GLS Resources

Series: Corporate Solutions

A KAZAKHSTAN PUBLIC COMPANY – RE-PURCHASE OF SHARES AND SHARE REDEMPTION

At first, here is the basics of share re-purchase or buy-back and share redemption, the corporate conceptions used in common law jurisdictions.

"Repurchases are when a company that issued the shares repurchases the shares back from its shareholders. During a repurchase, the company pays shareholders the market value per share. With a repurchase, the company can purchase the stock on the open market or from its shareholders directly. Redemptions are when a company requires shareholders to sell a portion of their shares back to the company. Redeemable shares have a set call price, which is the price per share that the company agrees to pay the shareholder upon redemption. The call price is set at the onset of the share issuance. Shareholders are obligated to sell the stock in a redemption. The shareholder shall have a right to sell or transfer the shares subject to the articles of association or any shareholders’ agreement" – Investopedia.com.

Does Kazakhstan law recognise the same or similar conceptions?

A Kazakhstan joint stock company issues 2 types of shares – ordinary voting shares and non- voting preference shares. Both type of shares can be re-purchased by issuer at some point of time but the law prohibits a company to agree upfront buying back its shares, including entering into agreement with a term to purchase shares at fixed or agreed otherwise share price. This restriction means that a Kazakhstan public company cannot issue redeemable shares and make once issued shares redeemable later. Still, the law grants a company right to re-purchase shares holding by shareholders of this company.

Re-purchase of shares by a company

Shares are to be re-purchased by the company through a stock exchange or direct purchase and sale process. It is authority of a board of directors to make decision on re-purchase shares from shareholders. The board shall also decide if shares are to be purchased at the stock exchange or to initiate a direct purchase and sale.

Shares at stock exchange is purchased at the current bid price. In the event of acquiring shares directly from the seller, the purchase price is defined according to the company's share buy- back price determination procedure. The law requires that founders of the company draft and approve upon establishment of a company the buy-back share price determination procedure to be applied in case company ever decides to re-purchase its own allocated shares. Shareholders are permitted to amend this procedure at any time before commencement a share buy-back campaign. It is sufficient to present 75% votes of all issued shares at the general meeting of shareholders to amend and approve the share buy-back price determination procedure.

The board is free to select either a formula set out in the share buy-back price determination procedure or a stock exchange price. It is fair to assume that the majority shareholders control the share re-purchase price because of having right to adopt a new or amend the share buy- back price determination procedure.

There are some means to increase a re-purchase price for certain minority shareholder but they are limited and largely depend on circumstances involved.

Re-purchase of shares at the request of a shareholder

Under the law, a company in certain cases is obliged purchasing shares offered by a shareholder. This legal requirement is rather an exemption, not associated with a non-compulsory share re purchase or a tender offer procedure.

A shareholder may request a company to re-purchase its shares in the following events:

a) a company approves going into a merger (a company reorganisation);
b) a company decides to do de-listing company’s shares;
c) in case the shareholder disagrees with the shareholders' resolution to approve transaction with affiliated person or major transaction;
d) in case the shareholder disagrees with shareholders' resolution to approve amendments to the company's charter (by-laws) restricting rights of this shareholder.

The share purchase price is determined by the same way as in the procedure for re-purchasing shares by a company described above – according to the effective buy-back share price determination procedure approved by the company's founders or majority shareholders.

General restrictions

An insolvent company is prohibited from re-purchasing shares. A company may not re-purchase shares exceeding 25 % of all issued and allocated shares.

The company can finance the share re-purchase in part or in full out of capital, however, it is prohibited for a company to use for share purchase any amount in excess of 10% of an owner's equity, or if as a result of a re-purchase the company will meet all insolvency qualifications set out in the bankruptcy law.

Recording of re-purchase of shares

Share ownership records and records on any transfer of shares are maintained and registered by the authorised state agency (the Central Depositary of Securities). A broker of seller or seller shall receive a written report from the Central Depositary of Securities confirming transfer to a buyer of sold shares.

Taxation

Any amount over the initial issue price paid to the company or the initial share purchase price will normally need to be treated as a taxable income, unless certain conditions are met. Income of a Kazakhstan non-resident is subject to withholding tax payable at source by a resident share purchaser.

You should obtain taxation advice from a suitable tax expert where the price paid on re-purchase is higher than the original issue price.

1. Under Kazakhstan law a company merger is qualified differently; the law describes 4 methods of a company divestment, all named jointly as a Company Reorganisation;

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September, 2021

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