The National Bank of Ukraine temporarily restricts registration of changes of parties to cross-border loan agreements

On 20 August 2015, the National Bank of Ukraine (NBU) adopted Resolution No. 551 which, with effect from 22 August 2015, introduced some additional restrictions in respect of cross-border loans of Ukrainian borrowers. Subject to certain exceptions, the Resolution effectively restricts the change of lenders and/or borrowers (e.g., through transfers or otherwise) under cross-border loans, as well as assignment of local loans to non-resident entities, by imposing a prohibition on their registration with the NBU, which is required under Ukrainian law to make payments abroad.

In particular, starting from 22 August 2015, the NBU will not register:

• amendments to loan agreements relating to replacement of a lender and/or a borrower under cross-border loan agreements with Ukrainian borrowers; and
• assignment of rights under local loan agreements by a Ukrainian lender to a non-resident entity.

The exceptions from the rule above concern the following cases:

• cross-border loan agreements where the borrower is a Ukrainian bank;
• loan agreements between Ukrainian borrowers and IFIs;
• specific transactions on an ad hoc basis if the lender(s) and/or the borrower(s) are affiliated through corporate control.

The restrictions are a temporary measure (currently expiring on 4 September 2015) aimed at preventing the outflow of currency from Ukraine. Still, given the history of the other NBU’s restrictions in place, it may be assumed that such new restrictions may also be continuously extended every three months.

The effect of the restrictions and possible solutions

As noted above, payments by a Ukrainian borrower under a cross-border loan agreement are generally permitted only in accordance with the terms registered with the NBU (which include the identities of the lender and the borrower). 

As a result, the restrictions introduced by Resolution No. 551 may significantly affect the flexibility of transactions involving cross-border loans to Ukrainian corporate borrowers. In particular, they may impede cross-border debt investment activities, cross-border debt restructurings involving Ukraine as well as intra-group financial restructurings.

Due to the unclear wording of the newly introduced measures, it is likely that the restrictions would also affect non-commercial transactions where changes in the lender and/or the borrower are caused by corporate reorganisations (e.g., a merger or amalgamation).

As a result, any operations with loans to Ukrainian borrowers, including debt restructurings, will require higher level of sophistication and legal creativity (e.g. use of all types of “participation” structures and derivatives).

We continue monitoring the situation with respect to the imposed FX restrictions.

For more information, please contact Michael Kharenko, Nazar Chernyavsky or Anton Korobeynikov.