Merger Control 2017 (Bolivian Chapter)
- Sep 21, 2016
- by Jorge Inchauste
What is the relevant legislation and who enforces it?
Merger control is imposed on specific regulated sectors and industries in Bolivia. As a result, certain regulations that pertain to mergers and joint ventures can be found in the Electricity Law, the Telecommunications Law, the Hydrocarbons Law, the Banks and Financial Institutions Law, the Securities Law and the Insurance Law. These specific regulations are administered and enforced by the supervisory and control authorities for each sector. As a result, any merger within the telecomunications industry in Bolivia, for example, will have to be notified and sometimes approved by the Supervisory and Control Authority for Telecomunications, and to the extent the operator subject to the merger has instruments issued and traded in public markets, then it must also inform the Financial System Supervisory Authority (ASFI).
In addition, mergers of Bolivian corporations are regulated by the Bolivian Commercial Code, which requires that the companies involved in the merger give notice to their creditors and shareholders regarding the proposed merger, and such creditors and shareholders may object through a judicial procedure before a civil judge.
If the merger will result in a foreign direct investment into Bolivia, then such investment must be registered before the Bolivian Central Bank as a result of the recently approved Investment Promotion Law.
What kinds of mergers are caught?
Only regulated sectors, industries and activities are caught within the merger control policies. Regulated sectors that contain certain merger control policies are:
oil, gas and other fossil fuel distributors and transporters;
electricity generation, transmission and distribution;
telecommunications providers that provide services in Bolivia;
banks and other financial institutions, including loans and savings cooperatives or associations and foreign exchange houses; and
insurance and registered foreign reinsurance companies.
Companies that have outstanding instruments issued in public securities markets must inform the markets and the ASFI of any relevant change regarding the company, including mergers and joint ventures.
What types of joint ventures are caught?
Joint ventures that do not result in the merger or change of ownership of the relevant regulated company are not caught within the scrutiny of merger control. However, joint ventures that involve regulated companies are subject to review and may be opposed by the relevant regulator where the joint ventures could be deemed contrary to antitrust or competition policies.
Is there a definition of ‘control’ and are minority and other interests less than control caught?
To trigger regulatory intervention, mergers must typically involve the change of effective control over the relevant regulated company. ‘Control’ is defined in laws, such as the Electricity Law, as the ability of a company to control others through its direct or indirect participation in more than 50 per cent of the capital stock or voting rights or in the control of the direction of subsidiaries or affiliates.
Certain sectors such as banking and insurance, however, have additional considerations above and beyond a mere change in control to exercise regulatory scrutiny in a change of ownership, such as the provision of adequate guarantees that the services will continue to be provided pursuant to industry standards.
What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?
There are no general thresholds in terms of economic importance that would determine whether a merger is subject to regulatory scrutiny or not. As discussed above, the mergers that will be subject to regulatory scrutiny and, in certain cases, prior authorisation, are dependent on sector-specific regulations. We can make reference to thresholds within the electricity sector, whereby a merger or acquisition that would grant an electricity generation company a market share of more than 36 per cent would be restricted. Other regulated sectors do not have the same clearly defined jurisdictional thresholds.
Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?
Within regulated industries, not only is filing mandatory but prior written authorisation may also be required from the relevant regulatory authority before the merger.
If companies are not regulated industries but have issued instruments before the regulated securities market, then filing is mandatory before the ASFI and the Bolivian securities market.
The merger of Bolivian companies, in addition to any industry-specific regulatory requirements, must be filed before the Registry of Commerce.
Filing before the Bolivian Central Bank in order to register a foreign investment in Bolivia is mandatory.
Do foreign-to-foreign mergers have to be notified and is there a local effects test?
Typically, the Bolivian authorities are strict regarding mergers, joint ventures or the change of ownership of companies in regulated companies or markets at a national level. They are generally less concerned about changes of ownership or joint ventures made among parent companies or ultimate shareholders that are located and operate outside Bolivia. Nonetheless, the test to determine whether a foreign-to-foreign merger is caught by the regulatory scrutiny will depend on the relevant industry sector and the activity involved. Also, in regulated sectors, a local effects test may be applied by the regulator to determine whether the resulting company’s local presence will create a dominant market player or a prohibited vertical integration.
Under the new Investment Promotion Law, foreign-to-foreign mergers will now have to be notified to the Bolivian Central Bank.
Are there also rules on foreign investment, special sectors or other relevant approvals?
There is a constitutional prohibition on foreigners owning real estate property within 50 kilometres of Bolivia’s international borders. Aside from that prohibition, there are limitations in relation to private ownership (foreign or national) in Bolivia’s natural resources, particularly hydrocarbons and mining, as a result of which foreign entities must enter into agreements with state-owned hydrocarbons or mining companies so as to participate in the relevant industry. In addition, the Investment Promotion Law requires the registration of any foreign investment before the Bolivian Central Bank.
