March 24, 2022

IPO and SPO in and outside Uzbekistan

1. Regulatory framework

2. Procedure for Initial Public Offering (IPO) and Secondary Public Offering (SPO) Conducted by Uzbek Joint-Stock Companies (JSCs) or (Issuer) on the Territory of Uzbekistan

2.1. Stage 1

Adoption and Approval of a Decision on the Issue of Shares

2.2. Stage 2

Conclusion of IPO/SPO Agreement with Organizer 

2.3. Stage 3

Preliminary Study of JSC and Determination of the Price Range

2.4. Stage 4

Preparation of Prospectus

2.5. Stage 5

State Registration of Issue of Shares and its Registration in the Central Securities Depository of the Republic of Uzbekistan

2.6. Stage 6

Disclosure of Information

2.7. Stage 7

Conducting a Subscription Campaign

2.8. Stage 8

Submission of Application for Purchase of Shares by Investors and Sale of Shares

3. The Order of Offering and Circulation of Securities on the Territory of the Republic of Uzbekistan by Non-Residents

3.1. Procedure for emission of Uzbek Depository Receipts 

4. Purchasing of Resident’s Securities by Non-resident

5. The Order of Offering and Circulation of Securities outside the Territory of the Republic of Uzbekistan by Residents

1. Regulatory framework

1. Law of the Republic of Uzbekistan of 22.07.2008 No. ZRU-163 “On the Securities Market”;

2. Decree of the President of the Republic of Uzbekistan dated 17.01.2019 No. PP-4124 “On Measures to Further Improve the Activities of Mining and Metallurgical Enterprises”;

3. Decree of the President of the Republic of Uzbekistan dated 06.03.2020 No. PP-4629 “On Measures to Reform the State Enterprise ‘Navoi Mining and Metallurgical Combinat’”;

4. Resolution of the Cabinet of ministers of the Republic of Uzbekistan dated 08.06.1994 No. 285 “On Measures for Ensuring Effective Activity of the Republican Stock Exchange “Toshkent” and Development of Infrastructure of the Securities Market”;

5. Resolution of the Cabinet of ministers of the Republic of Uzbekistan dated 26.04.2019 No. 358 “On the Organization of Primary and Secondary Public Offers of Shares on the Stock Exchange”;

6. Resolution of the Cabinet of ministers of the Republic of Uzbekistan dated 10.05.2017 No. 268 “On the Organization of a Public Offer of Shares on the Stock Exchange”;

7. Resolution of the Center for Coordination and Control over Functioning of Securities Market under the State Property Committee of the Republic of Uzbekistan of the Board of the Central bank of the Republic of Uzbekistan, registered by the Ministry of justice on 22.06.2007 No. 1692 “On Approval of the Regulations on the Procedure for Circulation on the Territory of the Republic of Uzbekistan of Securities in Foreign Currency, Acquisition by Residents of Securities in Foreign Currency, as well as the Acquisition by Non-residents Securities Issued by Residents.”;

8. Annex to the Order of General Director of the Center for coordination and control over functioning of securities market, r4egistered by the Ministry of justice on 30.08.2009 No. 2000 “Rules on Emission and State Registration of Securities”;

9. Annex to the Resolution of the Cabinet of ministers dated 20.08.2014 No. 239 “Regulation on Quotas and the Procedure for Admission to Offering and Circulation of Securities”.

2. Procedure for Initial Public Offering (IPO) and Secondary Public Offering (SPO) Conducted by Uzbek Joint-Stock Companies (JSCs) or (Issuer) on the Territory of Uzbekistan.

The procedure for IPO and SPO is established by the Resolution of the Cabinet of Ministers dated 10/05/17 No. 268. This procedure is mandatory for IPO and SPO conducted by JSCs with a public participant interest, however it may be utilized by JSC without public share and by shareholders (except government) in the course of public offering of shares through IPO and SPO. Moreover, the overall procedure for emission of shares is represented in the Annex, registered by the Ministry of Justice on 30.08.09 No. 2000.

Under Uzbek legislation IPO purports the process of offering and alienation of additional shares to unlimited number of investors on Stock Exchange by JSCs.

Under Uzbek legislation SPO purports the process of offering and sale of shares possessed by an investor to unlimited number of investors on Stock Exchange.

2.1. Stage 1

Adoption and Approval of a Decision on the Issue of Shares

To conduct IPO the authorized management authority of JSC shall make a decision to issue additional shares. The decision to issue securities should not provide for both private and public offering of securities of the same issue (except for cases arising from decisions of the President or the Government of the Republic of Uzbekistan).

