Conversion of Depository Receipts (DRs) into Russian shares. FAQ Update 13 June 2024
Conversion of Depository Receipts (DRs) into Russian shares. FAQ Update 13 June 2024
Our clients often ask us questions about the conversion of DRs. In February and June we held a webinar to provide an update and we have also collected frequently asked questions and provide our answers below.
When can a booking instruction be submitted to Gazprombank?
In order to submit a transfer order, as well as to perform any other actions with Gazprombank, the following information must match, among others:
- Passport/ID details in the power of attorney;
- Passport/ID details used to open a type "C" deposit account in Gazprombank.
If client’s passport/ID is new (or client has simply provided details of a different passport/ID in the new power of attorney), the profile at Gazprombank must be updated before submitting any instructions. Please note that the official requirement of Gazprombank is to submit a notarised and apostilled copy of passport/ID.
Should the power of attorney contain a date of issue and a date of expiry?
Since the power of attorney is issued to the Russian representative to perform actions in Russia, it shall comply with the Russian law. It means that the date of issue and the date of expiry must be explicitly indicated in the power of attorney.
Please also note that:
- the absence of the issue date in the power of attorney means that the power of attorney is invalid for Russia,
- the absence of the expiry date means that the power of attorney has been issued for 1 year only - but please note that you can specify any expiry date (e.g. 31.12.2030 or 31.12.2034 etc).
When will Gazprom's books be opened?
The books of Gazprom (as well as many other DR programs) were closed at the end of 2022 when the so-called "forced conversion" of depositary receipts took place in Russia.
The books were closed by the Bank of New York Mellon - BNYM (for Gazprom) and other custodians (for other DR programs). This was done because foreign custodians did not participate in the forced conversion and could not control it.
At the end of the forced conversion, they had to check whose DRs had been converted and whose had not. This process, called "reconciliation of the books", is lengthy, difficult and unfortunately no forecast can be made. We are in regular contact with BNYM and other custodians and are monitoring the situation.
However, there is always hope that the books would be opened - for example, Lukoil's books were closed for 1.5 years and reopened at the end of 2023, allowing many of the clients to convert their DRs. The same applies to the DRs of Aeroflot, Tatneft, NLMK, etc.
Which DRs are currently convertible?
As of 01/06/2024 the following DRs are convertible:
- Lukoil;
- Tatneft;
- Aeroflot;
- NLMK (Novolipetsk Metallurgical Plant);
- Rostelecom, etc.
As of 01.064.2024, some DRs still cannot be converted, namely:
- Gazprom;
- Surgutneftegaz;
- Novatek;
- Norilsk Nickel (Nornickel);
- Severstal, etc.
Please note that the information on the status of conversion of certain DRs may be incorrect/absent even on the websites of foreign custodians, therefore we strongly recommend that you contact your brokers or lawyers to find out whether it is possible to submit an order for conversion of DRs.
It is important to note that some custodians set their own conversion coefficients, which means that only a part of the DRs submitted for conversion will be converted (for example, Lukoil's custodian Citibank set a ratio of 88%: you submit 1,000 DRs for conversion, but receive 880 shares).
Is it true that forced (mandatory) conversion will be resumed?
It is partially true: the forced (mandatory) conversion of Global Depository Receipts (GDRs) will be resumed for Russian companies after their redomiciliation to Russia.This means that the companies that:
- have been incorporated in a foreign jurisdiction as of 2022, when the mandatory conversion took place, but
- have decided to redomicile to Russia in 2023-2024 (for example, VK (VKONTAKTE), TCS Group (Tinkoff Bank), YANDEX, etc.)
will allow shareholders to convert their GDRs after the companies' redomiciliation to Russia. Each company will set its own starting date for conversion, which will be possible within 120 days.
What can I do with the converted shares?
Sale, purchase and other actions with the converted shares are strictly limited for shareholders from all EU countries. This means that the sale, purchase and other actions with such shares require the approval of the Russian government commission, which is difficult to obtain. In addition, shares of companies in the oil, gas and other energy sectors of the Russian economy require the additional approval of the Russian President.
Where can dividends be paid?
Dividends can be credited only to a special type "C" bank account opened by the Russian bank that holds the client's converted shares.
The "C" type account is opened automatically by the bank when dividends are credited to the client for the first time. However, it should be noted that if the dividends were distributed before the conversion of DRs, the client will have to claim them - it is important to consider the following aspects:
- the claiming procedure is different for each type of share;
- the client has 3 years from the date of the general meeting of shareholders, which approved the distribution, to claim the dividends - but please note that for many DRs this period started in 2022, namely - for Lukoil, Rosneft, Tatneft, etc.;
- the claiming procedure takes min.
- the claiming process takes minimum 3-6 months, therefore it is important to start the procedure as soon as possible, taking into account that for many DR programs the deadline for claiming dividends expires in 2025.
Do clients have to claim dividends or are they credited automatically?
For the vast majority of DR programmes (Lukoil, Tatneft, Gazprom, etc.), dividends can be claimed only after conversion of DRs into shares. If the dividends are paid after the conversion of your DRs, they are automatically credited to the “C” type bank account opened by the bank itself for the client.
If the dividends were distributed before the conversion of client’s DRs, dividends have to be claimed within 3 years. All DR/share issuers have different procedures for claiming dividends, different requirements for the content of the documents.
For some DRs, the conversion itself is not required to claim the dividends, but please note that (for example, the PhosAgro DR programme allows to claim dividends without converting the DRs), but even in this case, claiming the dividends itself is still essential.
What happens to dividends if they are not claimed within 3 years from the date of the general meeting of shareholders at which the distribution was approved?
The situation is unique, and according to the current position of the Russian authorities (including the Central Bank of Russia), dividends can be claimed within 3 years from the date of the general meeting of shareholders that decided on the distribution of these dividends.
The risk of losing the right to dividends if they have not been claimed within the 3 years have to be considered.
Can the dividends be invested?
From 01.04.2024 the use of funds (including dividends) on the "C" type account will be strictly limited - the client will be able to perform only a few operations, such as payment of Russian taxes and duties, purchase of state bonds, etc.
How to pay Gazprombank fees (commissions)? How much are they?
Payment of Gazprombank's fees charged for the management of shares (custody account management) can be made only by the shareholder or by his/her representative with a notarised apostilled and translated power of attorney.
As of today dividends cannot technically be used to pay Gazprombank's fees, although the law provides for this possibility.
Please also note that Gazprombank's fees are calculated on an individual basis and can be found in the invoices that Gazprombank sent to your e-mail address. For example, holding 100 000 shares for the period from 01/08/2023 to 31/12/2023 will cost RUB 826.84 (approx. EUR 8).