What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?
Before implementing any merger process, a regulated company must obtain regulatory authorisation. Failure to adequately file or obtain regulatory authorisation will typically result in the initiation of a regulatory procedure for the revocation of the licence or concession under which the regulated activity is carried out.
Non-regulated companies that are registered before the Bolivian securities market must file a notice of a relevant change with the securities regulator in the event the merger or acquisition involves a substantial change in the control of the company within 24 hours of closing.
The merger of Bolivian companies must be filed before the Registry of Commerce and notified to creditors 30 days before closing. Failure to follow the notice procedure will result in the merger not being approved or registered before the Registry of Commerce until the process is completed.
The registration of a foreign investment in Bolivia is regulated by the Bolivian Central Bank and as a result any company with foreign capital must file a special form called the Registration of Foreign Investments in Bolivia and Financial Operations Abroad (RIOF) every quarter with the Bolivian Central Bank updating it on issues in relation to the foreign investment and any distribution to the foreign owner.
Central Bank Regulations that require the RIOF provide that in case of delay or omission in the filing of the RIOF, sanctions would be applicable. However, at the moment there have been no new regulations providing what these sanctions would be. Consequently, in practice, no sanctions are being applied for omitting to file the RIOF.
Who is responsible for filing and are filing fees required?
The Bolivian-regulated company is required to file. Filings before the specific sector regulators have no filing fees; however, there may be fees for the legalisation of documents before the Bolivian consulate in order for them to be filed with the regulator (when required).
The filing and registration of the merger of Bolivian entities before the Registry of Commerce will entail the payment of filing fees.
The person responsible for filing the RIOF is the legal representative of each local company, and no filing fees have been issued to date.
What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?
The merger of a regulated company must be suspended prior to clearance from the relevant regulatory authority.
The merger of Bolivian companies entails a 30-day waiting period once all the required information has been filed before the Registry of Commerce and notified to the creditors and shareholders of the companies.
What are the possible sanctions involved in closing before clearance and are they applied in practice?
Within regulated sectors, the failure to file and obtain the requisite authorisation may entail the intervention of the regulator in the operation of the regulated company, the revocation of the relevant licence or concession and the initiation of a bidding procedure to grant the concession or licence to a different company along with all the assets of the outgoing company. In practice, there has never been an instance where an authority has sanctioned a company for a merger or acquisition that was contrary to the relevant legislation.
Pursuant to law, the merger of Bolivian companies will not be effective until after the filing and waiting periods have been duly complied with.
Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?
In general there are no filing requirements for foreign-to-foreign mergers. However, in certain regulated industries such foreign-to-foreign mergers may have a local impact and require prior written authorisation from the regulator. The sanction for failing to obtain the requisite prior authorisation may result in revocation of the relevant licence and as a result the inability of the regulated company to continue to do business in Bolivia.
What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?
As described above, there is a lesser degree of scrutiny on the part of the regulators with regard to foreign-to-foreign mergers. As a result ‘hold-separate’ arrangements, whereby the local companies remain as separate institutions, may work in certain circumstances and certain industries. However, they will not work to the extent the relevant regulatory prohibition or limitation extends to effective control or indirect ownership situations.
Are there any special merger control rules applicable to public takeover bids?
At present, there are no special merger control rules for public takeover bids.
What is the level of detail required in the preparation of a filing?
The preparation of a filing for a regulated company will be different depending on the regulatory agency involved. For most regulated public services, filing involves describing the transactions of the involved parties and to a certain extent the ability of the regulated company to continue to provide the public service.
Financial entities and banks have more stringent and detailed filing requirements when requesting authorisation for a merger and may involve greater scrutiny by the ASFI.
The basic filing in the merger of Bolivian companies involves the preparation of a series of corporate documentation, the list of dissenting shareholders or creditors of each company as well as a special merger balance that describes the assets and liabilities of the companies to be merged. This information, to be presented before the Registry of Commerce, will be published but will not typically be questioned or objected to unless there is opposition to the merger.
The registration of a foreign investment before the Central Bank must include information regarding the origin, destination, investment amount and investment mechanism.
What is the statutory timetable for clearance? Can it be speeded up?
The filing and approval procedure will vary depending on the regulatory body for regulated companies and may take up to one month to be completed. This process may be speeded up substantially in the event that there is significant public interest in the project.
What are the typical steps and different phases of the investigation?
This will vary depending on the regulated company in question, but typically the regulatory agency will rely on the documentation and information provided by the regulated entity.
What is the substantive test for clearance?
With regard to regulated companies, the main concern is that the resulting entity will have the technical and financial capacity to provide the regulated services.
The change in the regulators, from the now-extinct superintendencies to the supervision and advisory authorities, has affected the regulatory oversight and approach followed by the new regulator. It would seem that the new regulator will be more strict in the review of any transaction including mergers and acquisitions.
