• Oleksander Plotnikov

    Head of Banking and Finance practice, Arzinger


Address: Senator Business Center, 32/2 Moskovska Street, 10th Floor, Kyiv, 01010, Ukraine

Tel.: +380 44 390 5533

Fax. +380 44 390 5540



Arzinger is an independent law firm headquartered in Kyiv which has regional offices in Western and Southern Ukraine, in Lviv and Odesa, respectively. Arzinger has for over 16 years now been among legal business leaders providing high-quality legal support to clients throughout Ukraine. Top representatives of international and local business are among the firm’s clients.

Arzinger follows high standards of legal services and is a reliable partner in view of its great experience in a wide range of industries and legal practices: M&A, corporate law, real estate and construction, antitrust and competition, white collar crime, dispute resolutions, litigation and arbitration, tax, banking & finance. We serve clients operating in energy and natural resources, life sciences, agriculture, food & beverages, telecoms & IT and other industries.

Arzinger employs highly-qualified professionals with vast hands-on experience in a wide range of legal matters, with deep knowledge and understanding of the local market, international education and background. The firm has a team of over 70 seasoned legal professionals led by 8 partners. All of them are acknowledged as being among leading experts on the Ukrainian legal market and are recognized by reputable international and local rankings. As a result, Arzinger can offer extensive legal assistance to effectively support a variety of complex and challenging transactions, including cross-border matters. The firm renders tailor-made legal services of unsurpassed quality to meet client expectations.

Arzinger cooperates closely with legal advisors from numerous jurisdictions and is a member of various international  professional organizations, enabling  it to engage colleagues from various jurisdictions in cross-border transactions and so provide clients with top-level professional legal advice.

International Finance

2018 was quite successful for Ukrainian companies in terms of borrowing on international capital markets, as after a pause of several years private companies Kernel, MHP and Metinvest successfully issued Eurobonds. In addition, state-owned rail operator Ukrzaliznytsia also managed to perform reprofiling of its USD 500 million 2018 notes by way of exchange for new USD 500 million notes due 2021.

Yet another state enterprise, Nafto­gaz, had to postpone its Eurobonds issue due to obstacles, including unfavourable market conditions, and it’s quite likely that it will return to this issue in 2019.

In other respects, the market was quite calm and was not exploded by other large-scale transactions, though the large number of middle and small size transactions closed in 2018 shows a clear vector for resuming cross-border financing. Along with a rise in the number of foreign banks which were ready to finance Ukrainian companies, several foreign ECAs reopened their limits for Ukraine or intend to do so shortly. This activity reflects an improvement in the situation on the local market and confirms the return of confidence on the part of foreign lenders in Ukrainian business.

Moreover, 2018 turned out to be very rich in positive changes in Ukrainian legislation, which strengthen the protection of creditors’ rights and significantly expand the ability of Ukrainian and ­foreign companies and banks in lending and cross-border cooperation.

New Foreign Currency Legislation

The most anticipated move in 2018 was probably the adoption of the new Law On Currency and Foreign Exchange Operations, which replaced the Cabinet of Ministers’ Decree of 1993 and mark an era of liberalization in the Ukrainian foreign exchange market. However, fundamental liberalization has a long way to go as it depends on favourable market conditions and political stability, while only the le­gislative basis for this has been laid so far.

In pursuance of the Law, the National Bank of Ukraine has cancelled a number of its previous regulations and adopted new ones, regulating all aspects of legal relations in the field of foreign currency circulation and transactions with it.

Among the changes that became effective on 7 February, 2019 along with the entry into force of the Law, the following are the most important for cross-border financing and international business activity of Ukrainian companies in general:

— free use of the accounts of Ukrainian companies in banks abroad;

— possibility of early repayment under cross-border loans;

— possibility to use currency forwards and SWAPs;

— possibility to buy and accumulate foreign currency for the purpose of payments under cross-border loans;

— cancellation of the requirement to register cross-border loan agreements with the NBU and lifting of the interest rate ceiling;

— free payment abroad under a surety­ship.

