Albania Regulatory Impact Analysis on the draft law of Corporate and Municipal Bonds

56 Pages·2008·0.46 MB·English

Albania
Regulatory Impact Analysis on the draft law of
Corporate and Municipal Bonds

Avv. Mauro Baldissoni
Partner - Tonucci & Partners, Rome

Avv. Neritan Kallfa
Senior Associate - Tonucci & Partners, Tirana
TABLE OF CONTENTS
1. SCOPE OF WORK ____________________________________________________3
2. METHODOLOGY_____________________________________________________5
3. RELEVANT LEGAL FRAMEWORK_______________________________________7
4. COMPARATIVE FRAMEWORK__________________________________________8
5. RELEVANT STEPS FOR THE ISSUANCE OF CBs__________________________23
6. ISTITUTIONAL FRAMEWORK _________________________________________29
7. CASE STUDY _______________________________________________________37
8. THE COSTS OF THE CBs ISSUANCE____________________________________41
9. ALBANIAN TERMINOLOGY ___________________________________________47
10. CONCLUSIONS ____________________________________________________50

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1. SCOPE OF WORK
The developments of the Albanian financial systems have been accompanied by a
thorough legal reform aiming at creating a legal system in conformity with the best
international practices and local commercial legal framework. The Albanian legal reform
in the financial system has required not only a complete revision of the existing
legislation but also the introduction of whole series of new legal institutes, such as
securities, derivative financial instruments, future and option contracts, and agencies,
such as the Albanian Financial Supervisory Authority .

In 2007, at the request of the Albanian Financial Supervisory Authority (the “AFSA”),
the European Bank for Reconstruction and Development (the “EBRD”) started a new
project in order to enhance the Albanian securities markets legislation and provide
corporations and municipalities with alternative means of raising debt capital for the
financing of their development. Within this context, the EBRD has undertaken an
initiative in order to improve the quality of legislation through the preparation and
adoption of corporate and municipality bond new legislation.

Mauro Baldissoni and Neritan Kallfa, lawyers at Tonucci and Partners (“T&P”) are
acting for the EBRD in connection with the implementation of Regulatory Impact
Analysis (“RIA”) on the draft law on Corporate and Municipal Bonds (“DLCB”).

The project aims at assessing the impact of the provisions to be introduced by DLCB and
at identifying the issues arising out of DLCB on the Albanian securities market and, in
particular, on the Albanian legal framework actually in force.

In particular, T&P have been instructed to perform said assessment by simulating the
issuance of corporate bonds by a joint stock company to be selected by AFSA.

We understand that AFSA encountered some difficulties in identifying a suitable issuer,
due to the reluctance of Albanian companies to be available for the simulation. That
being said, we selected Stefani & Co Sh.A., an Albanian joint stock company, which
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accepted to co-operate with us and was interviewed for understanding problems raised by
DLCB. Raiffeisen Bank Sh.A. was also interviewed in order to test the feasibility of the
DLCB, as a potential arranger and underwriter of the CBs issued by Stefani & Co Sh.A.

This report of T&P (the “Report”) has been structured to describe:
(i) the methodology used in performing the analysis;
(ii) the problems related to the letter of law so as to flag provisions which are not
compliant with the existing Albanian laws or can introduce a problem of conflicts
among different laws;
(iii) suggestions on how such issues should be handled, if any;
(iv) the potential impact that the DLCB may have in the Albanian market;
(v) the costs that issuers are likely to face; and
(vi) the ability of Albanian institutions to implement the new legal framework.

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2. METHODOLOGY
Two methods of analysis are used: (A) RIA and (B) the case study analysis.

(A) As far as RIA is concerned, T&P compared the existing legal framework with DLCB.
Such approach is applied from three perspectives which are not necessarily independent
form each other. These perspectives are as follows:

(i) Simulative application of the draft law. We have applied the procedures set out in
the DLCB in order to simulate the issuance of the corporate bonds (“CBs”). From this
perspective, we also tried to follow and simulate the application of the rules on the
organization of the bondholders’ group. Further, the above simulation was closely
integrated with the joint application of the laws which, according to our opinion,
complete the full picture of this matter. This comparative methodology is used in order to
highlight the inconsistencies and potential conflicts of the DLCB with related laws.

