In a significant liberalization of the currency laws, Russia has abolished the licensing requirement for foreign currency loans with terms of over 180 days. This dramatic new change appeared in Central Bank Regulation No.1030-U, dated September 10 2001, and became effective on October 1. The new regime substantially simplifies the ability of Russian corporate borrowers to attract and repay hard currency loans from non-resident banks and companies for terms of over 180 days (long-term currency loans). Previously, such loans required individual licences from the Central Bank, and this requirement often delayed cross-border financings.
Under the new Regulation, Russian companies are allowed to receive and repay long-term currency loans subject to compliance with a simplified notification procedure, and provided that the loan proceeds are credited to accounts in licensed Russian banks. In addition, the Regulation expressly permits hard currency payments by borrowers under the indemnity and damage provisions of loan agreements; by third parties (eg other than the borrower) to repay long-term currency loans, but only from Russian bank accounts; and pursuant to certain security arrangements under loan agreements. The latter provisions appear designed to address technical problems in the Russian licensing regime that have, until now, cast doubt upon the abilities of borrowers or their affiliates to make such payments, even after issuance of a Central Bank licence.
The Regulation does not apply to loans obtained through the issuance of securities denominated in foreign currency (eg Eurobonds); foreign currency loans extended to Russian banks; or transactions requiring the use of offshore bank accounts (such as loans maintained in an offshore escrow account, or requiring reserves to be held in such account).
As often happens, the Regulation does not clearly identify the notification procedures to be followed in connection with unlicensed long-term currency loans. These procedures appear to be set forth in another new regulation, Central Bank Instruction No. 101-I, also dated September 10 2001. Instruction 101-I specifies certain documents and information to be presented to Russian banks in connection with currency loans. As agents of state currency control, the banks are required to maintain special records on the loan transaction, to inform the Central Bank about any breaches of currency control legislation, and to supply certain information about such loan transactions to the local subdivisions of the Central Bank.
At the time of going to press, the full workings of the new Regulation were still being clarified. On balance, we expect this new rule to reduce the time and bureaucracy required for Russian borrowers to obtain long-term currency loans, and therefore to enhance lending activity by foreign banks, international institutions such as EBRD and IFC, and foreign investors in Russia.