Talking of cross-border borrowing, it should be recalled that, until recently, loan agreements with foreign lenders were subject to mandatory registration with the NBU (except for certain exceptions, like loans from IFIs). At the same time, registration with the NBU was a prerequisite for such agreements to come into effect. The same applied to amendments to such loan agreements, including changes connected with assignment of claims. In practice, the process could often be dragged out by up to 2 months, triggering additional risks and difficulties for the parties. In addition, there were restrictions regarding the maximum amount of payments under cross-border loan agreements (9.8% for loans up to 1 year, 10% for loans from 1 year to 3 years, and 11% for loans for over 3 years, or 3-month LIBOR plus 7.5% p.a. for a floating interest rate). Those maximum rates included all possible payments under a loan agreement (inte­rest, penalty, forfeit, commitment fee etc.) and, as a result, it was quite difficult in practice to comply with the stated inte­rest ceiling, which certainly did not add attractiveness to Ukrainian borrowers in the eyes of ­foreign lenders.

All these restrictions have now been lifted, and a notification procedure has been implemented instead of the requirement to register loan agreements. Despite this, servicing banks are still obliged to exercise currency control over transactions in foreign currency, including those related to loan obligations. In this regard, the NBU has instructed banks on the supervision of such transactions. In particular, the NBU’s regulation requires banks to conduct additional analysis of foreign currency transactions in the event of any doubts regarding compliance of the cost of a borrowing with market conditions. When assessing whether the cost of external borrowings corresponds to market conditions, banks should consider two ­elements:

— the current cost of borrowing in relevant currency on the global (local) capital market (e.g. LIBOR or the NBU discount rate) and

— the additional difference that would take into account the assessment of Ukraine’s sovereign risk and the individual risk associated with a particular borrower.

The whole responsibility for monitoring of such compliance was vested on banks and, obviously, at first time there may be some difficulties with making payments under these new rules due to subjective assessment by banks of the conditions of a particular loan. However, I believe that certain practice will be developed soon, and the process will be straightened out. Thus, there will be no problems for borrowing on market conditions.

Another positive novelty for foreign lenders is the ability of Ukrainian companies to use bank accounts abroad. Previously, an individual license from the NBU was required for this. Thus, when structuring a transaction, it can now be envisaged that a borrower must maintain a certain amount in its foreign account with the lender or agent (for syndicated lending), the rights to which shall be pledged in favour of the lender(s). This amount will clearly not be large enough to cover the entire loan in the event of default, but a lender will at least be able to block it and then use the respective funds to pay legal fees connected with the enforcement or restructuring of the loan. This option is extremely favourable for creditors, as no additional expenses are required from them at the collection or restructuring stage. The main condition is that it is permitted by the legislation of the country where the account is opened and that the respective creditor’s right is stipulated by relevant financial documentation.

One more positive development is the possibility of a surety to pay abroad under a suretyship agreement to a non-resident creditor and to buy foreign currency for this purpose without limitations. The surety could previously fulfil such an obligation only at the cost of its own income in foreign currency (not purchased on the market), which in most cases was not available. In other words, the possibility to receive a payment under a surety agreement was rather “vague”.

Improvement of Creditors’ Rights Protection

Changes in legislation related to the enhancement of the protection of creditors’ rights are worth a separate mention. The relevant law was initiated by the banking community and was pending in the Ukrainian Parliament for about three years. It was intended to eliminate shortcomings in legislation that allowed unscrupulous debtors to abuse their rights and avoid fulfilling their obligations to creditors. The Respective Law was finally adopted in 2018 following tough and long discussions. The main changes are as follows:

— banks are granted full access to the State Register of Rights, including archive records of the Register of Mortgages and Prohibitions;

— the requirement for a mandatory, detailed description of the principal obligation in a pledge agreement has been abolished; now a reference to the loan agreement is sufficient;

— the rule, under which an increase of the amount of a secured obligation caused termination of a suretyship, has been cancelled;

— the procedure for changing the floating interest rate for loan agreements with legal entities has been improved;

— the out-of-court enforcement of a mortgage does not entail the invalidity of subsequent claims under the underlying obligation, unless satisfied in full;

— it is expressly prescribed that the liquidation of the principal debtor does not terminate the suretyship and the pledge (mortgage) if a creditor has filed a lawsuit against the surety/pledgor (mortgagor) prior to the actual liquidation of the principal debtor;

— it is enshrined in this Law that in the event of reconstruction of mortgaged property or construction of new buildings and structures on a land plot owned or used by the mortgagee, all reconstructed and newly-created real estate objects shall be considered to be mortgaged in accordance with the relevant mortgage agreement;

— the procedure for extrajudicial enforcement of a mortgage has been improved.

Despite the recent presidential elections and the coming parliamentary elections set for July 2019 began with a number of new financial deals. And the hope exists that irrespective of the results of elections, current trends on the market will be retained and 2020 will be a year of explosive activity of foreign investors and lenders in Ukraine.