Receipts are removed from the shares – Gazeta Kommersant № 56 (7257) from 01.04.2022

Almost a month after the suspension of trading in Russian depository receipts, Bank of New York Mellon was the first global issuer of such securities to decide on the conversion. On March 30, he began collecting applications from clients for the exchange of receipts for local securities. Due to the lack of trading in Russian ADR and GDR, this procedure will be of interest to both non-residents and Russian investors. However, all market participants may face problems in selling or receiving securities.

Earlier this week, the American Bank of New York Mellon (BNY Mellon), an issuer of ADR and GDR programs to Russian companies and banks, sent a proposal to depository receivers to redevelop (convert to local stocks) these securities. Four stock market participants told Kommersant about this. According to BNY Mellon (Kommersant has read it), it is informing customers that reverse conversion transactions will be allowed starting March 30.

This will affect 31 issues of depository receipts of 16 issuers, including Gazprom, NOVATEK, Norilsk Nickel, and VTB.

Deconversion will not be free, in case of exchange of large portfolios over 500 thousand. BNY Mellon will demand to pay commissions before the shares arrive in Russia.

At the same time, BNY Mellon sent a message (Kommersant also got acquainted with it) that Raiffeisen Bank International AG and Raiffeisenbank had become the custodian bank (custodian of deposited shares) of the programs proposed for deconversion. The Russian bank said that BNY Mellon has long been a bank customer for various products, including depository services. According to Kommersant’s interlocutor on the stock market, Raiffeisenbank is probably the only bank left in Russia with the ability to serve customers both in Russia and abroad.

The transaction is available to both international and Russian depository holders, but due to sanctions and current restrictions, all holders of securities may have difficulty at different levels of conversion.

If they participate in the deconversion of securities of international investors with direct accounts in Euroclear and DTC (Central Depository in the US), they will be able to easily submit a write-off order to BNY Mellon.

Difficulties may arise at the stage of receiving Russian shares due to restrictions on the receipt of such securities on Euroclear accounts. But if the client has an account in the depository of Raiffeisenbank, he will receive ruble securities. According to Eduard Kharin, head of Alfa Capital’s equity management, the Euroclear / NSD bridge is currently frozen and investors will not be able to “rearrange” the shares on Russian sites (see Kommersant, March 23). “To resolve this situation, Euroclear will most likely have to decide on the” relocation “of all Russian shares in NSD, then the Russian regulator must decide what to do with these shares” – whether to admit to trading on the stock exchange or leave on C-type accounts .

According to Alexander Dorozhkin, head of Ingosstrakh-Investment’s stock management department, those global investors who cannot have an account in Russia are likely to be forced to turn down BNY Mellon’s offer. Deconversion will be of interest primarily to international investors, for whom it is important to get at least some assessment of the securities, as they are worthless abroad due to the cessation of trading and forced delisting from exchanges.

“First of all, it is important for those who have the securities as collateral. To prevent cross-defaults, they will be ready to receive local securities, which will be frozen immediately, but they will at least have the ruble rating needed to cover loans, “said Alexander Dorozhkin.

Local investors are also interested in the conversion. “For Russian investors, this is an opportunity to unfreeze access to securities that were discontinued in early March. In addition, this is a good opportunity to earn for those who entered the last days of trading on the NYSE and LSE, as in Russia such securities will be many times higher, “- said CEO of” Arikapital “Alexei Tretyakov. However, market participants have questions about how the operation will be carried out if the NSD / Euroclear bridge is breached and the latter does not conduct any transactions.

In the near future, other depository banks – Citigroup, JP Morgan, Bank of America – may decide to deconvert depository receipts. “They can follow the example of BNY to get rid of the status of ADR program administrator as quickly as possible, which has turned from a profitable and sustainable business into a headache and reputational risk,” said Alexei Tretyakov. Citigroup and JP Morgan did not respond to Kommersant’s request, while Bank of America declined to comment.

Vitaly Gaidaev, Evgeny Khvostyk

Depository receipts programs of the largest Russian issuers

* As of mid-2021.

Issuers are ranked by the share of receipts in total shares.

Ave. – preferred shares.

According to quarterly reports of issuers of securities.


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