Convertible Loan Agreement

Convertible loan – new efficient instrument that facilitates structured funding of Russian projects has become available to investors and creditors. Although, convertible loan scheme has been used in various transactions in the past, it required to prepare and negotiate specifically tailored extensive set of documents including loan facility contract, corporate agreement (shareholders’ agreement), etc. Besides, enforcement of the whole structure could face certain complications.  

New regulation allows the creditors to execute a single document and claim conversion of the principle loan and accrued interest into shares (in the case of a joint-stock company) or participatory interest (in the case of a limited liability company).  Conversion may be triggered on the loan maturity date or upon the occurrence of other terms agreed by the parties.  The respective claim shall be made by the creditor within 3 months, unless a shorter period is provided by the respective agreement.

Convertible loans can be obtained only by private joint-stock companies and limited liability companies, which are not banks, companies of strategic importance for national defense and security and some others.