Key Things To Know About Project Finance In Kazakhstan

1. OVERVIEW

   1.1 What are the main laws that regulate project finance market in Kazakhstan?

   The main laws of Kazakhstan that govern project finance are the Civil Code, securitisation law, securities law. Recently Kazakhstan recently enacted law on public-private partnership which aims to involve private sector in implementation of sophisticated projects such as road, rail, airport, energy projects. The legislation allows creation of a special purpose company and establishes new financing tools of long-term projects in which the basic source of maintenance and returning will be future receivables from the project company. Despite those progressive changes, the facility agreements for the most financing projects are still generally governed by English law.

2. SECURITY

   2.1 Is it possible to give asset security by means of a general security agreement or is an agreement required in relation to each type of asset? Briefly, what is the procedure?

   The Civil Code of the Republic of Kazakhstan dated 27 December 1994 (the "Civil Code"), is the main law governing creation and application of different types of security interest. The Civil Code provides for the following types of security interests: penalty; pledge; retention of the debtor's property; suretyship; guarantee; deposit; and guarantee deposit. Normally, in order to establish security over asset, a separate written agreement is required. The general form of an asset security is a pledge. An agreement governing creation of an asset security interest must contain a subject of the collateral, its value, nature, scope and maturity period of the obligation secured by such collateral. Agreement must also clearly identify a party which retains the collateral. The value of the collateral shall be indicated in national currency.

   2.2 Can security to be taken over real property (land), plant, machinery and equipment (e.g. pipeline, whether underground or overground)? Briefly, what is the procedure?

   A pledge can be established over any property including assets and other property rights (rights of claims), except for goods prohibited for circulation (e.g. certain types of land, medals and orders) and claims intrinsically related to the personality of the debtor (such as compensation of damages to life and health etc.). A pledge can also be established over property which will be received in the future. Under Kazakhstan legislation, pledges are divided into two major types: (1) mortgages; and (2) charges. A mortgage is a type of pledge when the collateral remains in the possession of the pledgor or a third party. A charge is a type of pledge when the collateral is transferred to the possession of the pledge-holder. A pledge agreement must be in writing. Any pledge over immovable property is subject to state registration.

   2.3 Can security be taken over receivables where the chargor is free to collect in the receivables in the absence of a default and the debtors are not notified of the security? Briefly, what is the procedure?

   A security interest over receivables is permitted under Kazakhstan law. A charge over a bank account on which rent income is generated would be a valid and legally binding security instrument under Kazakhstan law. The subject matter of such pledge will be the depositor's rights to the bank account. To create a pledge over receivables, a bank account pledge agreement must be entered into by the borrower (as a chargor), a pledge holder (as a chargee) and a servicing bank. The chargor will be permitted to operate its account(s) or otherwise collect in the receivables in the absence of a default. The terms and conditions of maintaining and operating the accounts charged in favour of the chargee must be agreed and set out in detail in the underlying agreement. Should the transaction structure contemplate several bank accounts to be opened by the borrower with a servicing bank (e.g. revenue receipts account, debt service account and debt service reserve account etc.), we would recommend that a bank account agreement be entered into between the pledge holder, a servicing bank and the borrower that would outline, inter alia, the obligations of a servicing bank in relation to maintaining several bank accounts and operating the proceeds that are paid in.

   2.4 Can security be taken over cash deposited in bank accounts? Briefly, what is the procedure?

   Kazakhstan law distinguishes between pledges over an account (i.e. a pledge covering any amounts in the account) and pledges over money (i.e. a pledge covering specific amount of funds that must be maintained in a bank account). In either case the procedure for enforcement is unclear. Despite the language of the law, it is logical that the funds may go directly to the secured party on default, without it having to go through an auction procedure.

   As there is legislative gap in regulation of the enforcement of a money pledge, in addition to the pledge (or instead of the pledge), parties enter into an assignment agreement whereby if the event of default occurs, the lender receives the right to manage the account (take money from the account). Such agreement shall be entered into by the lender, borrower and the bank, which operates the borrower's account, in order for the bank to be obligated to fulfil the lender's instructions with regard to the bank account. There are certain risks related to the money pledged in a bank account. Under law, if an entity has debts on taxes or customs payments, tax and customs authorities may suspend transfer of funds from such bank accounts. Moreover, tax and customs authorities may withdraw money from such entity's bank accounts without such entity's consent, prior to any other creditors (except for cases of liquidation and bankruptcy when debts are repaid in accordance with an established priority, respectively). The Tax Code also provides that if in addition to the tax claim, there are other requests from creditors to the same debtor, and funds in such debtor's bank account(s) are insufficient to satisfy all claims, then the funds from such account(s) must be withdrawn in accordance with the priority provided by the Civil Code. Money in the bank account may also be arrested on the basis of decisions of law enforcement bodies and court resolutions and decisions.There is neither registration, nor notarisation requirement, however, in order for the registered pledge agreement to take priority in the enforcement of obligations to all subsequent registered pledgees, it is recommended to register such pledge agreement.

   2.5 Can security be taken over shares in companies incorporated in Kazakstan? Are the shares in certificated form? Briefly, what is the procedure?

   A pledge over shares in joint-stock companies is possible. Kazakhstan law requires that a pledge over shares be registered with the Unified Registrar that maintains the share register or a nominee holder if shares are held by a nominee holder. Such pledge is only valid upon its registration.

   It appears that Article 36 of Subsurface Law may also apply in case of foreclosure of a pledge of shares in the joint-stock company which is either a party to a subsurface contract or a holding company of the party to a subsurface contract. There is no procedure of complying with the pre-emptive right established by the legislation and it is not clear how the pre-emptive right would be applied in cases of enforcement of security over shares.

   Certain corporate approvals may be required in order to approve the pledge.

   A pledge over participating interests may also be taken and perfected through its registration with the justice authorities.

   2.6 What are the notarisation, registration, stamp duty and other fees (whether related to property value or otherwise) in relation to security over different types of assets (in particular, shares, real estate, receivables and chattels)?

   A pledge of property which is subject to state registration (e.g. immovable property, vehicles, subsurface rights) becomes effective as of the moment of its state registration. A pledge of shares in joint-stock companies is subject to registration with the Unified Registrar and is only valid upon such registration. A pledge of other movable property is subject to mandatory registration only if the further pledge of such movable property is prohibited by the pledge agreement. Registration of the pledge of such movable property establishes a priority for satisfaction of claims of the creditors against this property if it is pledged to more than one creditor.

   Generally, both movable and immovable property pledges are registered with the Ministry of Justice. Pledges for certain property subject to mandatory registration may be registered elsewhere, for example, a pledge over shares is registered with the Unified Registrar that maintains the share register, and a pledge over vehicles is registered with the road police.

   The notarisation fee for pledge agreements of real estate, claim rights and mortgage certificates, is 200 per cent of monthly calculation indexes (approximately $21), for other pledge agreements, it is 700 per cent of monthly calculation indexes (approximately $76). Registration fee depends on the quantity of the property pledged and amounts up to 25 monthly calculation indexes (approximately $160).

   2.7 Do the filing, notification or registration requirements in relation to security over different types of assets involve a significant amount of time or expense?

   Registration of a mortgage, or any other type of pledge with the authorised state agency, can take up to 3 working days to complete. Electronic registration via web-portals takes by 1 working day.

   2.8 Are any regulatory or...