Depository receipts (ADRs / GDRs)

Depository Receipts (DRs) to Russian shares conversion. FAQ (03 April 2024)

Our clients often ask us questions on DRs conversion. In February we held a webinar to provide a status update (you can watch webinar here). We have also collected frequently asked questions and provide our answers below.

When the booking instruction can be filed with Gazprombank?

In order to file a booking instruction, as well as to perform any other actions in Gazprombank, the following details shall match, inter alia:

• passport/ID details in the Power of Attorney;

• passport/ID in the copies of these documents, which you have sent to us;

• passport/ID details used to open a type “C” depot account in Gazprombank.

If your passport/ID is new (or you have simply specified details of the different passport/ID in the new Power of Attorney), then the profile at Gazprombank shall be updated prior to filing any instructions – for that purpose we require a scan of the new passport/ID with the notarized translation into Russian (prepared by us).

Please be informed that we strongly recommend filing a notarized and apostilled copy of the passport/ID, since it is the official demand of Gazprombank.

When the books of Gazprom will be opened?

The books of Gazprom (as well as many other DR-programs) were closed in late 2022 when the so-called “forced conversion” of depository receipts was carried out in Russia.

The books were closed by Bank of New York Mellon – BNYM (for Gazprom) and by other custodians (for other DR programs). This was done because foreign custodians did not participate in forced conversion and could not control it.

After the end of forced conversion, they had to check whose DRs were converted and whose were not. This process, which is called “reconciliation of the books”, is lengthy, difficult and, unfortunately, no forecasts can be given. We keep in touch with BNYM and other custodians on a regular basis and monitor the situation.

However, there is always a hope that the books will be opened – for example, the books of Lukoil were closed for 1,5 year and then re-opened at the end of 2023 allowing many of our clients to convert their DRs. The same goes for the DRs of Aeroflot, Tatneft, etc.

Which DRs are convertible at this moment?

As of 01.04.2024, the following DRs are convertible:

1. Lukoil;

2. Tatneft;

3. Aeroflot;

4. NLMK, usw.

 As of 01.04.2024, some DRs still cannot be converted, namely:

5. Gazprom;

6. Surgutneftegas;

7. Novatek;

8. Norilsk Nickel (Nornickel);

9. Severstal, etc.

Please be informed that the information regarding the status of the conversion of the certain DRs can be incorrect/absent even on the websites of the foreign custodians, thus, we strongly recommend communicating your** brokers, whether the filing of the instruction for the conversion of the DRs is possible**.

It is important that some of the custodians establish their own conversion coefficients, which means that only a part of the DRs filed for the conversion will be converted (for example, Lukoil’s custodian Citibank established a ratio of 88%: you file for converting 1 000 DRs, but receive 880 shares).

What can I do with the converted shares?

Sale, purchase and other actions with the converted shares are strictly limited for the shareholders from the so-called “unfriendly” countries (all EU states, Switzerland, Norway, etc.).

It means that sale, purchase and other actions of such shares requires an approval from the Russian Governmental commission, which is difficult to receive.

Moreover, an additional approval of the President of Russia is required for the shares of the companies from the oil, gas and other energy sectors of the Russian economy.

Where the dividends can be credited?

The dividends can be credited only to the special type “C” (or, more correctly, type S, since the Russian C stands for Latin/English letter S) bank account, which is opened by the Russian bank maintaining the converted shares of the client (in case of our clients – Gazprombank).

This type S bank account is not a bank account, which we open for each client as a necessary prerequisite for opening the depot account. The type S bank account is opened by Gazprombank automatically, when the dividends are credited to the client for the first time.

However, take into account that if the dividends were distributed before the conversion of the DRs, then the client shall claim them – it is important to consider the following aspects:

• the claiming procedure is different for each type of the shares;

• the client has 3 years from the date of the general meeting of the shareholders, which approved the distribution, to claim the dividends.

Do we need to claim for dividends or these will be credited automatically?

When the dividends are distributed after the conversion of your DRs, they are credited automatically to the type S bank account, opened by the bank itself for the client (in our case – by Gazprombank).

If the dividends were distributed before the conversion of your DRs, you need to claim them additionally within a 3-year term. All DR/shares issuers have different procedures for claiming dividends, various requirement as to the contents of the documents, etc. We can help with this.

For some DRs, the conversion itself is not required to claim the dividends (for example, PhosAgro), but the claiming of the dividends itself is still essential.

What will happen with the dividends, if they were not claimed within the term of 3 years from the date of the general meeting of the shareholders, where the distribution was approved?

The situation is unique, and, according to the current position of the Russian authorities (including the Central Bank of Russia), the dividends can be claimed within 3 years from the date of the general meeting of the shareholders, which decided to distribute these dividends.

And although we do not exclude that there may be some easing or changes, but we would estimate the risk of loss of the right to dividends if not claimed within the 3-year term as above average.

Is it possible to invest the dividends?

As of 01.04.2024 the usage of the money (including the dividends) on the type “C’ bank account is strictly limited – the client can perform only a few operations, such as paying the Russian taxes and fees, or purchasing state bonds etc.

How can I check the status of my type “C” (type S) depot account with Gazprombank?

As of today, the only way is to visit Gazprombank to get an extract from the account (statement) or ask the representative on the basis of the notarized, apostilled and translated Power of Attorney to do so.

Gazprombank does not provide any online-service to check the type “S” depot accounts and, according to our information, does not have any plans to develop it, regretfully.

How can I pay fees (commissions) of Gazprombank? How big are they?

Paying fees of Gazprombank invoiced for the maintaining of the shares (maintaining the depot account) can be made only by the holder him-/herself or by a representative with the notarized, apostilled and translated Power of Attorney.

Please be informed that technically the dividends cannot be used to pay the fees of Gazprombank as of today, although it is provided by law that such opportunity exists.

Please also be informed that Gazprombank fees are individually calculated and you can see them in the invoices Gazprombank sends to your e-mail. For example, maintaining of 100 000 shares for the period from 01.08.2023 to 31.12.2023 costs RUB 826,84 (approx. EUR 8).