For the past 10 years, Uzbekistan’s economy has achieved some of the world’s best growth performances, with an average of 6 to 8 per cent GDP growth per annum. The country’s potential is fuelled by vast energy and agricultural resources, a strategic location at the crossroads of Europe and Asia, and nearly universal literacy rates.2

Since gaining independence in 1991, Uzbekistan has made careful progress in its transition from a centrally planned to a market economy. Recognising the importance of foreign direct investment (FDI) for growth and development, the country has welcomed foreign investors, especially those who can offer exportable products, new technologies and marketing knowledge. Considerable efforts have been made to establish a well-functioning market infrastructure. However, securities markets are still in the development process, and are small in scale compared to the size of the banking sector. This could also be one of the reasons why investments through the securities market have never reached a 2 per cent share in total investments.

In 2015, 450 issues of corporate shares were registered with a total face value of 11.4 trillion Uzbek som.3 The total market capitalisation4 at the close of 2015 was 16.5 trillion Uzbek som, which is approximately 9.5 per cent of 2014 GDP.

In 2015, transactions through the Tashkent stock exchange amounted to 161 billion Uzbek som, of which 87.8 per cent were accounted for by banks securities.

Over the past year, rates of total corporate securities issuances have been increasing, continuing the upward trend of previous years. However, as direct and indirect state ownership still prevails, this limits the liquidity and volatility abilities of the securities market. The government recognises the need to decrease state ownership in the national economy and that well-functioning securities markets are essential to vitalise the national economy, confirmed by its initiation in May 2015 of another major round of privatisation. With this aim in mind, the government called an investment forum in the autumn of 2015. Within the 2015 privatisation plan, shares of 123 companies have been placed on public offer in an amount of US$1.1 billion.5 More concrete results are yet to be seen.


Uzbekistan is a unitary republic with a continental legal system. The head of state is the President, the legislative branch is a two-chamber parliament and the executive functions are carried out by the Cabinet of Ministers.

The underlying legal framework is set out in the Civil Code, the law on joint-stock companies, and the Securities Market Law. Detailed rules and their application are established by resolutions of the government and the securities markets regulators. The key regulators are Center for Coordination and Development of Securities Market6 (main regulator), the Central Bank (involved in cases of government securities), the Ministry of Finance, and the State Committee for Privatisation, Demonopolisation and Development of Competition (which is responsible both for privatisation and competition).

Most M&A deals are privately negotiated. This is due to the ownership structure where few shareholders have the majority of shares.

Furthermore, given that the majority of the biggest enterprises are directly or indirectly state-owned, M&A deals involve direct negotiation with government entities, and the deal closure process can be more time-consuming due to the privatisation regulations.


i Reform of the Securities Market Law

The Securities Market Law has been adopted in a new edition effective from 4 June 2015. The key developments are the introduction of infrastructure bonds, allowing the execution of securities transactions in electronic form, the creation of guarantee funds to recover investors’ losses caused by investment brokers, as well as a clarification of what constitutes market manipulation and insider dealing. To date, we are not aware of any cases where the new securities instruments have been used.

ii 2012–2015 reforms of the corporate governance rules

Corporate governance issues were revised and the rules thereof have undergone institutional reforms. Particular attention was paid to the protection of minority shareholder rights. Moreover, the first ever code of corporate governance was approved, which includes recommendations on best practices for all companies and follows a ‘comply or explain’ approach. Currently, the code is mandatory only in relation to state-owned joint-stock companies.

iii Law on Investment and Mutual Funds

The Law on Investment and Mutual Funds came into force in August 2015. The law sets the basic principles, as well as rights and obligations of participants. The law introduces a collective investment tool through mutual funds (which can be established from July 2017).

iv Information disclosure requirements

Within the round of corporate governance reforms, the government launched a Single Portal for Corporate Information,7 which includes information on substantial facts (e.g., affiliated parties, dividends payments), prospects, quarterly and annual statements, and other information.

The reporting standards for joint-stock companies have been changed to the International Financial Reporting Standards. Taxation of corporates was optimised to stimulate FDI into Uzbekistan’s economy through the acquisition of shares in Uzbek companies.

v Minimum foreign shareholding requirement

The wave of changes to corporate law was triggered by Presidential Decree No. УП-4720 dated 24 April 2015 to introduce amendments to the corporate law. The major focus is to implement a modern management structure for joint-stock companies. The Decree prioritises the acquisition of shares by foreign investors. It is now mandatory for joint-stock companies (except government-approved companies) to sell 15 per cent of their shares to foreign investors. It is expected that such amendment will result in a string of M&A throughout Uzbekistan. The volume of M&A is likely to substantially increase throughout 2016 and 2017.