The decision on the issue of securities must provide for the procedure for returning funds to the investor received by the Issuer as payment for securities in the event of recognition of the issue of securities as invalid or frustrated.

2.2. Stage 2

Conclusion of IPO/SPO Agreement with Organizer

To conduct IPO the authorized management authority of JSC shall conclude an IPO agreement with the organizer. The organizer is usually an investment intermediary or commercial Bank or insurer that performs underwriting activities and provides services for organizing and conducting IPO.

To conduct SPO organizer shall conclude SPO agreement with shareholder (initiator of SPO).

2.3. Stage 3

Preliminary Study of JSC and Determination of the Price Range

The organizer of an IPO or SPO conducts a preliminary study of the JSC, in the process of which audit, evaluation, consulting and insurance organizations, banks and other experts may be involved. JSC shall provide the organizer with all required documentation.  

The price range of shares which are to be offered is determined by the organizer upon the results of preliminary study of JSC. Usually the price is determined in the range from the nominal to the estimated value of shares, unless a different range is determined by the organizer in agreement with the initiator of the IPO or SPO.

2.4. Stage 4

Preparation of Prospectus

The prospectus is approved by the management authority of the JSC and must contain all information in accordance with the Rules on emission of securities (registered by the Ministry of Justice on 30.08.09 No. 2000). Notably, until the end of the auditor’s review of the Issuer’s financial statements for the last year, the Issuer may submit a prospectus without attaching a copy of the auditor’s report for the last completed year.

2.5. Stage 5

State Registration of Issue of Shares and its Registration in the Central Securities Depository of the Republic of Uzbekistan.

The Issuer must submit documents for state registration of the issue of securities to the Agency for development of the capital market of the Republic of Uzbekistan within three months from the date of making the decision to issue securities, but not later than one month from the date of making the decision to approve the decision to issue securities. Moreover, the issue of shares shall be registered in the Central securities Depository of the Republic of Uzbekistan.

2.6. Stage 6

Disclosure of Information

In case of IPO and SPO, the Issuer is obliged to disclose information about the state registration of the issue of securities and the procedure for access of any interested parties to the information contained in the prospectus (hereinafter – the “Information”). The Issuer discloses the Information:

  • in the securities issue prospectus;
  • in the Issuer’s quarterly and annual report;
  • in reports on material facts in the Issuer’s activities (Rules, registered by the Ministry of Justice on 31.07.12 No. 2383).

The Issuer discloses the Information through its publication on the official website of the Agency for development of the capital market of the Republic of Uzbekistan. Moreover, the issuer shall disclose the Information on its corporate website (Regulation to the RCM RUz dated 02.07.14 No. 176).

It should be noted that conducting IPO earlier than two weeks after disclosure of information on the state registration of the issue of shares is prohibited (paragraph 72 of the Rules, registered under Ministry of justice 30.08.09 No. 2000).

2.7. Stage 7

Conducting a Subscription Campaign

Subscription campaign — a set of arrangements aimed at collecting applications for the purchase of shares by organizing meetings with investors, upon which the disclosure of information about the joint-stock company is exercised, its main performance indicators and conditions for the public offer of shares are presented, and investor’s application are collected.

The subscription campaign is conducted by the organizer in each region of the Republic, the duration of which is usually at least 180 days from the date of:

  • state registration of the issue of shares for IPO;
  • conclusion of an agreement between the shareholder (initiator) and the organizer for conducting SPO.

2.8. Stage 8

Submission of Application for Purchase of Shares by Investors and Sale of Shares

The organizer shall create conditions for submission of applications for purchase of shares by investors in accordance with the rules of Stock Exchange. In particular, the organizer shall engage investment intermediary for keeping records of pre-deposited funds of investors. At the same time investor pays for purchased shares in the course of submission of applications for purchase of shares.

In case of IPO and SPO, it is prohibited to establish the advantage of one investor (s) over another (s), except for the following cases:

  • provide in the prescribed manner to the shareholders of joint stock companies pre-emptive right to purchase securities in a quantity proportional to the number of shares owned by them; (Subparagraph as amended by Order of the General Director CCRCB, was MJ 06.11.2015 No. 2000-4) (Cm. Previous edition)
  • there are restrictions in the legislation and (or) the Charter of the Issuer on the purchase of securities by non-residents of the Republic of Uzbekistan.

