CBR discusses with the Ministry of Finance a new stage of “localization” of securities settled in Western infrastructure – Ministry of Finance

MOSCOW, May 15 (Reuters) – The Central Bank has positively assessed the effects of the automatic and forced conversion of global depositary receipts of Russian companies into local shares, which has resulted in assets worth more than 360 billion rubles in the accounts of Russian owners, and is discussing a new stage of “localization” of securities with the Ministry of Finance securities settled in the western infrastructure.

“Last year, Russian owners regained the ability to dispose of their securities. Decisions were made which, without changing the ownership structure, removed from the process the foreign settlement infrastructure blocking any flow of securities. We are talking about the automatic currency conversion of deposit receipts that have been included in the Russian infrastructure,” said Vladimir Chistyukhin, the first vice-president of the Central Bank of Russia, in an interview with Interfax.

A law passed last year by Russian President Vladimir Putin required Russian issuers to withdraw their overseas depository receipt programs and convert them to local shares, but due to sanctions restrictions, such procedures have become difficult to carry out.

In September 2022, the procedure of automatic conversion of receipts into shares was completed, as a result of which shares of Russian issuers with a total value of approximately 188 billion rubles were transferred to the owners’ accounts.

In addition, a forced conversion was carried out, which concerned cases of registering receipts in foreign depositories, which “prevented transactions”.

“This procedure ended a little later, in November. The amount of allocated shares amounted to about 175 billion rubles. This means that assets worth more than 360 billion rubles went to the accounts of Russian owners,” Chistiukhin said.

The authorities also allowed Russian companies to issue substitute bonds on the Russian market instead of Eurobonds placed in foreign jurisdictions.

“About 1.1 trillion rubles were transferred to Russian accounts or substitute bonds were issued on them,” Chistiukhin said.

“From my point of view, these measures were justified, they worked. It is possible that not all specific situations have been covered. We are currently talking with the Ministry of Finance about the possibility of re-converting and other localization measures in the Russian infrastructure of securities settled abroad,” he added.

CBR agreed on a draft presidential decree on the mandatory replacement of Eurobonds with Russian bonds.

“We support mandatory replacement bonds. But at the same time, we are sure that there should still be a mechanism for certain exceptions. Practice shows that each situation is unique, each issue is unique, the conditions are unique, and the location of the company in the international space is also unique,” ​​Chistyukhin said.

“There are cases where such forced issuance of substitute bonds can do more harm than good.”

Chistiukhin also said that “until the time comes” to “release” non-resident funds frozen in special type C accounts, they are needed to create an “exchange fund”.

“Because today, unfortunately, we are seeing an increase not only in the pressure of sanctions, but also in the pressure of confiscation. And, of course, we must maintain the protection of this kind of “fund,” he said, refusing to disclose the amount of foreign funds held in special accounts (Elena Fabrichnaya).