New Rules for Foreign Investors: Russian Companies Can Refuse Share Buyouts

The State Duma has supported a proposal that would allow Russian companies to unilaterally refuse foreign investors if they attempt to buy shares. This move is part of changes aimed at regulating shareholder relations and the participation of foreign entities in Russian companies. The proposal has already passed its first reading in the State Duma in May 2022.

This week, the Committee on Property, Land, and Housing Relations of the State Duma supported a revised version of the draft law. The final version will be published later in the electronic database of the lower house of Parliament.

Key Provisions of the New Rules:

1. Right of Refusal:

   Russian business owners will have the right to refuse foreign companies the option of buying their shares, even if there is an option agreement or another contract in place.

   Grounds for refusal include:

   * Ties with an unfriendly country.

   * The sale of assets after February 24, 2022.

   * The price of the option being significantly lower than the market price.

2. Approval for Major Share Purchases:

   If foreign investors plan to acquire at least 10% of the voting shares in a company, they will need approval from the relevant regulatory commission for the transaction.

3. Impact on Socio-Economic Stability:

   If the asset buyout could impact the socio-economic stability of the country, the relevant authorities have the power to block the transaction.

4. Compensation for Refusal:

   In the event of a refusal to sell shares, the foreign investor may seek compensation. However, if the investor has been involved in dishonest practices, the compensation may be reduced or completely denied.

The changes aim to protect national interests, ensuring that foreign investments do not undermine Russia’s economic stability or security. This move is seen as part of a broader trend to tighten control over foreign involvement in the domestic market, especially in light of geopolitical developments.

The draft law is still under discussion, and its final version will depend on further approval. If passed, these measures would significantly alter the landscape for foreign investors and companies operating in Russia.