The investor has the right to change the previously submitted application in terms of increasing or decreasing the number of shares and the share price, or cancel the previously submitted application with a refund of the deposited funds no later than one day before the date of sale of shares on Stock Exchange.

In case of unsatisfactory requests, investors ‘ funds must be returned to them within 15 days from the date of registration of transactions. The unallocated portion of shares sold through IPO and SPO is purchased by the organizer, usually at the quoted price determined by the Stock Exchange, unless otherwise provided in the agreement between the organizer and the initiator of the IPO or SPO.

It should be noted that in regard to IPO and SPO conducted by JSCs with public share, one investor is entitled to purchase no more than 0,05% of the total amount of shares on sale.

Accomplished IPO and SPO on the territory of the Republic of Uzbekistan

The name of JSC Initiator of IPO/SPO Organizer of IPO/SPO Form of sale
1. “Qvartz” JSC “Qvartz” JSC National Bank for Foreign Economic Affairs of the Republic of Uzbekistan

IPO

Legal basis:

Resolution of the Cabinet of ministers of the RUz dated 10.05.17 No. 268

2. JSC “Kokand Mechanical Plant” “Uzneftegasmash” JSC National Bank for Foreign Economic Affairs of the Republic of Uzbekistan

SPO

Legal basis:

Resolution of the Cabinet of ministers of the RUz dated 10.05.17 No. 268

 

IPO and SPO on the territory of the Republic of Uzbekistan which are in the process

The name of JSC Initiator of IPO/SPO Form of sale

 Details

4. JSC “Jizzax Plastmassa”** JSC “Jizzax Plastmassa”

IPO

Legal Basis:

Resolution of the Cabinet of ministers of the RUz dated 26.04.19 No. 358

Sale of share in the amount of 25% of charter capital
5. JSC “Uzbek Comodity Exchange”*** JSC “Uzmetkombinat” and JSC “Almalyk MMC”

SPO

Legal Basis:

Resolution of the Cabinet of ministers of the RUz dated 26.04.19 No. 358

Sale of share in the amount of 12% of Charter Capital

 

3. The Order of Offering and Circulation of Securities on the Territory of the Republic of Uzbekistan by Non-Residents

Non-residents are allowed to offer and circulate securities on the territory of Uzbekistan if the following conditions are complied with:

  • non-resident securities comply with the definitions of types of securities provided for by the legislation of the Republic of Uzbekistan;
  • non-resident securities have an international securities identification code (ISIN) and an international financial instrument qualification code (CFI);
  • non-resident securities have been listed on a foreign exchange in the country of origin of their Issuer and are included in the exchange quotation list of the specified exchange;
  • the Issuer is an organization with its place of establishment in a state that is a full member of the International organization of securities commissions and the Financial Action Task Force on money laundering (FATF), and is also a resident of the country where there are diplomatic missions of the Republic of Uzbekistan;
  • the Issuer is not an organization with a place of establishment in a state and/or territory that provides preferential treatment and/or does not provide for disclosure and provision of information during financial transactions (offshore zones);
  • the Issuer is not a financial organization in accordance with the legislation of the country of origin of this Issuer or the Issuer is not considered as a financial organization in accordance with the legislation of the Republic of Uzbekistan;
  • the term of the Issuer’s activity is not less than ten years from the date of its establishment;
  • the Issuer must have positive indicators of profitability, solvency, financial stability and liquidity over the past three years, confirmed by an audit report, as well as have an independent rating from international rating agencies;
  • existence of an agreement on the organization of the issue of Uzbek Depositary Receipt[1] between the Central securities Depository, the Issuer and a foreign Depository that records the rights to the securities of a non-resident.

Only 25% of non-resident securities from the total amount issued securities of a precise category, through issue of Uzbek Depositary receipts are allowed for offering and circulation on the territory of Uzbekistan. Moreover. Uzbek Depositary Receipts shall be registered by Center for coordination and development of the securities market under the state competition Committee of the Republic of Uzbekistan.

3.1. Procedure for emission of Uzbek Depository Receipts

  1. adoption and approval of decision on the issue of Uzbek Depositary Receipts;
  2. state registration of the issue with attribution of identification number;

For consideration of documents submitted for state registration, a fee is charged in the amount of 5 basic calculation amount[2] established by the legislation of the Republic of Uzbekistan on the date of filing the application. The amount of the collected fee is credited to the account of the authorized state body. The documents shall be considered in the period of 30 days from the moment of their submission.