(ii) Simulative instruments for the issuance of CBs. We have identified and examined
the documents deemed necessary for the issuance of the CBs. This perspective is relying
on the overall requirements applicable for the securities under the Law on Securities.
Through the above methodology we intended (a) to highlight the inconsistencies and
potential conflicts of the DLCB with related laws, similarly to the perspective under item
(i) above but from a different angle, and in addition (b) to discern potential disparities
regarding the products (i.e. the documents to be produced) as well as the competent
bodies of the issuer involved in the CBs issuance process (i.e. competence).

(iii) Simulative institutional framework. From this perspective, we have identified and
considered the overall picture of the service providers for the issuance of the CBs. This
methodology highlights the overlapping of the competences of different service
providers. This method is also used also to identify different stages of the CBs issuance
and the effective operation of the service providers (i.e. licensed entities) in the Albanian
market.
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(B) The case study research has been based on participant observations and interviews
with Stefani &Co Sh.A. and interviews with Raiffeisen Bank Sh.A.

Stefani &CO Sh.A. is a joint stock company very dynamic in the Albanian market, active
in the foods and beverages industry. We have interviewed certain shareholders, members
of the board of directors and the CEO of Stefani &CO Sh.A. The interviews took place in
November 2008 and were conducted in order to assess the willingness and capabilities of
the company to undertake the process and produce all the documentation required for the
CBs issuance.

In November 2008 we have also interviewed a member of the Investment Banking Board
of Raiffeisen Bank Sh.A. in order to test the feasibility of the DLCB and to assess the
willingness of Raiffeisen Bank Sh.A. to participate in the CBs issuance process.

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3. RELEVANT LEGAL FRAMEWORK
The relevant legal framework examined by us is the following:
- Law no. 9572, dated 3.7. 2006 “On the Financial Supervisory Authority”
(“LoFSA”);
- Law no. 9879, dated 21.1.2008 “On Securities” (“LoS”);
- Law no. 9665, dated 21.2.2006 “On the state borrowing, state debt and loan state
guarantee of the Republic of Albania”;
- Law no 7850 dated 29.7.1994 “On the Civil Code of the Republic of Albania”, as
amended;
- Law no 8116 dated 29.3.1996 “On the Civil Procedure Code of the Republic of
Albania”, as amended;
- Law no. 8537, dated 10.10. 1999 “On the securing charge”;
- Law no. 9901, dated 14.4.2008 “On Entrepreneurs and Companies” (“LoC”);
- Law no. 9723, dated 3.5.2007 “On the National Registration Centre” (“LNRC”);
- Law no 8901 dated 23.5.2002 “On Bankruptcy”;
- Law no. 8269, dated 23.12.1997 “On the Bank of Albania”, as amended;
- Law no. 9662, dated 18.12.2006 “On Banks in the Republic of Albania”;
- Law no. 9880 dated 25.2.2008 “On the Electronic Signature”;
- Stabilization and Association Agreement (“SAA”) and the Interim Agreement on
Trade and the trade related issues between the Republic of Albania and the
European Communities entered into force on 1 December 2006;
- National Plan for the implementation of SAA VKM no. 463 dated 5.7.2008;
- Directive 2003/ 71/ EC of 4 November 2003 on the prospectus to be published
when securities are offered to the public or admitted to trading and amending
Directive 2001/34/EC;
- Directive 2004/ 109/ EC of 15 December 2004 on the harmonization of
transparency requirements in relation to information about issuers whose
securities are admitted to trading on a regulated market and amending Directive
2001/34/EC.

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4. COMPARATIVE FRAMEWORK
Table no. 1 of this Report shows the results of a comparative analysis of the DLCB
provisions and the LoS currently in force in order to flag issues raised by the application
of the DLCB, together with suggestions about how such issues should be handled. This
table is structured as follows:
- the first column identifies the relevant issue;
- the second column reports the relevant provisions of the LoS, LoC or other
relevant law;
- the third column reports the relevant DLCB provisions;
- the fourth column includes T&P comments on the relevant issue.

