, the National Bank of Ukraine (“NBU”) implemented NBU Board Resolution No. 996 ("Resolution No. 996"), which repealed a prohibition on the transfer of cross-border loans to Ukrainian borrowers denominated in foreign currency.
The prohibition had been in effect since 20 August 2015 as a crisis measure following the devaluation of Ukraine's national currency. As a result of such prohibition, all trading in the Ukrainian secondary loan market relating to cross-border loans denominated in foreign currency was suspended.
With effect from 11 January 2016, Resolution No. 996 permits cross-border loan transfers subject to certain documentation and registration requirements. Through an authorised local servicing bank, a Ukrainian borrower must submit to NBU:
- agreement(s) documenting the transfer of the loan, the assignment of rights, and the assumption of obligations;
- the economic rationale for the transfer;
- the shareholder structure of the transferee or new lender;
- origin and source of funds to be used for repayment of the loan (interest, fees and principal); and
- the balance of the settlements under the transfer as of the date of submission.
NBU must register the transfer within 30 calendar days, provided it may request additional documentation or information and therefore extend such deadline.
CONSEQUENCES OF RESOLUTION NO. 996
From a regulatory perspective, Resolution No. 996 is a first step in rationalising the legal framework surrounding the Ukrainian secondary loan market. Regulation No. 996 permits cross-border foreign currency denominated loan transfers and in principle offers foreign lenders the opportunity to divest/trade their Ukrainian loan exposures.
From a commercial perspective, Resolution No. 996 does not entirely facilitate the transfer of cross-border loans as the requisite registration process remains firmly in the hands of the Ukrainian borrower. Moreover, in addition to the foregoing registration process, foreign lenders remain subject to other continuing regulatory restrictions, such as mandatory caps on interest and fees paid by Ukrainian borrowers to foreign lenders and limitations on loan prepayment and the purchase of foreign currency for the purpose of repaying interest, fees and principal under cross-border loans.
DLA Piper will continue to monitor the market and follow the evolution of Resolution No. 996 and related financial legislation.
By Denise R. Hamer, Partner, and Dmytro Pshenychniuk, Senior Associate, DLA Piper
