In February of this year CEE Legal Matters reported on the issuance by TransFin-M PC's of convertible bonds with a nominal value of RUB 3 billion, which EPAM – the firm working with TransFin-M on the matter – described as "unique for the Russian market."
We reached out to Stanislav Ilyukhin, the General Counsel of TransFin-M, with Five Questions on the matter.
CEELM: In its press release about the issuance, EPAM (EPAM) described the convertible bonds as "unique for the Russian market." In what way were they unique? Were they vanilla convertible bonds, mandatory convertibles, reverse convertibles, or packaged convertibles?
S.I.: The convertible bonds were issued in the way of mandatory convertibles (conversion to happen in 3 years or in case of an early conversion event). The issuance of convertible bonds are unique instruments for capital injection in the Russian corporate sector. Convertible bonds were predominantly used by Russian banks to increase their prudential capital (capital adequacy ratio).
CEELM: What was the reason for the issuance? Were the bonds issued to finance a particular project, or done in the regular course of business?
S.I.: The main reasons for the issuance were to increase the company’s capital adequacy ratio (to meet banks’ requirements for CAR ratio), to demonstrate shareholder support, and to establish a new funding source. The proceeds from issuance of convertible bonds were used to finance the company’s ordinary business and to refinance short-term obligations.
CEELM: How was the decision made as to the specific kind of bonds TransFin-M would be issuing, in terms of maturity date, total nominal value, and other features? Was it a pure business decision, or were you involved, or did EPAM or other entities assist?
S.I.: The main conditions of the convertible bonds constitute the balance of TransFin-M interests and major Shareholder capabilities. When determining the conditions of convertible bonds we also took into account how this event would be received by the market, company auditors, and the regulatory authority.
CEELM: How/why did you select EPAM as external counsel in the matter?
S.I.: EPAM was recommended to the Company by the majority Shareholder, who had successfully worked with EPAM in the past, including on projects connected with bonds issuance. The final decision in favor of EPAM was made after a tender process, which TransFin-M carries out due to its internal rules of doing business.
CEELM: What was your working relationship with EPAM in the matter — how were responsibilities divided between the in-house TransFin-M legal team and the EPAM team?
S.I.: The TransFin-M team worked out an action plan with the EPAM team to determine areas of responsibility for each party. EPAM team was responsible for drafting emission documents, while TransFin-M team was in charge of giving final approval of the emission documents and held overall control over the accuracy of the drafting. TransFin-M legal team also performed all corporate procedures necessary under Russian law for the issuance of securities (such as convening and holding meetings of competent management bodies of the Company).
CEELM: Did all your communication with EPAM flow through Dmitriy Glazounov, or did you also communicate regularly with the other lawyers on the EPAM team as well?
S.I.: Working on that project with EPAM we communicated not only with Dmitriy Glazounov, who provided general supervision on the project, but also other members of his team: Senior Associate Oleg Ushakov and Associates Gilyana Haraeva and Alexander Filchukov.
Written by David Stuckey