i Inbound investments

Since gaining independence in 1991, more than US$120 billion of investment has been attracted into the national economy, out of which US$60 billion comes from incoming foreign investments8 and US$9 billion from foreign direct investments.9

The main share of assimilated foreign incoming investment is concentrated in the following sectors:

  • a oil and gas: 52.6 per cent;
  • b energy: 10.4 per cent;
  • c transportation infrastructure: 7.2 per cent;
  • d information and communications technology: 5.6 per cent;
  • e production of construction materials and construction of residential houses: 4.7 per cent;
  • f financial sector: 4 per cent;
  • g road infrastructure: 3.6 per cent;
  • h water supply: 3 per cent; and
  • i industry: 2.6 per cent.10

Generally, investments from more than 20 countries, including South Korea, Russia, China, Turkey, Germany, Japan, the Netherlands, the United Kingdom, Austria, Malaysia and Singapore, have been attracted into various investment projects.

One of the biggest strategic investors is South Korea, with a total volume of direct investments of US$5 billion.11 The key destinations are oil and gas (a highlight is the Surgil deposit Ustyurt gas chemical complex), automotive (GM Korea, and other spare parts manufacturers), textiles, IT (a highlight is an electronic government project) and logistics (Korean Air operating logistics centre and the airport at Navoi). It is expected that the role of South Korea in inbound investments will continue to increase.

Another major investor is Russia, with total estimated FDI of US$1.2 billion.12 The key destinations are oil and gas (Lukoil’s Kandim project) and the telecommunications industry (Vimpelcom and MTS).

China is unsurprisingly a significant investor, with US$392 million FDI, and US$6 billion investments in total. The key destinations are oil and gas (a highlight is the Central Asia–China gas pipeline) and transportation.

Investments by Turkish firms in Uzbekistan exceeded US$1 billion into the textile, hotel and pharmaceutical industries, into the manufacturing of building materials and plastics, as well as into the services sector.13

Foreign investment is mainly supported by the Law ‘On Foreign Investment’,14 the Law ‘On Guarantees and Measures of Protection of Rights of Foreign Investors’15 and a number of resolutions of the President and the Cabinet of Ministers that form a system of measures to stimulate the activity of enterprises with foreign investment. Some of the benefits granted by Uzbek legislation include:

  • a tax exemptions;
  • b protection from nationalisation and requisition;
  • c national treatment;
  • d continuous development of the most favoured nation regime for foreign investors;
  • e a 10-year right to apply legislation that was in force on the date of investment in the event that subsequent legislation worsens investment conditions in Uzbekistan; and
  • f free repatriation of assets in foreign currency.
ii Outbound investments

Regarding outbound investments, information on M&A transactions conducted by Uzbek companies abroad is not publicly available. From a regulatory point of view, Uzbek enterprises are normally allowed to establish companies in other countries provided that they give the Ministry of Foreign Economic Relations, Investment and Trade a one-month notice following the registration.

Additional approval of the State Committee for Privatisation, Demonopolisation and Development of Competition is required if a state enterprise wishes to establish a foreign legal entity.16


Securities markets in Uzbekistan are still in the development stage, and are small in scale compared to the size of the banking sector. In 2015, corporate shares emissions amounted to US$4 billion, of which US$7 million amounted to M&A transactions.17 However, it is important to note that unlike joint-stock companies, shares of limited liability companies are not traded on securities markets. This is important, as most of the biggest M&A transactions are structured using a limited liability company form. This could be one of the reasons why securities markets transactions account for 2 per cent of the total inbound investments.

In 2015, the government initiated a new major round of privatisation. The privatisation plan covers 123 companies being placed on public offer for a total amount of US$1.1 billion.18 As in previous years, we expect the oil and gas, energy, chemicals and banking sectors to remain the most interesting for investors.


There has been no new form of financing in the past year. The traditional and common forms of M&A financing is own capital, bank loans, and the issuing and purchasing of shares. The most common way is M&A through own capital of entities.


As to employee consultations, Uzbek law does not generally require a consultation with the employees of the target for either asset or share sales. A two-month consultation requirement applies where the transaction involves mass redundancy.

As to employee transfers, there is no automatic employee transfer rule, and such transfer requires an employee’s consent as well as new employment agreements to be carried out.

In Uzbekistan, executive compensation falls within the purview of employment law. The law generally allows a CEO to be dismissed at any time upon the decision of the competent corporate body. ‘Golden parachutes’, private pension schemes, stock option plans and other similar mechanisms are not widely used.


In the case of a merger of two or more legal entities, the rights and obligations (including tax obligations) of each of them pass to a newly established company in accordance with a transfer act.19 Therefore, no liquidation tax audit or payment of taxes is required.20

In the case of an acquisition, the transaction can be executed either by selling an acquired company as a property complex (in other words, selling company assets) or by selling its shares. The former may subject the acquired company to corporate profit tax and VAT. However, since the process of the sale of company assets is difficult and time-consuming, it is rarely used in practice.

