The Parliament of Ukraine has recently passed the draft Law of Ukraine No. 6122 "On Introduction of Amendments to Certain Laws of Ukraine on Lending and Stimulation of Foreign Investment" (the "Law No. 6122").

Law No. 6122 aims to abolish a number of restrictions on cross-border loans to Ukrainian borrowers and the unfavourable requirements on foreign investments into Ukraine which were introduced by Law of Ukraine No. 1533-VI, (the so-called "Anti-Crisis Law") from 24 November 2009 and which were to remain in force until 1 January 2011 (we alerted about this in our law-now as of 23 November 2009).

Law No. 6122 will abolish the following restrictions and requirements:

In respect of foreign loans to Ukrainian borrowers

  • the prohibition on early repayment of foreign loans by Ukrainian borrowers; and
  • the prohibition on amending foreign loan agreements to reduce the maturity period of a loan or allow early repayment and cancellation of the National Bank of Ukraine's authority (the "NBU") on registering such amendments.

In respect of foreign investments into Ukraine

  • the requirement to make cash investments into Ukraine only through special investment accounts opened with Ukrainian banks;
  • the mandatory conversion of foreign currency into Ukrainian hryvnia ("UAH") for making monetary investments;
  • the requirement to register monetary foreign investments with NBU and in-kind investments with regional state administrations (such registration will become optional again and state administration will regain the status of registration authorities for both types of investments).

The upcoming cancellation of the above restrictions is being widely welcomed by foreign investors and Ukrainian business and professional communities. Law No. 6122 still needs to be signed by the President and officially published in order to come into force; given its importance, this is expected to happen soon.

However, there is a concern that despite the foreign investments restrictions being cancelled by Law No. 6122, the process of monetary investments into Ukraine will not become much easier, at least for some time. This is because the requirements to convert foreign currency into UAH and make monetary investments only through an investment account remain in force by virtue of the secondary legislation passed by NBU, in particular, Resolution No. 280, which sets out the rules for making foreign monetary investments into Ukraine. Unless NBU cancels these restrictions in its regulations together with Law No. 6122 coming into force, Ukrainian servicing banks would technically still be obliged to require a foreign investor who is making monetary investment into Ukraine to: (i) make such investments through an investment account; and (ii) convert foreign currency into UAH for further investment into Ukraine.

Therefore, it is crucial that the policy of facilitating foreign investments embedded in Law No. 6122 is implemented equally and in parallel at all regulatory levels to avoid existence of such unfavourable restrictions in the secondary legislation. If this is done, foreign investors should be able to invest in hard foreign currency directly into Ukrainian investment targets and without the mandatory requirement of registering such investments with the Ukrainian state authorities.

In addition, it is worth noting that Law No. 6122, by not having a retrospective effect, raises certain issues for foreign investors who have made their monetary investments between 24 November 2009 and the date when Law No. 6122 becomes effective, but who have not registered such investments with NBU as yet. It is unclear whether NBU will accept registration applications from such investors or the local regional administrations (who will regain the authority to register any types of foreign investments) will do so. This issue will have to be clarified by NBU.

We will closely monitor the developments with respect to Law No. 6122 and will keep you updated.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 06/05/2010.