Lidings acted as a legal advisor on the bond issue performed by a major international bank.

16.05.2013 Lidings acted as a legal advisor on R 3 billion bond issue performed by the Russian bank “International Bank of Azerbaijan – Moscow” which forms a banking group of IBA that acted as the offerer on the bonds being placed. Within the frame of this transaction the lawyers of Lidings’ banking and finance practice have confirmed validity and effectiveness of the bond issue and the offer. Based on legal opinion issued by
Lidings the rating agency Fitch Ratings has assigned long-term rating of “BB (EXP)” (“stable”) to this bond issue. This is the first case in the Russian banking market in which, based on the offer by the parent bank (the offerer) its subsidiary (the issuer) has received a rating equal to that of the parent bank.

The offer was a unilateral obligation of the offerer to acquire the bonds from the bondholders for the specified price upon occurrence of certain events set out in the offer. The list of such events which were grounds for repurchase of the bonds exceeded the similar events which led to redemption of the bonds as they were specified in the issue documents, including the prospectus. Therefore, the bondholders were (depending on the circumstances) entitled either to request redemption of the bonds under the prospectus or sell the bonds to the offerer under the offer, or use both possibilities.

Key elements of Lidings’ involvement included review of legal documentation of the bond issue and drafting legal opinion confirming the offer issued by the parent of the issuer to comply with Russian law, co-ordinating the process with the international rating agency Fitch Ratings with the purpose of assigning the rating to the deal as well as general advice on the bond issue matters both at the stage of the issue as
such and their subsequent placement.

The main legal difficulty of the first stage of the project related to identification of legal nature of the offer from a Russian law standpoint (the offer was governed by Russian law). One of the arguments under consideration was that the offer by its nature is a security of the obligations of the issuer since from the commercial point of view the obligations of the issuer were “guaranteed” by the offer although the prospectus clearly stated that the bond issue was unsecured. This argument was based on a number of court decisions that treated an offer within the frame of the securities issue as “surety” i.e. the security.

If the offer is found to be a “surety” as it is understood by Art. 361 of the Russian Civil Code, this could lead to serious negative consequences both for the issuer and for the offerer since under general rule of Art.

363 of the Russian Civil Code a surer and a debtor are jointly and severally liable, therefore, the offerer could be liable for the debts of the issuer.
Having analysed the court practice Lidings lawyers came to conclusion that in this transaction there were no grounds to find the offer to be a “security” as it is understood by Russian law. They opined that the offer was a separate and independent obligation within the frame of the bond issue although it from the commercial point of view it led to a result similar to a surety.

Lidings’ experts specified that mere the acquisition of the bonds from the bondholders by the offerer does not provide ground for redemption of the bonds since the rights of the creditors arising out of the bonds are assigned to the offerer which acquires all the rights of the holders.
Legal opinion issued by Lidings was taken into consideration by Fitch Ratings – the international rating agency dedicated to providing international markets with an independent long-term estimation of creditworthiness and analytic data. The legal opinion accompanied with further explanation by Lidings’ experts enabled Fitch Ratings to assign the bond issue with the high credit rating.

The banking and financial practice of Lidings is referred to in the leading legal rating agencies - The Legal 500 и IFLR 1000, and our lawyers are the recognized experts in this area. Dmitry Gravin – Partner of Lidings and the Head of Banking and Finance practice has more than twenty years of experience in the field of legal consulting. He acted for numerous Western banks, international financial organizations and
banks for development as well as private companies operating in Russia.

Lidings’ Banking and Finance practice is recommended by the global legal directories The Legal 500 EMEA and IFLR 1000 and the firm’s lawyers are widely recognized as renowned experts in their professional field. Head of practice Dmitry Gravin has over twenty years of experience in advising on various cross border projects including ship finance, rolling stock and aircraft financing (including finance and operating leases, export credit financings, securitisation and pre-delivery payment financings), syndicated and bilateral lending, structured and secured lending, trade and export finance, project finance and PPP, real estate and construction finance, restructuring, debt recovery and insolvency, M&A and regulatory matters in the banking sector, hard and soft commodities financings.