In addition, in certain sectors a test will be conducted to identify whether the resulting entity will have such market dominance so as to infringe regulatory prohibitions regarding vertical integration, market share or the danger of anticompetitive or predatory practices.
Is there a special substantive test for joint ventures?
Joint ventures may be subject to scrutiny in certain regulated industries to determine whether they will result in anticompetitive or predatory practices.
What are the ‘theories of harm’ that the authorities will investigate?
At present, there is very little regulatory development and the ground has been largely untested before the Bolivian Supreme Court, and as a result there is no substantive case law to determine which theories of harm would be acceptable.
To what extent are non-competition issues relevant in the review process?
As described briefly above, certain regulated sectors have substantial requirements regarding industry policy. For example, electricity generating companies may not be related to hydrocarbon transporting companies that operate within Bolivia. Furthermore, such electricity companies may not be vertically integrated, and as a result there is a prohibition on generation companies participating in electricity transportation or distribution companies.
Although no cases have yet been reviewed by the newly formed regulators, it would seem from the direct involvement of the relevant ministries in the newly formed regulators that public interest issues may become more relevant and many proposed transactions will be considered in a political light by the new supervision and control authorities.
To what extent does the authority take into account economic efficiencies in the review process?
As described above, there are very few guidelines in this regard, and as a result it is unlikely that economic efficiency arguments will be taken into account.
What powers do the authorities have to prohibit or otherwise interfere with a transaction?
Within regulated sectors, the regulatory authority may prohibit a transaction if it deems that the transaction will violate the regulatory framework or jeopardise the normal provision of the service.
Is it possible to remedy competition issues, for example by giving divestment undertakings or behavioural remedies?
The divestments would have to occur before the closing of the transaction, otherwise regulatory authorisation will be withheld.
What are the basic conditions and timing issues applicable to a divestment or other remedy?
See question 25.
What is the track record of the authority in requiring remedies in foreign-to-foreign mergers?
There is virtually no experience in this regard.
In what circumstances will the clearance decision cover related arrangements?
There is virtually no experience in this regard.
Are customers and competitors involved in the review process and what rights do complainants have?
Customers and competitors are not involved in the review process. Complainants may, however, initiate administrative proceedings against the application of a decision of the regulatory agency approving a merger or joint venture that the complainant feels infringes the regulatory framework.
In the merger of Bolivian companies, any creditor may oppose the merger under the pretext that there are insufficient guarantees that the new company will be able to honour its obligations. A civil court judge will then intervene and decide whether sufficient guarantees are in place.
What publicity is given to the process and how do you protect commercial information, including business secrets, from disclosure?
All regulatory decisions must be published by the regulatory agency and notified to direct competitors and operators within the regulated system. Confidential information should not typically be disclosed to the regulatory agencies as such information will become public once it forms part of the review process.
Do the authorities cooperate with antitrust authorities in other jurisdictions?
There is no experience regarding the relationship with antitrust authorities in other jurisdictions or formal agreements between authorities.
What are the opportunities for appeal or judicial review?
The resolution of the regulatory agency may be resubmitted for consideration before the same authority; if the authority maintains its decision the resolution may be appealed before a higher-ranking administrative institution. If the appeal is unsuccessful the claimant may appeal before the Bolivian Supreme Court, which will determine in a final and binding resolution the validity of the administrative resolution.
What is the usual time frame for appeal or judicial review?
The appeal is typically resolved within three or four months of being raised. The request for judicial review before the Supreme Court may take between one and two years, unless there is substantial public interest in the result.
What is the recent enforcement record and what are the current enforcement concerns of the authorities?
Most sectors have been lenient with foreign-to-foreign mergers. Two exceptions to this rule are financial institutions, where there is a great deal of scrutiny of the ultimate parent, and hydrocarbons, where additional disclosure has been requested.
The focus of the regulatory agencies is currently changing from an interest in maintaining a competitive growing sector and avoiding market dominance to a focus on the consumers and a raised interest in expanding services in rural communities.
Are there current proposals to change the legislation?
The entire regulatory framework is currently under scrutiny and will most likely be substantially revised, if not modified completely. This comes as a result of the approval of the new Bolivian Constitution, which sets forth new obligations and contractual obligations for companies involved in many sectors of the Bolivian economy. In addition, there is proposed legislation to protect consumers that may affect the general control of mergers and acquisitions as a whole.
Updates and trends
The recently enacted Bolivian Investment Promotion Law is being put into effect as a result of recent regulations enacted by the Bolivian Central Bank. As a result of this, any company that has foreign investment is required to file a special form (RIOF) every trimester.
As a result of such registration the Bolivian Central Bank must issue a certificate of investment that makes reference to the origin, destination, investment amount and investment mechanism. The Central Bank will also register any distribution, capital repayment, and even payments to creditors or third-party goods and services providers.
Since the first filings occurred in the first trimester of this year no sanctions or administrative processes stemming from this filing and certification process have yet been initiated.