In contrast, an acquisition by share purchase may subject the shareholders of the acquired company to capital gains tax (corporate profit tax or personal income tax).

Uzbekistan also has more than 50 double taxation agreements in place.


Merger control provisions in Competition Law 2012 require approval by the Competition Committee or of its local authorities (the antimonopoly authorities) for mergers or acquisitions of business entities in Uzbekistan operating in the commodity and financial markets. The prior consent requirement applies to both domestic and foreign transactions where the latter may have an effect on the domestic market.

The transaction requires prior consent where it meets the following thresholds: when the total net asset value of the buyer and the target exceeds 100,000 minimum monthly wages (approximately US$4.5 million); when the total revenue of the buyer and the target for the last financial year exceeds 100,000 minimum monthly wages; or when at least one of the parties of such transactions holds a dominant position on market.


In April 2015, the government initiated the latest major privatisation round. In particular, majority shares of 68 large enterprises are proposed for sale, 56 of which are already offered for acquisition with the total starting price of US$900 million.21 The list includes, inter alia, large oil and gas and chemical plants, banks and producers of construction materials. However, we expect the biggest deals to be privately negotiated, and that it will take longer than the end of 2016 for the deals to be consummated.

With this aim in mind, the government called an investment forum in the autumn of 2015. Specific investment forums were also held with strategic partners, in particular South Korea, in May 2016.22 It is expected that nine M&A deals amounting to US$19 million will be closed this year.23


1 Shuhrat Yunusov is a partner, Ulugbek Abdullaev is a senior associate and Khilola Sattarova and Diyora Abdurakhmanova are junior associates at Avent Advokat.

2 OECD (2011), Competitiveness and Private Sector Development: Central Asia 2011 – Competitiveness Outlook, OECD Publishing: dx.doi.org/10.1787/9789264097285-en.

3 Center for Coordination and Development of Securities Market: www.csm.gov.uz/ru/pokazateli-deyatelnosti/655-informatsiya-tsentra-po-koordinatsii-i-razvitiyu-rynka-tsennykh-bumag-po-itogam-2015-goda.

4 Here we have taken the nominal value of all issued shares.

5 Republican Stock Exchange ‘Tashkent’: www.uzse.uz/News/Details/733.

6 Under the State Committee for Privatisation, Demonopolisation and Development of Competition.

7 openinfo.uz.

8 Ministry of Foreign Economic Relations, Investment and Trade of the Republic of Uzbekistan: www.mfer.uz/ru/investments/why-uzbekistan.

9 World Bank Databank (1992–2014).

10 Ministry of Foreign Economic Relations, Investment and Trade of the Republic of Uzbekistan: www.mfer.uz/en/investments/statistics.

11 The Embassy of the Republic of Uzbekistan in Germany: /www.uzbekistan.de/en/nachrichten/aktuell/uzbekistan-south-korea-way-further-development-strategic-partnership.

12 Finam: www.finam.ru/analysis/newsitem/putin-obshiiy-ob-em-investiciiy-lukoiyla-v-proekty-

13 Ministry of Foreign Affairs of Turkey: www.mfa.gov.tr/relations-between-turkey-and-uzbekistan%20.en.mfa.

14 Law of the Republic of Uzbekistan No. 609-I dated 30 April 1998 ‘On Foreign Investment’.

15 Law of the Republic of Uzbekistan No. 611-I dated 30 April 1998 ‘On Guarantees and Measures of Protection of Rights of Foreign Investors’.

16 Regulation on the Procedure of Notification on Establishment of Organisations Abroad by Legal Entities of the Republic of Uzbekistan or on their Share in Charter Capitals (Registered by the Ministry of Justice of the Republic of Uzbekistan on 17 May 2013, No. 2457).

17 Based on data from review.uz. Please note that the website takes into account transactions of not less than US$0.1 million, or where at least 10 per cent of shares have changed ownership.

18 Republican Stock Exchange ‘Tashkent’:www.uzse.uz/News/Details/733.

19 Civil Code of the Republic of Uzbekistan, Article 50.

20 Law of the Republic of Uzbekistan No. 717-I dated 24 December 1998 ‘On State Control over the Activity of Business Entities’, Article 9.

21 State Committee for Privatisation, Demonopolisation and Development of Competition: www.gkk.uz/ru/novosti/dlya-investorov/1744-goskomkonkurentsii-priglashaet-inostrannykh-

22 The Korea Post: www.koreapost.com/news/view.html?section=165&category=192&no=1279.

23 Center for Coordination and Development of Securities Market: www.csm.gov.uz/ru/novoe-v-zakonodatelstve/118-resheniya-prezidenta-ruz/695-podpisano-postanovlenie-po-