New RFCA Listing Rules - International Law Office

Introduction
Main Changes
Shares
Debt Securities
Depositary Receipts and Derivative Securities
Securities of International Financial Organizations and Foreign State Securities

Introduction

With the aim of establishing a transparent market and granting all companies access to it, the Agency for the Regulation of the Activity of the Regional Financial Centre Almaty (A-RFCA) has developed new listing rules which came into force on June 2 2008.

The new rules do not apply to the entire Kazakhstan Stock Exchange, but rather to the special trading platform of the Regional Financial Centre Almaty (RFCA).(1) At present, the old stock exchange listing rules remain in force; new rules, which will be similar to the new RFCA rules, are due to be introduced by September 1 2008. The authorities aim ultimately to merge the RFCA and the Kazakhstan Stock Exchange, although it is unclear at this stage how this will be done or what will happen to the regulatory exemptions applicable to RFCA members.

Main Changes

Under the previous rules the official list of the RFCA's special trading platform comprised only one category. Securities of any type could be listed, provided that (among other things): (i) the issuer was not in default; and (ii) the securities were listed on a stock exchange or the securities and the issuers were rated by an approved rating agency at or above a level set by the A-RFCA.

The new regulations have substantially changed both the structure of the official list and the listing rules of the special trading platform. The rules have been altered by the introduction of new requirements relating to profits and quantities of free-float shares, among other things. In addition, some of the requirements must be complied with not before, but after listing.

The official list is divided into:

• shares;
• debt securities;
• securities of investment funds;
• depositary receipts;
• securities of international financial organizations;
• state securities; and
• derivative securities.

Some sectors include further categories and subcategories.

Shares

The shares sector is divided into three categories: blue-chip companies, medium-capitalization companies and start-up companies.

Blue-chip companies
The most stringent requirements apply to listings in the blue-chip category. Shares may be listed in this category if:

• the company has existed for at least three years;
• a financial report for the preceding three years has been submitted - if the most recent report was prepared over six months before the listing application, an interim financial report or a review of the interim financial information is also required;
• the company has a net worth of no less than $82.63 million;
• the company's capitalization will be equal to or greater than $82.63 million within six months of the shares being admitted to trading;
• the company has made an annual net profit of at least $826,300 (ie, 1% of its net worth) in the two preceding years;
• the company's free-float shares constitute 10% of the total within six months of being admitted, rising to 15% within one year and 25% within two years; and
• the market-maker and corporate management code requirements have been met.

Medium-capitalization companies
Shares may be listed in this category if:

• the company has existed for at least two years;
• a financial report for the preceding two years has been submitted - if the most recent report was prepared over six months before the listing application, an interim financial report or a review of the interim financial information is also required;
• the company has a net worth of no less than $1.65 million;
• the company's capitalization will be equal to or greater than $1.65 million within six months of being admitted to trading;
• the company has made a net profit for the preceding two years;
• the company's free-float shares constitute 5% of the total within six months of being admitted, rising to 10% within one year and 15% within two years; and
• the market-maker and corporate management code requirements have been met.

Start-up companies
Shares may be listed in this category if:

• a financial report has been submitted for the preceding year (or, if the company has existed for less than one year, for the period of its existence);
• the company has a net worth of at least $490,000; and
• the market-maker and corporate management code requirements have been met.

Thus, listing in the blue-chip and medium-capitalization categories is subject to relatively stringent requirements in respect of both issuer and shares, whereas almost any Kazakhstan joint stock company may be listed in the start-up category, as the minimum share capital for a Kazakhstan joint stock company is approximately $480,000.

Debt Securities

The debt securities sector is divided into two categories: rated securities and non-rated securities (and their various subcategories).(2)

Rated securities
Rated securities may be either debt securities, including those issued by a special purpose vehicle (ie, a non-Kazakh company), or securitized debt securities issued by a special financial company as part of a Kazakh securitization.

Listing in the debt securities subcategory is subject to the following conditions:

• The security must be rated by an approved rating agency at or above a level set by the A-RFCA;
• The company must have been in existence for at least two years;
• A financial report for the preceding two years must be submitted - if the most recent report was prepared over six months before the listing application, an interim financial report or a review of the interim financial information is also required; and
• The market-maker and corporate management code requirements must be met.

Securitized debt securities must be rated by an approved rating agency at or above a level set by the A-RFCA and must meet the market-maker requirement.

Non-rated securities
Securities may be listed in the first subcategory of non-rated securities(3) if:

• the company has existed for at least two years;
• a financial report for the preceding two years has been submitted - if the most recent report was prepared over six months before the listing application, an interim financial report or a review of the interim financial information is also required;
• the company has a net worth of no less than $19.79 million;
• the company's annual sales (for 'non-finance organizations', as defined in Kazakh law), excluding leasing and credit partnerships, equal or exceed $19.79 million for the preceding two years;
• the company has made an annual profit of at least $820,000 in the preceding two years; and
• the market-maker and corporate management code requirements have been met.

Securities may be listed in the second subcategory of non-rated securities if:

• the company has existed for at least a year;
• a financial report for the preceding year has been submitted - if the most recent report was prepared over six months before the listing application, an interim financial report or a review of the interim financial information is also required;
• the company has a net worth of at least $3.3 million;
• the company's annual sales (for non-finance organizations, as defined in Kazakh law), excluding leasing and credit partnerships, equal or exceed $3.3 million for the preceding year;
• the company has made a net profit of at least $33,000; and
• the market-maker and corporate management code requirements have been met.

Depositary Receipts and Derivative Securities

Depositary receipts may be listed in the depositary receipts sector only if their base assets are shares. The base assets and the issuers must comply with the requirements for medium-capitalization companies. Depositary receipts based on debt securities are listed in the derivative securities sector; the relevant listing requirements are set forth in the applicable Kazakhstan Stock Exchange regulations, which must be approved by the A-RFCA and the Agency for the Regulation and Supervision of Financial Markets and Financial Organizations.

Securities of International Financial Organizations and Foreign State Securities

Securities issued by certain international financial organizations(4) may be listed in the sector for securities of international financial instruments, provided that the securities are recorded in the Kazakhstan Central Depository and meet the market-maker requirement.

Foreign state securities may be listed in the state securities sector if the state in question has a long-term foreign currency sovereign credit rating of at least B- (Standard & Poor’s or Fitch) or B3 (Moody’s). The requirements for listing are the same as those for the securities of international financial organizations.