This comparative analysis highlights the following issues:
1. There is a discrepancy between the definition of “registrar of securities” and
“custodian of securities” included in LoS and the definition of “Account provider”
included in the DLCB;
2. There is a discrepancy between the term “bond owner” included in the LoS and
the term “bondholder” included in the DLCB;
3. There is an interpretive uncertainty between the provisions dealing with
registration of dematerialized bonds in the LoS and the DLCB;
4. There is a discrepancy between the definition of bonds in the LoS and the DLCB;
5. The DLCB includes a provision on conditions for the issuance of dematerialized
secuities that duplicates another provisions already included in the LoS;
6. There is a discrepancy between the types of bonds listed in the LoS and those
permitted under the DLCB and conflicting provisions on the authority to
determine further types of bonds;
7. The definition of Bearer Bonds is missing from the DLCB;
8. There are discrepancies between the elements of electronic bonds under the LoS
and the elements of paper bonds under the DLCB;
9. The “Account Provider” is required to perform activities in addition to those of a
custodian under the LoS and the securities registrar is required to perform
payment services in addition to those under the LoS;
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10. The content of the Bond loan program under the DLCB is not specified;
11. The minimum number of people required to form a Bondholders group under the
DLCB is not specified and it is not clear how the provisions relating to the
Bondholders group apply when the number of Bondholders changes above or
below the minimum during the life of the bonds;
12. There are overlaps and interpretive issues with respect to LoC provisions referred
to in the DLCB;
13. The DLCB does not expressly authorize securing charges to be taken over bonds;
14. There is an interpretive issue as to the definition of “terms of Bond loan” under
the DLCB:
15. There are incomplete cross references in DLCB provisions dealing with bond
distribution;
16. The corporate body competent for the issuance of the CBs and the DLCB
provisions on quorum for bonds issuance are inconsistent with the LoC;
17. The DLCB quorum for bond issuance is inconsistent with LoC provisions referred
to in the DLCB;
18. The reference to Board of Directors only in DLCB provisions dealing with bonds
conversion is inconsistent with the two-tier corporate governance system provided
for by the LoC.

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Table no. 1: Comparative Analysis between relevant laws currently in force and the Draft Law on Corporate and Municipal
Bonds

Provisions of relevant laws currently in Provisions of the Draft Law on Corporate and
Issues to be considered Comments :
force Municipal Bonds
Art. 123 LoS Art.2(2)(a) It should be clarified in the DLCB whether the
The securities registrar (“the registrar”) is “Account Provider”: a custodian who has opened “Account Provider” is a “registrar” and/or
a joint stock company licensed by the with the Dematerialized Securities Registry an “custodian”.
Authority, whose scope includes the account of dematerialized securities, in which the
securities data organization and custodian can handle securities by the bondholder’s
The definition of “Account Provider” in the
management. order.
DLCB is similar to the definition of “custodian”
in the LoS with some elements of the definition
Art. .72-77 LoS Art. 5(2) of “registrar” in the LoS.
Operations related to the custody of The Account Provider shall be responsible for
securities shall be: conducting the entries, registrations of granting, This is somehow confusing also with reference
1. Securities storing and safekeeping. operations and payment of the bond loan on behalf to the definition of “Dematerialised Securities
1. Discrepancy between 2. Reporting on payment of of the issuer. Registry” (see Art.2(2)(j) of the DLCB), which
the definition of “registrar dividends, interests or other is obviously a “registrar” under the LoS. This
of securities” and receivable instruments. certainly creates ambiguities in the Albanian
“custodian of securities” 3. Informing about meetings of version of the DLCB.
in the LoS and the security issuers and rights related to
definition of “Account shares and other securities in Therefore, we suggest that reference is included
provider” in the DLCB custody, and the execution of in the DLCB definition of “Account Provider”
customers’ orders related to the to clarify that it is a “custodian” in accordance
realization of these rights. with LoS. See also comments under item 9
4. Informing about legal changes that below. The same problem occurs in the
directly or indirectly influence the Albanian version.
reporting to the customer on the
custodian account balance. In addition, we suggest to amend the definition
5. The service of organizing general of the “Account Provider” set out in Art 2(2) in
meetings. order to include the functions of the account
6. Other services related to securities provider set out in Art 5(2).
such as the realization of rights and
fulfilment of obligations deriving

from securities, as agreed between
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