Acquisition in the banking, insurance and leasing industries
Roger Gladei
Gladei & Partners
Chisinau
Ranked fifth among 184 countries surveyed under the Banker's 2009 World Financial Health Index, Moldova might well claim that its financial sector is healthy and thus interesting for potential investors. During 2008 the Moldovan banking system continued to achieve a high capital adequacy ratio (32%), low level of lending (35% of GDP), high returns (a return on equity of 20%) and steady growth of banks' assets (up 23%). The same positive trend was followed by the insurance and leasing sectors. High investment returns combined with a stable legal and regulatory environment has put Moldova on the expansion maps of important EU and other foreign investors.
Banking acquisitions
In line with EU Directive 2006/48/EC, amendments to the Law on Financial Institutions enacted in June 2008 have imposed minimum bank capital requirements equal to MLei100 million (€6.5 million). Further, the former rule of investing only from own funds has been abolished, thus opening the possibility of leveraged acquisitions of bank shares.
The potential acquirer of a qualifying holding (5% or more of the capital or voting rights) in a Moldovan bank shall meet the requirements set by the banking regulator, NBM (the National Bank of Moldova), for financial soundness, qualification, experience and moral integrity. Entities originating from offshore jurisdictions, and those created for the exclusive purpose of banking acquisitions or inactive for the last three years before acquisition, are not eligible to purchase qualifying holdings.
The same fit-and-proper test applies upon increasing the equity participation so that it reaches or exceeds 25%, 33% or 50%.
Qualification requirements for local and foreign investors are the same. More extensive requirements apply though in the event of acquisition of a qualifying holding by a foreign bank. The applicant bank shall obtain written acquisition approval from the supervisory authority of its country of residence, and a statement to the effect that the applicant is duly licensed, has been operating for at least two years and is a bank in good standing with no formal enforcement actions outstanding or pending. In addition, the applicant bank shall submit information on its own shareholders with qualifying equity interests, directors and key executives, and all its majority equity interests.
The NBM shall clear the acquisition within 20 days after receipt of all documents. NBM permission for acquisition is valid for six months.
In practice, the most difficult part of the clearance exercise is collecting and submitting the information on related parties of the potential acquirer. Not only data on parties related to the acquirer, but also data on the parties related to the acquirer's related parties, needs to be submitted to the NBM.
NBM permission for acquisition of a qualifying holding shall be sought upon both initial share offerings (primary market) and secondary share transfers. On the primary market, NBM permission must be obtained before the shares are paid for.
Banks are deemed as public entitles by operation of law, and shares in banks can be traded only via the bidding platform of the stock exchange (with several exceptions). This rule tends to render ineffective the straight pre-negotiated transfer of bank shares on the secondary market and requires proper structuring of banking acquisition transactions.
Any person who directly or indirectly acquires more than 50% of voting shares in a Moldovan bank is obligated to announce a mandatory buy-out offer. The law is silent however insofar as the breakthrough rules, target defensive measures and employee consultation rules referred to in EU Directive 2004/25/EC on Takeover Bids are concerned.
Insurance acquisitions
Moldovan nationals are allowed to purchase insurance only from Moldovan insurers, unless a policy is not available on the Moldovan market.
Unlike the earlier legislation, the new Law on Insurance, enacted in April 2007, instituted qualification requirements for acquirers of equity in Moldovan insurers. Thus, the acquisition of a qualifying holding (10% or more of the capital or voting shares), and the increase of such a holding above 20%, 33% or 50% (as well as the reduction of the qualifying holding below these thresholds) are subject to prior consent of the non-banking financial market regulator (NCFM – the National Commission of Financial Markets). As with banking acquisitions, no entity created for the sole purpose of holding equity participations in insurers or inactive for the last three years is eligible to acquire shares in a Moldovan insurance company.
However, unlike banking acquisitions, only own funds can be used to purchase equity participations in a Moldovan insurer. As per the draft amendments to the Law on Insurance, this means that no borrowings can be used to acquire shares in insurers, unless funds are borrowed by a subsidiary from its mother entity.
Participations in existing insurance companies that operate as private entities (limited liability companies) might be transferred through private transactions, subject to observance of the preemption right of the other shareholders. Shares in insurers – public entities – are transferable via the stock exchange (with the same exceptions and subsequent buy-out obligation as in banking acquisitions).
Leasing operators' acquisitions
Leasing is the only financial activity in Moldova that remains neither licensed nor supervised – (the 2008 IMF-World Bank FSSA Update recommended expansion of the NCFM's remit to include leasing). This regulatory freedom has brought about a rapidly-increasing number of market operators and determined some Moldovan banks to spin off their leasing business.
Unlike banks, leasing companies are not bound by mandatory reserves, and leasing exposures are not subject to mandatory provisions. Most Moldovan leasing companies are established as private entities, with equity participations transferred through direct private transactions.