Project Finance Law

The Law of the Republic of Kazakhstan dated 12 January 2012 no. 539-IV "On Introducing Amendments to certain Legislative Acts of the Republic of Kazakhstan in relation to Project Finance Issues" (the "Law"), came into force on 6 February 2012. It introduces the concept of project finance into Kazakhstani legislation by amending the existing Securitisation Law1.

Please note the following major provisions of the Law:

Concept of Project Finance

The Law introduced a concept of "project finance" that is defined as a "method of arranging the financing of a long-term project that is secured by way of assignment of receivables related to the creation and transfer of assets and also rendering services and/or manufacturing products and/or execution of work while using the created asset"3. A project finance transaction under Kazakh law involves a "client"2 that enters into a so-called "base agreement" with an "executor"4 and, apart from certain exceptions discussed below, with the optional involvement of a so-called "special finance company"5. The Executor on the basis of the signed Base Agreement raises debt finance for the project (by way of concluding loan agreements with creditors and/or issuing bonds or attracting finance from the SFC) and assigns receivables under the Base Agreement to the creditors or SFC as a security or provides other collateral. The Law requires that the appropriate Executor for the project shall be selected on a tender basis in accordance with the Concession Law. The Law provides the Client with the possibility to change the Executor at any time of the project if the Executor fails to properly meet its obligations under the Base Agreement. The list of investment projects that Kazakhstan intends to implement on the basis of the project finance mechanism shall be determined by the Government of Kazakhstan from time to time. Special Finance Company

Special Finance Company (the "SFC") is in essence the special purpose vehicle whose activities are strictly limited to project finance transactions and the Law explicitly states that any activities of the SFC outside the scope of the project finance transactions are void. Interestingly, legal entities incorporated or that have affiliates incorporated in certain offshore/black-listed countries6 cannot directly or indirectly own and/or use and/or dispose of voting shares of the SFC. So-called "segregated assets"7 of the SFC are used...