News (#01-02 January-February 2017)

Biznews

Banking & Finance

State-owned Oschadbank receives technical support package from EBRD

Oschadbank will receive a comprehensive package of technical support from the European Bank of Reconstruction and Development, which will be directed at developing the crediting of micro, small and medium-sized businesses, as well as centralization and optimization of the branch network, risk management and compliance. This will happen thanks to the Memorandum of Understanding, which was signed by the Minister of Finance, the EBRD and Oschadbank’s management.

Furthermore, agreement of accession to a trade facilitation program was signed, which allows Oschadbank to raise EUR 50 million from the EBRD in support of Ukrainian business.

The Memorandum is one of the first steps in systemic reforms of state-owned banks, which the Cabinet of Ministers is implementing with support from the EBRD and other international partners. It is also planned to adopt the Draft Law On Amendment of Corporate Governance of State-owned Banks; create updated Supervisory Boards, which will consist of independent directors and representatives of the state; improve internal processes and the effectiveness of management of state-owned banks.

PrivatBank nationalized

The Cabinet of Ministers has adopted a decision to transfer 100% of PrivatBank shares into state ownership. The transition period started from 19 December.

The position of the Chairman of the Board of PrivatBank after the decision on the latter’s nationalization will be filled by the former Minister of Finance of Ukraine, Oleksandr Shlapak. After the bank is completely stabilized and begins implementing its strategic plan, the state plans to sell this bank.

NBU introduces mechanism of emergency loan services to banks

The National Bank of Ukraine, as the lender of last resort, is introducing a new tool of emergency liquidity support for solvent banks — Emergency liquidity assistance (ELA).

ELA loans are intended solely to cover a temporary deficit in a bank’s liquidity in the event of any emergencies occurring, when banks have exhausted other sources of liquidity support (at the expense of shareholders and standard NBU refinancing instruments).

When loan funds are received within the ELA framework, banks are obliged to direct themselves towards performance of obligations they have to depositors and other creditors (except for bank-related parties). They are not intended to finance a bank’s business and cannot be used instead of required additional capitalization of the bank by its shareholders or to solve its structural problems.

When deciding on providing emergency liquidity support, the National Bank will assess a bank’s solvency and its compliance with a capitalization plan (if any), and will carry out analysis of debt repayment sources listed by a bank in the financial model and cash flows forecast.

Banks that meet the set requirements will be able to receive a loan from the NBU for a period of up to 90 days, in one or more amounts at the interest rate of the bank rate plus 2% per annum.

Competition

European Commission fined three banks EUR 485 million

The European Commission has imposed a fine in the amount of EUR 485 million on three banks — Crédit Agricole, HSBC and JPMorgan Chase — for a cartel agreement in relation to interest rates on interest rate derivatives. This refers to specific derivatives — to interest rates in euro, for example, EURIBOR. An EC investigation concluded that banks’ traders were “in regular contact” and sharing information on the EURIBOR rate.

These financial institutions did not concur with the EC, unlike Barclays, Deutsche Bank, RBS and Société Générale, with which the European Commission reached an agreement in 2013.

The probe was ongoing since 2013 as part of a standard procedure to investigate the cartel agreement.

As a result of the investigation, Crédit Agricole received a fine of more than EUR 114.6 million for breach of competition rules, HSBC — EUR 33.6 million, JP Morgan — EUR 337.2 million.

Korean Commission slaps huge fine on Qualcomm

The Fair Trade Commission of South Korea has imposed a fine, unprecedented for the country, in the amount of USD 853 million on Qualcomm, one of the world’s largest chip manufacturers for mobile devices, due to violations of antitrust laws.

Qualcomm is the largest holder of patents for mobile devices in the world, and a number of its technologies have become the industry standard and are used in virtually all mobile devices made.

The main complaint against Qualcomm that the Fair Trade Commission made is that the American company allegedly forced companies that bought its chips to sign licensing agreements. Furthermore, Qualcomm licensed its technologies at inflated prices to companies that purchased chips from other manufacturers.

Tax

McDonald’s moves its tax residence to the UK

McDonald’s will create a new international holding company with its headquarters in the UK, which will receive the majority of funds from licensing network intellectual property to franchise companies, operating outside the USA. It will pay corporation tax in accordance with the UK rate of 20%.