  1. offering and alienation of securities.

The organization of offering and alienation of Uzbek Depositary Receipts on the Stock Exchange is carried out by an underwriter on the basis of an agreement on the provision of underwriting services. Offering and alienation of Uzbek Depositary Receipts is subject to registration in the Central securities Depositary. It should be noted that additional issue of Uzbek Depositary Receipts is not subject to state registration, and is implemented by amending the decision on issue of Uzbek Depositary Receipts ( Annex to the RCM dated 20.08.14 No. 239).

4. Purchasing of Resident’s Securities by Non-resident

Non-residents are entitled to purchase any securities, offered by residents and the conditions of issuance of which does not prohibit purchasing the securities by non-residents. Non-residents may purchase the securities by foreign currency; however their further trading by non-resident shall be implemented in national currency of Uzbekistan. When a non-resident purchases or sells securities issued by residents on an organized exchange market, a professional securities market participant authorized by the non-resident under an contract of commission (contract of commission agency) purchases or sells securities at auction and submits a report on the transaction to the non-resident in accordance with the legislation. When purchasing or selling securities issued by residents on an organized market, a non-resident can make a transaction in the same manner or independently (Resolution, registered by Ministry of justice on 22.06.07 No. 1692).

5. The Order of Offering and Circulation of Securities outside the Territory of the Republic of Uzbekistan by Residents

Resident securities may be offered and traded outside the territory of the Republic of Uzbekistan in the amount not exceeding 25 % of the total number of issued securities of this type (category, type), unless otherwise established by the legislation of the Republic of Uzbekistan.

The offering and sale of securities is implemented in accordance with legislation of State where it is implemented and in accordance with rules established by relevant stock exchange.

Securities of residents are offered and traded outside of the territory of Uzbekistan in the form of depository receipts, issued by foreign Depositary. The right of ownership on securities, offered outside the territory of Uzbekistan shall be approved by the Central securities Depositary.

It should be noted that offering and trading of securities outside of the territory of Uzbekistan by resident, which is a business entity with state participant interest and which has strategic importance for the Republic, is subject to preliminary examination by the Commission for monitoring the effective use of the state participant interest of shares in joint-stock associations and companies.

Securities of residents offered outside the Republic are registered and kept in the Central securities Depositary. When offering the securities, the rights on them are transferred to owners of depositary receipts only after issuer’s approval of receiving the payment for them through sent notification to the Central securities Depositary. The foreign depositary is regarded as nominal holder of the securities (Annex to the RCM dated 20.08.14 No. 239).

If it is IPO conducted by resident outside the territory of Uzbekistan the following work shall be done on the territory of Uzbekistan:

  • Preliminary study of JSC (resident);
  • Preparation of prospectus;
  • Registration of securities in the Central securities Depositary of the Republic of Uzbekistan;
  • Other steps if required

Planned IPOs by residents outside the territory of the Republic of Uzbekistan

ISSUER THE DATE OF PLANNED IPO

CURRENT STAGE

LEGAL BASIS

1 JSC “Uzmetkombinat”

2022 year

Unknown

Resolution of the President of the RUz dated 17.01.19 No. PP-4124

2 JSC “Almalyk MMC”

2023 year

Unknown

Resolution of the President of the RUz dated 17.01.19 No. PP-4124

3 SE “Navoi Mining and Metallugical Combinat”

2023 year

Work has begun on:

·        the implementation of corporate disclosures in accordance with the principles and requirements of International standards of accounting and reporting (ISAR);

·        reporting, including on economic, social and environmental issues, in accordance with the Global reporting initiative (GRI);

·        revaluation reserves in accordance with the standards of the Australian code of reporting of exploration results, mineral resources and ore reserves (JORC Code);

Inventory of the property of the SE “Navoi MMC” has been completed with the approval of the list of property and property rights. On the basis of the property of the SE “Navoi MMC” it is planned to set up JSC “Navoi MMC”.

Resolution of the President of the RUz dated 17.01.19 No. PP-4124;

Resolution of the President of the RUz dated 06/03/2020 No. PP-4629.

[1] derivative securities not having a nominal value certifying the ownership of a certain number of represented securities of the non-resident and attest the right of its owner to demand from its Issuer receiving corresponding amount of securities instead of this receipt.

[2] Now it is equal to 223 000 Soums, what is approximately $21 on the date of publication of the Article.