GDR conversion call for Russia-redomiciliated companies
Some companies traditionally associated with Russia have long been registered in foreign jurisdictions such as Cyprus (e.g. TCS Group / Tinkoff Bank), the Netherlands (Yandex) or the British Virgin Islands (e.g. VK / VKONTAKTE). These companies organised the issuance of depositary receipts (DRs) for their shares and successfully sold them on foreign markets. Many of our clients have asked whether the forced conversion of such depositary receipts, which will be introduced in 2022, applies to these companies. Our answer was 'no', as the forced conversion was designed exclusively for companies incorporated in the Russian Federation. In the period from 2022 to the present, some of these RF-related companies have decided to redomicile, i.e. to move their registration to Russia which opens up new conversion opportunities.
Those that do end up being registered in Russia will now be subject to the new forced conversion regime that will come into force in 2024. This already affects, or may soon affect, the following companies:
- VK (VKONTAKTE)
- TCS Group (Tinkoff bank)
- YANDEX
- RUSAGRO
- X5 Group
- OZON
- Polymetal
- United Medical Group
- Softline
- Globaltrans
- MD Group (Mat I Ditya)
- Fix Price
- Etalon
- CIAN
- HeadHunter
- O’KEY
- QIWI
Re-domiciliation of the following companies has already been completed:
- VK (VKONTAKTE)
- TCS Group (Tinkoff bank)
- YANDEX
As our team has been dealing with the issue of conversion of depositary receipts for more than two years already, and has successful experience with both forced conversion in 2022 and standard conversion in 2022-2024, including dividend reclaim, we are launching a new project to support forced conversion - for depositary receipts issued on the shares of the above-mentioned companies that have completed redomiciliation.
Below you can find general information on such forced conversion in 2024.
If foreign organisations register the rights to GDRs and holders are unable to receive shares due to ‘restrictive measures or unfriendly actions of foreign states, international organisations or foreign financial organisations’ (as the Russian law puts it), which are - roughly speaking - sanctions, holders may convert their GDRs into shares using the forced conversion procedure under Russian law. Within 120 days of the commencement of such forced conversion, holders may apply to the Russian registrar for forced conversion. Holders of GDRs must submit documents confirming their ownership of the respective number of GDRs, information on the foreign holder of the GDRs and information on holders of higher nominal value (foreign holders) (Articles 5.20, 5.21, 5.22 of the Federal Law № 452-FZ).
The procedure and terms of mandatory conversion are set forth in the Decision of the Board of Directors of the Bank of Russia dated April 12, 2024. The issuer determines the date of mandatory conversion, which may not be later than (!) one year from the date of state registration. A company will decide on the date of mandatory conversion in due time. A company will decide when to start mandatory conversion in accordance with the decision of the Bank of Russia.
In order to undergo forced conversion, the GDR holder shall submit the documents specified in this Decision of the Board of Directors of the Bank of Russia, taking into account the requirements and forms determined by the Registrar.
Such documents include, in particular:
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an application for mandatory conversion. Each registry holder will use its own form;
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documents proving the right to hold the relevant number of GDRs;
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documents on the validity and legality of the interest of the person who has applied for mandatory conversion of GDRs;
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documents on the holder’s actions in favor of the applicant;
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information on the foreign nominee holder keeping records of the holder’s rights to the GDRs and on superior nominee holders (so-called ‘custody chain’);
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other documents as requested by registrar.
The set of documents may be different for each investor. You should provide the relevant documents available in the circumstances, but in our experience the approach of the Registrar will be strictly formal and only those who provide a comprehensive set of documents meeting the maximum formalities will be successful. Based on our experience in this area, we know how to maximise our clients' chances of a positive outcome, but the client's co-operation will still be essential.
Is it mandatory to follow the forced (compulsory) conversion of GDRs or can a holder opt out?
All or most of the companies listed above have had their DR programmes terminated and not renewed. Therefore, there are basically only two options left: contractual (standard) conversion (which is now often impossible) or filing for forced conversion. If GDR holders don't take advantage of the standard or forced conversion and the GDRs are not automatically converted at the end of the programme, the depositary bank can sell the shares. In this case, GDR holders can ask the bank for the cash value of the GDRs. The price of such a sale is the most important issue here: no one can predict it. It should also be noted that holders of GDRs usually have no right to dividends, and after conversion they acquire this right retroactively, but according to the current position of the Central Bank of Russia, a maximum of 3 years can elapse between the company's decision to pay dividends and the date on which the holder submits a request for dividends. This means that this 3-year period may expire if the holder does not convert the DRs promptly.
You can find more information on DR conversion on our special page.