Financial, tax, and legal due diligence

• general operational analysis (legal, organisational, and geographic structure, core activities, branch network, headcount, active licenses, etc.);
• description of the current asset and liability structure;
• presentation of financial status and key performance indicators;
• plan-actual analysis of financial position and performance results;
• review of ongoing correspondence with regulators (Central Bank of Russia, Federal Tax Service, Rosfinmonitoring).

• structure and quality assessment of the credit portfolio;
• collateral coverage analysis, including indicative fair value assessment of collateral;
• analysis of borrower concentration, interconnected borrower groups, related parties, and repayment terms;
• analysis of direct and indirect links between borrowers and the bank’s top management as an investment vehicle;
• analysis of the share of restructured loans, including the share of borrowers who restructured contracts with the extension of terms or revision of payment schedules;
• analysis of the dynamics and evaluation of the share of overdue debt, provision coverage for non-performing loans;
• loan impairment assessment (required additional provisions) based on indicative analysis of major borrowers, their financial position, and repayment prospects

• review of ongoing insurance programmes and key terms for major programmes by the number of participants and insured persons;
• analysis of insurance contract terminations;
• reinsurance programme assessment;
• description and analysis of key supplier agreements, including insurance intermediaries;
• subrogation workflow analysis;
• analysis of the dynamics of acquisition costs;
• verification of insurance provision calculations;
• review of regulatory capital metrics.

Analysis of the above core business areas for credit and insurance institutions provides stakeholders with detailed insights into:

• key sources of material adjustments to the investment object’s net assets;
• high-risk projects;
• potential regulatory risks of a business asset.

Beyond this, considering industry and investment vehicle-specific factors, additional analyses cover other operational areas, performance, and other assets and liabilities (sections 4–9).

• assessment of securities portfolio concentration;
• current fair value and liquidity analysis of financial instruments, including derivatives;
• segmentation of issuers by economic sectors and national (international) credit ratings;
• investment portfolio yield analysis by structure and type of financial instruments, determining the current yield-to-maturity level, and securities portfolio duration.

• general analysis of fixed and intangible asset structures;
• indicative impairment assessment of major real estate assets, including with the participation of an independent valuer;
• analysis of construction-in-progress;
• review of data on real estate encumbrances;
• analysis of investments in subsidiaries/affiliates.

• Nostro and interbank account balance analysis;
• analysis of other assets;
• analysis of other liabilities.

• funding structure analysis, including concentration by type of funding;
• covenant and funding term analysis under ownership structure changes.

• analysis of litigation where the object is a defendant;
• analysis of the risk of key personnel loss, top management incentive programmes, and non-standard terms in key employment contracts, including the level of remuneration.

• analysing the structure and dynamics of income and expenses;
• analysing major cost drivers;
• identifying one-time/non-standard income and expenses;
• analysing personnel expenses;
• analysing income and expenses by agency network and agreements;
• normalising financial results post-survey.

Key areas of tax due diligence include:

1. Tax policy and activities of the examination object for compliance with Russian tax legislation.
2. Tax regime.
3. Budget debt (tax arrears).
4. Tax audit results (field and desk audits), analysis of pre-trial and litigation tax disputes, correspondence with tax authorities.
5. Identification of risks of incorrect income tax base calculation and quantitative impact assessment.
6. Taxation of transactions at risk under Article 54.1 of the Tax Code of the Russian Federation – tax authority’s right to apply the tax reconstruction principle in disputes over obtaining unjustified tax benefits.
7. Assessment of carried-forward tax losses and potential adjustments to tax bases.
8. Current and deferred tax assets/liabilities.
9. Methodology accuracy for the calculation of other significant taxes and fees.
10. Transfer pricing analysis, specifically formalised/actual procedures aimed at compliance monitoring with Section V.1 of the Tax Code of the Russian Federation, analysis of marketability of intra-group transaction terms, etc.
11. Acting as a tax agent in transactions with non-residents.

Key areas of legal due diligence include:

• ownership structure analysis: general information on the current participants (shareholders) of the examination object;
• verification of legal ownership of interest (shares) in the charter capital of the examination object by its current owners (sellers), identifying risks of their loss of interest (shares);
• analysis of general information on court proceedings and out-of-court disputes (claims) over interest (shares);
• analysis of existing pledges and other encumbrances on interest (shares);
• analysis of the existing corporate agreement.

• analysis of agreements and other documents serving as a basis for rights to significant property for the presence of risks of their invalidation;
• analysis of existing encumbrances on significant property;
• verification of state registration of rights to significant property.

• corporate, retail, SME lending;
• financial markets;
• payment services.

• Documentation package including reports on the aforementioned areas, featuring:
  • adjusted statements of financial position (balance sheets) of banks/companies;
  • adjusted statements of financial results of banks/companies;
  • risk matrices with quantitative/qualitative assessments of the likelihood of realisation of the identified risks (financial, tax, legal, regulatory and other non-financial risks);
  • lists of significant investment projects impacting net asset value of the survey object;
  • flow charts of interrelationship between borrowers, management and other parties.
  • Enhanced organisational reputation, including higher investment appeal.
• Violation prevention and reduced future legal risks.
• Resilience to market changes and external shocks, ensuring the stability of the organisation’s activities.
• Efficiency in time and resource management.