17 May 2023 14:35

CBR opposes expanded rights for holders of securities when substituting confirming entity for accelerated conversion

MOSCOW. May 17 (Interfax) - The Central Bank of Russia (CBR) is proposing adjusting the draft bill on accelerated conversion of securities with the participation of a confirming entity, excluding from it the norm concerning the right of holders to conclude an agreement with such an entity independently in the event the issuer itself does not appoint a replacement after the termination of powers of the previous one, a source familiar with the regulator's position told Interfax.

The regulator has sent the relevant comments to the Economic Development Ministry, which is developing amendments to the law "On the Securities Market" designed to simplify and accelerate the procedure of conversion of shares and bonds, which begins when certain circumstances take place, such as exceeding the level of debt load.

Currently, the issuer may block this process if it provides the holder of the register with the confirmation of compliance with the stipulated conditions. In turn, the Economic Development Ministry is proposing the creation of an institution of confirming entities - an independent party appointed by the issuer (if he wishes) at the stage of issue of convertible securities and should subsequently confirm the occurrence of specified circumstances without the participation of the issuer.

The issuer must conclude an agreement with such confirming entities, which, like any other agreement, may be terminated on the basis of civil law norms.

In this case, the bill envisages that the issuer must choose a new confirming entity within 30 days. Otherwise, the convertible bond holders will have the right to demand early redemption. Two other options (if the decision on issuance of convertible securities provides for such an option) - nomination of a confirming entity by security holders (the issuer must accept it) or independent conclusion of an agreement with a confirming entity.

The CBR backed the draft bill from a conceptual standpoint, but made comments on the norms regarding the consequences of termination of the agreement with the confirming entity, the Interfax source said. According to the source, the regulator is proposing excluding from the draft a provision on the right of owners of convertible securities to enter into an agreement with the entity independently.

The Central Bank said its position is prompted by the fact that the consequences of introducing such an option have not been considered. In particular, the question arises as to when such an agreement comes into effect, what will be the consequences if different security holders enter into agreements with several different confirming entities, etc.

Such entities, according to a recent version of the bill, could be registrars, depositories, lenders, stock exchanges, auditing firms and information agencies accredited by the Central Bank, which carry out the disclosure of information on securities and other financial instruments.