The Capital Market Development Agency (CMDA) prepared a bill proposing to lift the restrictions for issuing corporate bonds by limited liability companies.

Now, corporate bonds can only be issued by joint stock companies and banks. At the same time, the requirements towards the issuer make this instrument an unattractive source of financing even for many joint-stock companies.

Article 30 of the Joint Stock Companies and Protection of Shareholders' Rights Law also establishes restrictions on the bonds issuance limited to the authorized capital on the date of the decision on bonds issuance.

In spite of corporate bonds being an alternative to bank financing, such norms significantly shortens the list of entities that can recourse to this instrument, according to the CMDA. While between 2010-2018, the number of corporate bonds in circulation decreased from 41 to 17, and their value from 512 billion to 198 billion soums, which is only 0.002% of the value of issued shares.

There are now over 148 thousand enterprises in the form of LLCs. All these enterprises, which are often more attractive for investment than joint-stock companies, do not have financing alternative to a bank loan, and corporate bonds can become such an alternative.

The CMDA in the draft bill is proposing to:

• allow the issuance bonds by LLCs with the requirements for external audit, financial reporting, disclosure of information and other requirements extended to them;
• scrap the ceiling of corporate bond issuance within the limits of authorized capital, the requirement for pledge for corporate bond issuance, as well as to easing the requirements for three-year positive financial reporting and rating;
• delegate the authority to set terms and determine the requirements for corporate bond issuance to the authorized state body for regulating the securities market (Capital Market Development Agency) in order to facilitate a quick and flexible reflection of current trends and make changes and addenda to the procedure for issuing bonds taking into account the interests of all securities market participants, in particular investors.

The draft bill also proposes to amend the taxation procedure for holding companies. In particular, it is proposed not to consider dividends from its subsidiaries as revenue, as well as cash from sale of shares of subsidiaries as the revenue of the holding.

The adoption of the bill will serve to improve the business climate in Uzbekistan, to broadly and actively attract free funds and investors to the economy, thereby reducing the dependence of real sector enterprises on bank lending and state guarantees, as well as significantly reducing state participation in the economy, the CMDA says.