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Moldova: Would You Fancy Acquiring a Qualifying Holding in a Bank? The Moldovan IPO Experience

Moldova: Would You Fancy Acquiring a Qualifying Holding in a Bank? The Moldovan IPO Experience

Issue 10.4
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In recent years, Initial Public Offerings on foreign exchange markets became a hot topic of discussion in Moldova. The Purcari Wineries Group, one of the biggest wineries in Moldova, got listed on the Bucharest Stock Exchange Market. Others are also tackling the prospects. An IPO on a reputable market means better corporate governance, transparency, prestige, and access to new sources of funding.

However, what are the prospects of a business in a highly regulated industry such as banks and insurance companies to succeed in an IPO, especially when acquiring a qualifying holding in such companies is to be pre-approved by the local regulator?

In Moldova, a participation is considered a qualifying holding when it represents at least 1% for banks and 10% for insurance companies of the shares and/or voting rights. Also, having a right to appoint the (majority of) the management board or otherwise exercise a significant influence over the management of the bank falls, as well, within the scope of the definition of a “qualifying holding”. 

If in the case of insurance companies, the threshold is a widely accepted standard, in the case of banks the approach is much more conservative. Comparing the Moldovan approach to the standard European one, we may note that the minimum threshold for a qualifying holding is uncommonly low in Moldova, 1% in the case of banks, compared to the standard 10% in the EU. What does this mean in terms of an IPO?

Under Moldovan rules, any investor that intends to acquire more than 1% in the capital of a Moldovan bank is bound to obtain the prior approval of the Moldovan National Bank (NBM), regardless of the way of acquisition.

Within the pre-approval process, the proposed acquirer, among others, shall prove that they are of good reputation and have the necessary financial soundness. In such a way, the bank or insurance company in which the qualified holding is acquired will continue to meet its prudential requirements. Also, the market is protected from an inflow of money derived from dubious activities.

Failure to obtain the prior approval of the regulator, either intentionally or unintentionally, will result in the suspension of the shareholder’s rights and the obligation to dispose of the shares within three months after the acquisition. As a rule, such an acquisition is subject to administrative measures to be applied by the NBM. 

What does all this mean for the “uncompliant” shareholder? In terms of reputation, such a shareholder shall not hold, directly or indirectly, any shares in banks. Such prohibition is expressly set out by Moldovan law. It may seem as not relevant once the Moldovan border is crossed. A diligent investor may disagree. Regulators perform reputational cross-checks of players to enter highly regulated markets. If an investor has been uncompliant and forbidden to hold shares in a bank, even outside a particular region, the reputational consequences are significant in terms of its future holdings.

In terms of ownership rights, the local laws provide a genuine approach. A bank shall cancel the shares of the uncompliant shareholder and issue, in exchange, new shares. The newly issued shares are put up for sale by the bank, as a single batch, for a period of up to nine months. If those shares are not acquired, the bank shall sell the newly issued shares as separate shares within six months. Strict rules regulate the calculation of the selling price, which finally is materially diminished.

The funds resulting from the sale will be transferred to the former shareholders, after deducting the related costs and taxes. Hence, within a maximum of 15 months, the uncompliant shareholder might be legally dispossessed of the shares acquired in breach of law, for a compensation lower than the price “invested” in the initial acquisition.

This being said, the prospective acquirers intending to invest in a qualifying holding in a Moldovan bank (1% or more), including via an IPO, will have to consider and respect, in each case, the pre-approval rules. 

By Marina Zanoga, Head of Banking and Finance, and Viorica Bejan, Senior Associate, ACI Partners

This article was originally published in Issue 10.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here

Moldovan Knowledge Partner

ACI Partners is a leading law firm in Moldova with an expanding network of partners throughout Europe. ACI Partners was established in 2006 and since then has managed to build a very strong and competitive legal practice. Our business strategy strives to deliver a solid and reliable service, going beyond merely grasping the law, which the clients may turn to whenever they need. In reaching this goal, ACI Partners employs a personalized approach to each client, showing a genuine respect for their values and unqualified commitment to their interests and needs, steadily investing in knowledge and data management and ensuring a working environment consistent with our clients’ quality demands and high expectations.

ACI Partners is a one-stop shop law firm proficient in all possible legal matters a business might come across in Moldova, starting with incorporation of a business, and obtaining of all the necessary regulatory permits, continuing with various daily matters, such as contracts, labor, and migration, and finishing with dispute settlement, insolvencies, and criminal investigations. But we pride ourselves especially for our unmatched expertise in most innovative and complex areas for Moldova, as Modern Financial Products, Data Protection, Renewable Energy, Competition, Clinical Studies, Public Procurement, and Regulatory. In our work, we always involve a team of professionals with the relevant skill-mix, which enables us to provide our clients with an integrated and comprehensive advice, superior to our competitors.

ACI Partners has advised the Government of the Republic of Moldova, businesses, international organizations, and other institutions on most challenging transactions, assignments and projects.

ACI Partners is not just another law firm. Over the course of our existence and working in Moldova, and on the international stage for our non-Moldovan clients, we have developed a strong set of core values which, we believe, guide us in everything that we do and, moreover, gives us a competitive advantage – differentiating us from other firms on the market.

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