Ministry notifies X5 of court action seeking to suspend corporate rights in subsidiary on list of economically significant organizations

MOSCOW. April 1 (Interfax) - The Russian Industry and Trade Ministry has notified X5 Retail Group that it has brought action with the Moscow Region Arbitration Court seeking to suspend the holding company's corporate rights in its subsidiary X5 Corporate Centre LLC , Russia's largest retailer said in a statement.

The LLC was earlier put on the list of so-called economically significant organizations (ESO), which allows for the transfer of stakes in Russian organizations to the ultimate owners.

If the ministry's claim is satisfied, it would result in the distribution of shares in the subsidiary to the holders of the company's Global Depositary Receipts (GDR) and the ultimate owners. The subsidiary would be reorganized into a public company with a listing of its shares on the Moscow Exchange, X5 Retail said.

Foreign investors who participate in the distribution of shares in the subsidiary would still be subject to temporary Russian restrictions relating to transactions with securities and the receipt of dividends. "While the Law envisages a potential cash compensation at market value for the non-distributed shares in the Subsidiary, the payment of such compensation would require approvals pursuant to temporary Russian regulations on cross-border financial transactions," X5 Retail said.

GDR holders who do not participate in the distribution "may end up not being able to recover their investment, and the value, profitability and liquidity of their GDRs may be adversely affected," the company said.

"The court proceedings will not impact the company's day-to-day operations in Russia, and its businesses continue to operate as usual," the company said.

However, during the proceedings the court may adopt interim measures that could restrict certain rights of the company in respect to the subsidiary. These measures may include prohibitions on voting in the general meeting of shareholders, disposing of its shares in the subsidiary or receiving distributions from the subsidiary's net profit.

In light of the court proceedings, X5 CEO Igor Shekhterman and X5 President Ekaterina Lobacheva are stepping down from the holding's management board with immediate effect. They will continue their management duties with the subsidiary. Leonid Afendikov, Dmitry Alexeyev, Alexei Kornya, Yuliya Solovyova, Azer Talybov and Vadim Zingman are stepping down as members of the company's supervisory board but all six will retain their positions as members of the board of directors of the subsidiary.

X5 Retail Group, Russia's largest retailer by revenue, increased net profit by 70% to 90.28 billion rubles in 2023. The group's largest shareholder is Alfa Group's CTF Holdings S.A. with 47.86%.