The company is currently “registered” for tax purposes in Luxembourg, where the tax rate on corporate profits is 20%. However, it is accused of receiving illicit benefits from tax breaks and of tax underpayment totaling more than EUR 1 billion in Europe for 2009-2013.

The company denies these accusations, arguing that it paid EU corporate taxes amounting the more than USD 2.5 billion in 2011-2015 at an average rate of 27%.

Oil & Gas

Ukraine and Poland sign agreement on rules of GTS interaction

Ukrainian PJSC Ukrtransgaz and Polish Gaz-System S. A. have signed an agreement on rules of interaction to connect the transport systems of both countries. Earlier, Ukraine and Poland prepared a technical and economic feasibility study for the construction of gas interconnector.

The planned Poland – Ukraine gas interconnector includes construction of a new gas pipeline between the gas hub Germanovichi on the Polish side and Bilche-Volitsa on the Ukrainian side. The organizers expect that the new interconnector will increase flow capacity up to 5 billion cubic meters per annum in 2020, when expansion of the national gas transmission system in Poland will be completed.

The signed agreement regulates cooperation between both operators during the design stage, and — depending on the investment decision — during the next stage of implementation.

The main objective of the Polish and the Ukrainian GTS interconnection is to increase the possibilities of gas import from the EU via Poland and to allow storage of European gas in Ukrainian storage facilities.

This project is part of the North-South Gas Corridor, which will connect LNG-terminal in Swinoujscie with countries of Central and Western Europe.

Mergers & Acquisition

Alaska Air Group buys Virgin America

The Antitrust Division of the US Department of Justice previously approved transaction on its acquisition of the Virgin America airline by aircraft holding company Alaska Air Group for USD 2.6 billion. The US Department of Justice and the Anti-Monopoly Commission approved the transaction under the following condition: the airlines should abandon joint use of air routes. Now Virgin America and Alaska Airlines are competing against each other on some flights. As a result of this merger fifth largest airline will be created on the US market. Alaska Air earlier noted that due to the acquisition of Virgin America total annual revenues of the Group will increase by 27%.

Telecommunications

Ukrainian channels become paid

Draft Act No. 3504 came into force in Ukraine from 1 January. It amends the Law of Ukraine On Television and Radio Broadcasting as to specifying the conditions of broadcasting TV and radio organizations’ programs as part of the universal program service. Thus, from the start of the year media groups are entitled to demand a fee from subscription television operators for broadcasting channels in their networks. At the moment, media groups have announced a minimum cost of their content for subscription television networks, subject to conclusion of contracts in December 2016. We should note that channels are sold only in packages.

International Aid

EBRD opens EU4Business regional offices in Ukraine

The European Bank for Reconstruction and Development has opened a new regional representative office in the second largest city of Ukraine — Kharkiv, with EU financial support under the EU4Business initiative. The representative office will function as the Bank’s regional center in the east of the country, which is a major industrial region in eastern Ukraine. The representative office will expand and strengthen the EBRD’s activities in Ukraine, and also will facilitate access to expert support for small and medium-sized enterprises (SMEs) in the region. The first business support centers already operate in Lviv and Kiev. In June, a similar center will be opened in Kharkiv, and then in Odessa, Ivano-Frankivsk, Rivno, Khmelnitsky, Vinnitsa, Chernigov, Mykolayiv, Kropyvnytsyi, Poltava, Dnipro, Kramatorsk and Zaporozhye.

An important component of EU4Business program is to create the Credit Insurance Fund totaling EUR 100 million which will enable entrepreneurs to obtain credit resources for their own development. It is also assumed that up to EUR 12 million will be used for direct financing. At least 50 small and medium-sized enterprises will be able to receive funds from the EBRD.

EU4Business is a continuation of the EU program called “Support to Ukraine to Re-launch the Economy (EU SURE)”, which consists of 4 components: support for the deregulation process through Better Regulation Delivery Office (BRDO); opening of 15 regional SME centers; creation of a Credit insurance fund for SMEs, and training programs for entrepreneurs. The total budget of the program comes to EUR 95 million till 2020.

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