Role of the Antimonopoly Agency in the Frames of the New Law of the Republic of Kazakhstan "On Competition"

Dear Sirs, Madams,

GRATA Law Firm has the honour to acquaint you with the following information and we hope that it will be useful for the activities of your company.

Antitrust issues in Kazakhstan are regulated by a new Law of the Republic of Kazakhstan “On Competition” that has come into effect on 1 January 2009 (hereinafter the “Law”). An authority that performs competition protection and merger control is the Agency of the Republic of Kazakhstan on Competition Protection (hereinafter the “Agency”).

We would like to draw your attention to the following issues:

• The Agency strengthens its role in the sphere of competition protection and control over transactions on merger and acquisition;
• Provisions of the Law apply to actions (including acquisitions and mergers) of market participants outside the territory of Kazakhstan, subject to any of the following conditions to be met as a result of such actions:

a) as there is a direct or indirect affect on the basic resources and (or) non-material assets, or shares (participation in the charter capital) of market participants on the territory of Kazakhstan, property or non-property rights in relation to legal entities of Kazakhstan;

b) if foreign participants have subsidiaries or associated companies, branch or representative offices in Kazakhstan; or

c) competition in the Republic of Kazakhstan is restricted.

• As the Law has recently come into force, practical experience under the new regime is limited. Nevertheless, GRATA Law Firm has already filed 5 applications and is preparing 3 more applications for consent on economic concentration for clients in the following sectors:

a. FMCG -1 application;

b. Mining – 2 applications;

c. Financial – 1 application;

d. Consulting – 2 applications;

e. IT sector – 1 application.

Taking into account the above, we think it is necessary to draw your attention to the above information in case if you plan to perform transactions that fall under the definition of economic concentration.

Economic concentration (article 50 of the Law) shall be defined as:

1) Reorganization of the market participant by means of merger or acquisition;

2) Purchase of voting shares (participation interests, equities) in the charter capital of a market participant by a person (or group of persons), where such person (group of persons) obtains a right to manage more than 25% of said shares (participation interests, equities), if such person (group of persons) prior to the purchase did not manage the shares (participation interests, equities) of the said market participant; or if such person managed 25% or more of voting shares (participation interests, equities) of the charter capital of the said market participant;

3) Receipt by the market participant (group of persons) of main industrial facilities and (or) non-material assets of other market participant into the property, possession or use, including payment (or transfer) into the charter capital, if the balance value of the property constituting the subject of the transaction (inter-related transactions), exceeds 10% of balance value of main industrial facilities and non-material assets of market participant who disposes or transfers his property.

4) Obtainment by a market participant of rights (including on the basis of an agreement on trust management, agreement on joint activity, agency activity), allowing to give binding instructions while performing entrepreneurial activity to another market participant, or to perform functions of its executive body;

5) Participation of the same individuals in executive bodies, boards of directors, supervisory councils and other management bodies of two or more market participants, provided that the said individuals define in these market participants a condition of performing entrepreneurial activity.

All the above-mentioned transactions require to be performed upon the consent of the antimonopoly authority, if aggregate balance value of assets of the reorganizing market participants (group of persons) or the purchaser (group of people), as well as a market participant, whose shares (participation interests or equities) with voting right of the charter capital are purchased, or their aggregate value of goods sale for the last fiscal year exceeds 2 million-fold size of the monthly calculated index, active for the date of application (approximately more than USD 17,000,000); or if one of the persons participating in the transaction is a market participant, who holds a dominant or monopolistic position on an appropriate goods market.

Noteworthy, that the Law provides a liability for violation of antimonopoly legislation of the Republic of Kazakhstan. Economic concentration that has been performed without prior obtainment of consent of the Agency, and which brought to establishment or strengthening of dominant or monopolistic position of a market participant or a group of persons and/or to the limitation of competition, may be declared by court as invalid upon the action of the Agency.

We hope that this information will be useful for you. For more information do not hesitate to contact with us. We will be glad to assist you further in this matter.

Best Regards,

"Corporate Law" Department

Tel.: +7 (727) 2 445-777
Fax: +7 (727) 2 445-776
info@gratanet.com
corporate@gratanet.com