Federal Law No.343-FZ “On amending Federal Law ‘On procedure for making foreign investments in business entities of strategic importance for ensuring national defense and security’ and certain legislative acts,” dated November 4, 2014.

Please find below an overview of the most important changes introduced by this act to Federal Law No.57 “On procedure for making foreign investments in business entities of strategic importance for ensuring national defense and security” (hereinafter the “Law No.57”).

Range of transactions affected by restrictions for foreign investors is clarified

Article 1 of the revised Law No.57-FZ provides that restrictions apply to transactions of foreign investors made in relation to the property of strategic business entities at the cost of 25% or more of the balance sheet asset value established as of the last reporting date.

At the same time, despite the clarifications, the restrictions of Law No.57 still apply to other transactions that entail control by foreign investors being established over the strategic entities.

Transactions of companies using subsoil plots of federal significance, if the Russian Federation’s share in them is 50% or more, and transactions of foreign investors owning 75% or more in the share capital of subsoil users, are excluded from the scope of Federal Law No.57.

Basic terms are clarified

New edition of the law clarifies the term “agreement.” The term “agreement” is used in the same meaning as determined in Federal Law No.135-FZ “On protection of competition” dated July 26, 2006. Furthermore, the new edition specifies that an agreement may mean arrangements aimed at exercising the voting rights in relation to a business entity of strategic importance at a general meeting of shareholders, board of directors or governing board of the business entity, as well as at obtaining other opportunities to determine decisions of the management bodies of such business entity.

Features of a strategic entity being under control are defined

Pursuant to the new edition of the law, a business entity of strategic importance is deemed to be under control of foreign investors if:

• Foreign investors that are not part of one group of entities are entitled to dispose over 50% of the company’s share capital (or less than 50% of the company’s share capital in exceptional cases),
• Such foreign investors are under control of foreign governments, international organizations, companies under control of foreign governments or international organizations and/or
• Investors are foreign governments, international organizations, companies under control of foreign governments and international organizations.

For the purposes of this article, it makes no difference if the foreign investors are international finance organizations or if the investors are under control of international finance organizations.

List of types of activity of strategic importance has changed

The activity of business entities on using infectious agents is excluded from the strategic types of activity if the main activity of such business entities is related to food production.

Services rendered in Russian ports are added to the list.

Additionally, pursuant to the new edition of Law No.57, only the activity of editorial bodies / publishers of printed periodicals meeting the following requirements of total circulation is strategic:

• 15 million copies at periodicity of 2 or more times per week;
• 2.5 million copies at periodicity of 1 time per week or 1 time in 2 or 3 weeks;
• 700,000 copies at periodicity of 1 time per month or 1 time in 2 months;
• 300,000 copies at periodicity of 1 time per quarter or rarer.

Range of transactions subject to prior FAS approval has changed

Pursuant to the new edition of Law No.57, the transactions on purchasing ownership title, possessing or using property included in the main production assets of strategic business entities, must be approved if the cost of such property comprises 25% or more of the balance sheet asset value of the business entities as of the last reporting date.

Amendments in Law No.57 are aimed at helping foreign investors in forecasting and planning the capital investments into strategic business entities more efficiently.

The foregoing and other amendments in Law No.57 will come into force 30 days from the time of official publication, on December 7, 2014.

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Irina Akimova or Yanina Vlasenko, Moscow Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues.