When, for whom and according to what rules will the repurchase of frozen assets be organized?

The procedure for the purchase of frozen securities of Russians by foreigners will take place in four stages, the head of the Investment Chamber, chosen by the auction organizer, told RBC. Prices will be determined based on quotes from Western exchanges; there will be no discount for non-residents Alexey Sedushkin

The purchase of frozen assets of Russians and their subsequent exchange will take place in four stages and will take several months, Alexey Sedushkin, general director of the Investment Chamber broker, told RBC. As part of the deal with foreigners, Russian investors will be able to sell their blocked securities to foreigners - shares, depository receipts and shares of investment funds - at prices not lower than market prices, he specified.

On March 11, the Ministry of Finance announced the appointment of the Investment Chamber as the organizer of trading in blocked assets of Russian investors. Trading will take place according to Decree No. 844, previously signed by the President, within the framework of which non-residents will be able to buy blocked foreign securities from Russians using money from type C accounts (special accounts to which foreigners are transferred income from Russian securities they own - coupons and redemptions on bonds, dividends by shares). Resident individuals will be able to present more than 3.5 thousand exchange-traded instruments for redemption, the company itself reported; their list is published on its website.

The Russian Ministry of Finance previously stated that it is not negotiating with Western regulators regarding the exchange of assets, but conditions have been created in Russia for its implementation. In this situation, the Ministry of Finance becomes a “third-party observer,” and market forces themselves begin to work, said Deputy Head of the Ministry Ivan Chebeskov. Western investors will have to seek approvals in their own countries to recoup their investments.

Investment Chamber LLC was founded in 1993, its central office is located in Voronezh. The company provides brokerage services to private clients, asset trust management, and direct investments. Now the owner of the company through a chain of legal entities is its CEO Alexey Sedushkin, data from the Unified State Register of Legal Entities shows.

According to the Investment Chamber’s own data, as of January 1, 2024 , the amount of client assets in depository services amounted to 120 billion rubles. Assets under the broker's management grew sharply in 2022, after major market players subject to US sanctions were forced to transfer foreign securities of private clients to non-sanctioned companies. “Investment Chamber” estimated the increase in assets “almost 50 times.” But “we need to separate living and non-living assets,” Sedushkin told RBC Investments: “According to my estimates, somewhere around 90-95% of the assets brought to us are blocked assets.”

The Investment Chamber has been working on the option of selling assets to foreign investors to unlock them since the spring of 2022, after the assets of some Russian investors were frozen due to sanctions, Sedushkin told RBC. “We have seriously strengthened our team: we have attracted lawyers, people who know Western markets, Western infrastructure, and legislation well,” he noted.

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After the release of Presidential Decree No. 844 in early November 2023, the Investment Chamber presented its developments to the government commission for control of foreign investments, and also modernized its own infrastructure in order to have the technical ability to conduct transactions with blocked assets between Russians and foreigners, Sedushkin noted, adding, that “such a transaction will happen on the global stock market for the first time.” The decree itself assumes that foreign investors, whose money was blocked in special type C accounts inside Russia after the start of the military operation in Ukraine and sanctions, will be able to use these funds to purchase foreign securities of Russians who were blocked due to sanctions against the National Settlement Depository (NRD). First of all, the document affects the frozen assets of Russians up to 100 thousand rubles.

The head of the Investment Chamber told RBC about the details of the planned transaction.

How will the asset exchange work?

The process of exchanging blocked assets for money from type C accounts will take place in four stages, as follows from the message from the Investment Chamber.

Stage 1. Collection of applications from Russian investors - individuals. Applications will be accepted by professional market participants - brokers, management companies, trustees. That is, investors turn to where they have accounts, the auction organizer cannot and is not authorized to accept applications from individuals directly, he interacts only with professional participants, the head of the Investment Chamber clarified to RBC.

Stage 2. Formation of lots. After receiving applications, the auction organizer once again checks their compliance with the norms of Decree No. 844 and regulatory documents issued by the Bank of Russia and the government in addition to the decree.

“We need to check everything that the professional participants provided: the quality of the information provided, the correctness of filling out the files and the number of foreign papers, as well as compliance with the limit of 100 thousand rubles,” explained Sedushkin. If errors are identified, professional participants will be given time to correct them, he added.

Also, the auction organizer will need to check the applicants for compliance with 115-FZ ( the Law “On Combating the Legalization (Laundering) of Proceeds from Crime and the Financing of Terrorism”) and once again evaluate the portfolios applied for exchange so that they do not exceed 100 thousand rubles. Initially, such an assessment is carried out by brokers, it follows from the previously published decision of the Central Bank. Exceeding the threshold at the stage of submitting applications to the auction organizer is possible if the same individual submitted applications for 100 thousand rubles. from several brokers, Sedushkin explained.

After verification, applications are divided into lots, the organizer sets a single starting bid for them, which cannot be lower than the average cost of the securities included in each lot. The lots will be put up for auction in early May 2024.

Stage 3. Collection of applications from potential non-resident buyers. Foreigners will submit applications to the Investment Chamber. The collection of applications from non-residents is scheduled to begin at the end of May, Sedushkin said. “It [the collection of applications] will last about a month. When setting this deadline, we looked at the classic American regulation of tender offers, which is important for the potential participation of investors from the United States: they have procedures of this kind that take at least 21 working days,” explained the head of the Investment Chamber. After this, the auction organizer goes to determine the results and winners, Sedushkin added.

Stage 4. Determination of the sale price and acceptance of applications. After collecting competitive bids, the auction organizer will determine a single final price for all lots at which they will be sold (the price cannot be lower than the starting price).

If applications are approved, foreign securities will be credited to special transit accounts, allowing them to be transferred abroad without obtaining special permits in Russia. The funds received from the sale will be transferred to brokers, management companies and trustees, who will have to pass it on to their clients who submitted applications.

Acceptance of applications from resident sellers will begin on March 25 and end on May 8. Non-residents will be able to begin submitting purchase applications on June 3, with the process ending on July 5. Simultaneous acceptance of applications from resident individuals and non-resident buyers, as well as settlements, are also scheduled for July 29.

Who can take part in the ransom

Any Russian private investor will be able to take part in the scheme, including those who are clients of a market participant subject to sanctions, since the Investment Chamber, which is not under any sanctions, will directly interact with non-residents, Sedushkin clarified.

The total value of the investor’s portfolio also does not matter, added the head of the Investment Chamber. If the total value of a portfolio of foreign securities exceeds 100 thousand rubles, the investor simply declares for sale only a part of the securities that fits into the limit, while the remaining securities will remain blocked.

“According to our estimates, up to 5 million Russian retail investors are potentially eligible to sell blocked foreign assets, that is, all of them can participate. It is difficult to predict who will actually take part in the exchange. Based on the huge number of requests coming from clients of the Investment Chamber as a brokerage company, I can assume that the number of participants in the transaction will be very high,” said Sedushkin.

On the Russian side, all stages of the transaction will be free for all participants, he clarified. But it is important for an investor to remember that once he submits a redemption request, he will not be able to cancel it, so he must “make a meaningful decision both in terms of the choice of securities and their volume,” he added.

What securities can be offered for redemption?

You can offer for redemption assets that are listed on a list approved by a government commission. As follows from the list, these are:

• shares of large foreign companies ( Apple , Amazon, Google , Intel, Tesla, Coca-Cola and others);
• depository receipts for shares of foreign issuers;
• investment shares.

In total this is more than 3.5 thousand instruments. Which of the listed assets the investor wants to sell, he must decide on his own.

The following cannot be presented for ransom:

• Eurobonds;
• shares and depositary receipts of quasi-Russian companies (which are registered abroad, but conduct their main activities in Russia - Yandex, Ozon, X5, CIAN and others);
• structural notes;
• unqualified foreign financial instruments.

The second important condition is that the assets offered for redemption must be taken into account in the NSD, follows from the previously published decision of the Bank of Russia. That is, first of all, foreign assets that were previously traded on the Moscow Exchange will be subject to exchange. Until 2022, it was possible to purchase securities of more than 600 foreign issuers there, as follows from the information published on the exchange’s website.

Foreign assets that investors bought on the St. Petersburg Exchange and which were blocked due to US sanctions will be partially subject to exchange under Decree No. 844. A significant pool of securities traded on the site was accounted for through St. Petersburg Bank, which is part of its circuit, although part of the assets was also accounted for at NSD. It is these, provided that there were no St. Petersburg Exchange structures in the storage chain, that investors will be able to present for redemption. Previously, the St. Petersburg Exchange reported that it had begun preparations for the exchange of assets with foreigners. With regard to assets registered with St. Petersburg Bank, the exchange presented other unlocking scenarios.

How will frozen assets be valued?

Prices for securities offered for repurchase will be market prices, Sedushkin emphasized. The initial price will be determined based on the results of the auction on March 22. “The quotation from the primary listing exchange will be taken as a basis (that is, these will be foreign exchanges, not Russian ones). The closing price on a foreign exchange will be recalculated into rubles at the Bank of Russia exchange rate,” explained the head of the Investment Chamber. In this case, in any case, the repurchase price of the securities will not be lower than the minimum stated at the beginning. Sedushkin admitted that non-residents may submit an application at lower prices, wanting to receive a discount on the purchase, but such an application will be rejected by the auction organizer. The non-resident who offers the most attractive conditions will win the auction. The Investment Chamber will determine the maximum price that will allow all lots to be sold.

The agreed trading procedure provides for the use of an increasing coefficient, that is, the sale of lots of blocked Russian shares at a premium, Sedushkin also said: “But this is only an option, we cannot say that it will be included without fail. However, if by the time the lots are formed we see that demand from non-residents already exists and is active, then we may consider raising the price, thereby increasing the redemption price for our retail investors.” The entire premium received will also be distributed proportionally among private Russian investors, he clarified.

How lots will be formed from blocked securities

The Investment Chamber will divide all the assets it receives into lots, Sedushkin said. They will be as identical as possible in terms of asset composition and value.

“Liquid (conditionally Apple shares) and less liquid assets will be distributed approximately evenly across all lots. But this is still abstract reasoning; the final picture of the lots will depend on what assets Russian investors declare for exchange,” noted the head of the Investment Chamber.

“It would be better, of course, if most of the foreign assets for sale were more liquid. I believe that this should encourage non-residents to make a positive decision on the purchase of assets,” added Sedushkin.

It is difficult to predict the cost of lots for foreigners at the stage of preparing a transaction, he clarified: “Everything will depend on our assessment of potential demand from non-residents, on the volume of securities that Russian investors will present for redemption, and in general on our assessment of the equilibrium price, as well as balance of supply and demand."

How will the bidding procedure take place?

“Non-residents who want to purchase several lots at once will not send one application for each specific lot, but will indicate in one application what quantity and at what price they are willing to buy,” Sedushkin said. The auction organizer will determine the maximum price that will allow all lots to be sold, he indicated.

“If a situation occurs where, let’s say, we make ten lots, but only eight are bought back, our task is to distribute this as evenly as possible among all investors. That is, the classic principle of pro rata (in proportion. -). Let's say you presented ten Tesla shares, and eight lots were purchased, each of which contained Tesla shares. Then you will receive money for eight papers, and two will be returned to you,” Sedushkin explained. All unsold securities in this case will be returned to investors in their accounts and will remain blocked.

All buyout transactions will take place on the over-the-counter market with free settlements, the head of the Investment Chamber clarified. The auction organizer will not need to obtain any additional permits from the government commission (currently this rule applies to all transactions with unfriendly non-residents). The same applies to foreign participants - in Russian jurisdiction they will also not need to obtain any permits to withdraw assets abroad. But, most likely, to introduce securities into the circuit of another country, they will need permission from the regulator of that country. Foreigners interested in the exchange can “try to convince their regulators,” First Deputy Chairman of the Central Bank Vladimir Chistyukhin previously said.

How foreign assets of Russians were blocked

In March 2022, after the start of Russia's special military operation in Ukraine and the imposition of sanctions against the Russian financial sector, foreign depositories Euroclear and Clearstream, participating in the chain of accounting for Russian assets, suspended transactions with Russian counterparties.

In June 2022, NSD, which also participates in the chain of accounting for Russians’ assets, came under EU sanctions . This led to the final severance of relations with the European depositories. According to the Central Bank, about 5.7 trillion rubles are frozen in accounts abroad. funds of Russians, a little more than 20% of this amount are funds of investors - individuals. As a result of the blocking, about 5 million private investors were affected, estimated Deputy Chairman of the Central Bank Philip Gabunia.

The Russian side also introduced restrictions for foreigners owning Russian assets. At the end of February 2022, the Central Bank prohibited the execution of orders for the sale of Russian securities by foreigners. All income from these securities will be transferred to special accounts of type C and I (for income from OFZ).

The second wave of blocking of foreign assets of Russians occurred in November 2023, when the St. Petersburg Exchange, which specializes in trading foreign securities, fell under US blocking sanctions. Due to restrictions imposed on the site, assets totaling about $3 billion were frozen, said Bank of Russia Chairman Elvira Nabiullina in an interview with RBC .

In addition to unlocking the assets of Russians under Decree No. 844, it is possible to regain access to them by obtaining a license from the regulatory authorities of Belgium (Euroclear is registered here) and Luxembourg (Clearstream is registered here). A number of investors managed to obtain such licenses, but such cases number in the dozens, while several thousand applications for licenses were submitted, sanctions lawyers previously noted. Also, a number of Russian brokers and managers are trying to recover funds from Western depositories in Russian courts.

Without unlocking, Russian investors can receive income (coupons and redemptions on bonds, dividends on shares) on their frozen foreign assets in accordance with Decree No. 665. It implies that part of the funds that the Ministry of Finance regularly transfers to foreign holders can be used for payments bonds of the Russian government debt, and NSD instructs them to write them off from its foreign accounts. Payments are transferred in turn: first they are received by private investors and management companies owning foreign shares, then by individuals and management companies owning bonds, and only then the demands of institutional investors are satisfied. As Olga Shishlyannikova, head of the department of investment financial intermediaries of the Central Bank, noted, the obligations under the first stage have already been fulfilled.