Econ Ministry proposes delisting Russian companies' securities from international exchanges
MOSCOW. March 30 (Interfax) - The Economic Development Ministry has proposed delisting depositary receipts representing shares in Russian companies from foreign exchanges with subsequent conversion into Russian securities, a source familiar with the relevant bill drafted by the ministry told Interfax.
The Economic Development Ministry told Interfax that the "mechanism is being studied" but did not answer questions about the details of the procedure.
The initiative emerged shortly after the collapse of the value of the depositary receipts of the largest Russian issuers on the London Stock Exchange (LSE) amid news of sanctions against Russia, after which the LSE on March 3 stopped trading in the securities of 27 Russian companies. As of March 2, the value of the receipts of Sberbank fell to 1 cent, while Gazprom receipts fell 89%, Lukoil was down 97.2%, Nornickel was down 37%, Rosneft was down 70.4%, Novatek was down 91%, etc.
Five days to take action
By delisting the ministry aims "to reduce the risk of the redistribution of corporate control in connection with the nonmarket sale of such securities," the source told Interfax.
The ministry plans to formalize the changes with amendments for the second reading of a bill to optimize requirements for joint-stock companies, which has already been passed by the State Duma in the first reading, the source said.
Under the amendments being discussed in the government, Russian issuers will have five working days from when the law goes into effect to take "necessary and sufficient" action to terminate contracts on the placement of depositary receipts. Companies will also have five working days to submit confirming documents to the Central Bank of Russia (CBR), the source said.
Exceptions from the mandatory delisting rule are possible. A decision to continue trading of depositary receipts on Russian securities outside of Russia can be made through a "procedure established by the government of the RF, including on the basis of an application from a Russian issuer," the source said, citing the document with the amendments.
All transactions and decisions to meet these requirements can be made by the director of the company and they will not require the approval of the board of directors or a general meeting of shareholders, regardless of the rules stipulated in the company charter, the bill said. It will not be possible to dispute such decisions by citing abuse of office by the person who made them or citing harm to the interests of the company.
Holders of depositary receipts as of the date on which the law goes into effect will automatically receive shares in the corresponding Russian companies.
The CBR did respond with comments on the ministry's proposals by the time of publication.
Right to choose
Sberbank, whose depositary receipts are traded on the LSE, does not have fundamental objections to the idea of the law, a source familiar with the bank's position on the bill told Interfax. However, it does have concerns about its implementation. Russia's largest lender believes that issuers should be given the right to independently decide on whether to maintain a listing or abandon it. Sberbank deputy CEO Bella Zlatkis, for example, pointed out to the ministry that the bill requires all issuers to delist, including those that are not subject to EU and U.S. sanctions and those not significantly affected by sanctions.
The closure of depositary receipt programs, with conversion into common shares, would be justified considering the absence of trading in them and the large share of shareholders, including Russian ones, with receipts, a source at another company whose depositary receipts are traded on the LSE told Interfax. The problem with receipts could also lead to the inability to pay dividends on them. Options are being studied, but a decision has not been made yet, the source said.
Sberbank also noted that not all foreign holders of depositary receipts can hold Russian stocks directly due to restrictions in their investment declarations.
"A number of investors, including from friendly (neutral) jurisdictions cannot hold local shares due to restrictions in their investment declarations. Their positions will be liquidated, right of ownership to the asset lost. In our view, such a step runs counter to the stated principle of the unacceptability of the expropriation of property. For this reason, a number of foreign investors support the idea of maintaining the depositary receipt programs of Russian companies (primarily not subject to blocking sanctions)," the bank said in a letter.
In light of these circumstances, the bank proposed to divide foreign exchanges by location in "unfriendly, neutral and friendly" countries. The bill should allow for listings in "friendly or neutral" jurisdictions, or the transfer of listings there from "unfriendly" ones, Sberbank said.