On 15 November 2010 the National Bank of Ukraine (the "NBU") issued an official clarification letter (the "Letter") regarding the currency restrictions applicable to payments by Ukrainian sureties and guarantors to foreign creditors under guarantee (garantiya) and surety (poruka) agreements. In the Letter the NBU explained that in order to make a payment to a foreign creditor a Ukrainian surety must obtain an individual license from the NBU unless the surety is an authorized bank or financial institution.
At the same time Ukrainian banks can make payments as guarantors or sureties without an individual license. Non-banking financial institutions do not need an individual license for such payments if they have a general license for transactions with foreign currency.
Over the last several years the NBU issued letters on an ad hoc basis (which were not formal clarifications under Ukrainian law) stating that an individual license is not required for payments under sureties. The new Letter changes this position. The Letter technically does not create new binding rules but rather expresses the NBU's interpretation of the currency restrictions existing under current law. However, the new interpretation will most likely be treated by the Ukrainian banks servicing payments under sureties as a requirement mandatory for the sureties entered into both prior to and after the date of the NBU's Letter.
Suretyships have been a part of major Eurobond issuances by Ukrainian business groups in recent years. For example, all 2010 Eurobond issuances (for the aggregate amount exceeding USD 1.5 billion) originating from Ukrainian non-banking corporate sector were made on the basis of the suretyships provided by the Ukrainian subsidiaries of issuers, EU-incorporated holding companies of the largest Ukrainian industrial and agricultural groups DTEK, Metinvest, MHP, and Avangard.
The new position of the NBU in combination with the practical difficulties in obtaining individual licenses creates a number of obstacles for Ukrainian non-financial sector sureties wishing to make payments to foreign creditors.
Most importantly, under the existing rules governing the issuance of individual licenses such licenses are effective for only up to 90 days. Consequently, in most situations an individual license cannot be obtained in advance at the time when a surety arrangement is executed and would have to be obtained at the time of payment. As a result, this arrangement becomes not attractive for foreign creditors since it makes the prospect of actual payment by a Ukrainian corporate surety quite uncertain.
The NBU has 30 days to review an individual license application. If the NBU requests additional documents, it has to review them within 14 days after they are provided.
The NBU can only reject an application for a individual license based on an exhaustive list of mostly formal grounds listed in the Regulations enacted by Resolution of the NBU's Management Board dated 17 June 2004 No. 266 (the "Regulations"). However, these grounds are not narrowly worded which in practice allows substantial room for discretion by the NBU.
Moreover, as part of the individual license application procedure the NBU notifies the organized crime unit of the Ukrainian Interior Ministry and the Security Service about each individual license application and their negative opinion constitutes a ground for rejection of the application.
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