Russian Finance Ministry wants to oblige issuers with DR programs to pay dividends to depositary receipt holders by crediting type "C" accounts
MOSCOW. Nov 6 (Interfax) - Russian issuers who have maintained active depositary receipt programs must transfer them not only to shareholders but also to DR holders when paying dividends, thereby replenishing the exchange pool in type "C" accounts, the Finance Ministry said.
A bill providing for the obligation of issuers to pay dividends if a decision is made to pay them on shares accounted for in the depo accounts of depositary programs is currently under development, an Interfax source familiar with the letter sent by the Finance Ministry to the government in mid-October said.
It is assumed that the proposed norms will apply to legal relations arising after their entry into force. However, the Finance Ministry's initiatives are not limited to future payments. The department proposes, for issuers who have not paid declared dividends to DR holders, to introduce a mechanism for contributing to the federal budget in the amount of 50% of the amount of unfulfilled obligations, Interfax's source said. Payment of such a contribution, according to the ministry's concept, will not release the issuer from the obligation to pay the dividends.
The Economic Development Ministry, during the discussion of this initiative, expressed concerns that giving retroactive effect to the provisions on the contribution for previously unpaid dividends may contradict the legal position of the Constitutional Court, a source said. As a compromise solution, taking into account the interests of both the budget and the issuers, the ministry proposed considering the following mechanism: in cases where dividends are not paid to a foreign individual, a payment equal to the tax that would have been withheld upon the payment of dividends is transferred to the respective budget, with the possibility of offsetting it in case of subsequent dividend payment.
Law no. 114-FZ was adopted in April 2022, which obligated Russian joint-stock companies to close depositary programs with foreign listings or justify their necessity to the Government Commission for Control over Foreign Investment. Some issuers in that same year, 2022, received permission from the authorities to maintain their DR programs without a time limit - for example, Novatek , PhosAgro , Tatneft and others.
For DR programs terminated in accordance with law no. 114-FZ, dividends on the portion of shares the rights to which are recorded in the depo account of depositary programs are not paid, and a special procedure for receiving them after conversion of the receipts into shares is in effect. Restrictions on dividend payments to holders of depositary receipts do not apply to issuers that received permission from the Government Commission on Foreign Investment to extend their programs (for a term or indefinitely). Taking into account the completed procedures of automatic and forced conversion of DRs, the main amount of unpaid dividends by Russian issuers falls on receipts owned by foreign investors, the Finance Ministry said in its address to the government, without naming figures or specifying which companies are involved. Obligations to unfriendly owners must be fulfilled using Type C accounts, and this is one of the anti-sanction mechanisms, it said.
"The funds in them can be used, in particular, when implementing certain mechanisms for unblocking the assets of Russian investors frozen by foreign clearing and settlement systems. At the same time, certain Russian issuers do not fulfill this obligation (dividends are accrued but not paid), which not only violates the corporate rights of shareholders but also does not contribute to replenishing funds in Type C accounts," the Finance Ministry said.
The Finance Ministry did not respond to an Interfax request to comment on its proposals and their current preparation status. However, the initiative has at least partially taken shape: according to another Interfax source, the corresponding clause has appeared in the government amendments for the second reading of the draft federal law on the suspension of certain provisions of legislative acts of the Russian Federation, amendments to certain legislative acts of the Russian Federation, and on establishing specific aspectss for the execution of budgets of the budget system of the Russian Federation in 2026.
The explanatory note to the amendments states that in order to exclude regulatory arbitrage and in execution of the president's instructions following the meeting on economic issues on September 16, it is proposed that amendments be introduced to law no. 114-FZ, as well as to federal law no. 452-FZ of August 4, 2023, on amending certain legislative acts of the Russian Federation, providing for the "obligation of all Russian issuers to pay dividends if a decision is made to pay them on all shares, including those accounted for in the depo accounts of depositary programs." "If the holders of securities of foreign issuers certifying rights in respect of shares of Russian issuers are unfriendly non-residents, dividends will be credited, taking into account current anti-sanction regulation, to type 'C' accounts," the document said.
The start of the period for an investor to claim dividends from the issuer, which were declared but not paid before the day the proposed changes come into force, will be set from the day of conversion of DRs into shares, and not from the moment the Russian issuer made the decision to pay dividends.
