Exchange of frozen assets between Russia and EU and USA
How foreign companies can exchange blocked Russian rubles for foreign securities
In spring 2022 many foreign companies faced a risk of the total loss of their investments related to Russia, when the dividends and sometimes repaid loans and credits from the Russian subsidiaries and/or counterparties were “frozen” by the Russian authorities on the special type “S” (or “C”, as it is also called in the media) bank accounts in Russia. Money from such type “S” (or type C) accounts in Russia can be neither withdrawn, nor reinvested by the clients.
Enacted as a temporary measure, it still remains in force in 2024 and both strictly limits any direct payments from Russia to foreign legal entities and does not allow them to use their current Russian monetary assets in full. Combined with the significant loss of value of the Russian ruble, the chances to get back their investments for foreigners were melting with every day of heating of the general geopolitical atmosphere.
At the same time, foreign securities issued by various companies (like NVIDIA or Apple) and bought by the Russian residents prior to 2022 were also “frozen” on the accounts of the European central securities depositories (Clearstream and Euroclear) which had earlier been opened for the Russian brokers. It happened due to the termination of the communication between them and the Russian National Settlement Depository (NSD), which paralyzed trading of the foreign securities in Russia and de-facto blocked any possible operations with them – the same situation as with clients’ money on the type “S” accounts.
What has changed and what can be done
The exchange procedure was initiated at the end of March 2024**. **The securities of the foreign issuers (almost 4000 different items specified in the official list) will be combined into large lots which can be bought out by the clients (including the so-called “unfriendly” ones, i.e. – companies from the EU states, US, Switzerland, Norway, etc.) using their “frozen” Russian rubles from the type “S” bank accounts (actually as well as any other Russian rubles owned by them).
This proposal might be a good opportunity for the clients to get liquid assets with a discount instead of the non-liquid Russian rubles.** **Foreign securities can be transferred to foreign accounts of the clients and sold and/or kept in order to receive dividends/reinvest these securities later, while the Russian rubles still remain either “frozen” on the type “S” bank accounts or simply cannot be used in full. Moreover, this buy-out will not require from the clients receiving any special approval from the Russian state authorities, which is required for the majority share deals in Russia since Feb 2022.
Such exchange currently presents various challenges, but Magenta Legal law firm has developed solutions for most of the existing problems and is ready to support the clients with the buy-out of the foreign securities. We have been assisting hundreds of individuals and many legal entities from foreign countries in the procedure of conversion of depository receipts issues on the Russian shares and claiming dividends on them and we have extensive experience in the sphere of securities and the peculiarities of the current Russian legislation; with the help of the masterful expertise of our partner law firms in EU we are always ready to advise also on complicate issues of EU and US sanctions which may touch upon the matter.
Which securities are at deal
Multiple securities issued by foreign companies will be in the lots for buying out / exchange, to name a few:
- NVIDIA
- AMD
- Apple
- Tesla
- Microsoft
- Rheinmetall
- Commerzbank
- Siemens
- Merck
- E.ON
- Uber
- AliExpress
- Xiaomi
- Citigroup
- AT&T
…and many other – the list contains almost 4 000 different positions and is available here.
How does the buy-out of the foreign securities work
The procedure contains a lot of various details. Such “exchange” has never been done in the past, especially on such a large scale. But here are the most important aspects on the main stages of the process:
1) STAGE ONE: Establishing the pool of securities and creation of the lots for sale
From 25.03.2024 till 08.05.2024 the Russian residents transfer their foreign securities to the special pool maintained by the official transaction organizer appointed by the Russian Governmental commission – “Investitsionnaya Palata” LLC (“transaction organizer”). This procedure is already active and can be easily made by the Russian residents – we checked that ourselves.
All these foreign securities will be pooled together and then divided by the transaction organizer into lots that are broadly identical in terms of composition and value**, **which can be bought out by the clients.
2) STAGE TWO: Establishing the price of lots, filing the applications and the documents to the transaction organizer, transfer of money
From 03.06.2024 till 05.07.2024 the clients will be able to file an application with the transaction organizer containing:
-
number of lots to be bought;
-
proposed prices for the respective lots;
-
set of documents.
The initial prices of the lots will be published by the transaction organizer prior to 03.06.2024 and expected to be more or less the same. The clients can apply for buying the lots for the initial price or propose an increased price for any lot in order to get more chances to buy them.
The set of the documents contains some basic documents, which confirm the status of the client as a foreign company, including:
-
copy of the company’s charter;
-
original extract of the trade register;
-
POA, etc.
All the documents shall be notarized and apostilled (or legalized, or certified by a Russian consulate abroad) + contain a notarized (in Russia) translation of the documents into Russian. The transaction organizer might request additional documents.
When the application and set of the documents are provided to the transaction organizer, the clients shall credit the money for the foreign securities to the transaction organizer using the Russian rubles from the type “S” bank account and/or the Russian rubles from the client’s other bank accounts.
3) STAGE THREE: Buy-out
The applications will be considered by the transaction organizer prior to 29.07.2024.
If the application is accepted, then the buy-out takes place - lots containing foreign securities bought by the client will be transferred to a special transit account of the client opened in a Russian bank. After that, the securities can be transferred by the client from this account to his depot accounts abroad.
The above-mentioned special transit account shall be opened by the transaction organizer without the participation of the client.
If the application is rejected, then the money of the client shall be transferred back to his accounts, from which they were initially transferred for the purpose of the buy-out.
What we can propose
Magenta Legal would be happy to help you to carry out necessary actions required to use this exchange option including, but not limited to:
-
preparation of the application, including consulting in regard to the content of the application and set of the documents to be provided;
-
preparation of the notarized translation of the set of the documents into Russian at the Russian notary;
-
filing the application with the transaction organizer;
-
cooperation with the Russian banks regarding the transfer of the money from the type “S” account, etc.
We can also propose additional services to simplify the buy-out for the client – for example, opening of the Russian bank account, which might be useful to secure the transfer of the Russian rubles owned by the client to the transaction organizer, if the client decides to use them, since a direct transfer of the Russian rubles from the European bank account to Russia meets various complications at this moment. Please contact ADR@magenta.legal