New Russian rules are complicating a popular route for investors to exit their holdings by selling their securities to brokerages in so-called friendly nations.
(Bloomberg) — New Russian rules are complicating a popular route for investors to exit their holdings by selling their securities to brokerages in so-called friendly nations.
According to the decree signed by Russian President Vladimir Putin last week, transactions with government ruble bonds, depository receipts and eurobonds that were purchased after March 1 last year from investors in unfriendly countries and registered with Russian custodians, will now require approval from the central bank or a special government commission.
Previously, only investors from nations deemed hostile to Russia since the Kremlin’s invasion of Ukraine needed the permit. Now it applies to Russian residents or non-residents from friendly nations, prompting brokerages to pause work on the deals and seek clarification from the Bank of Russia, according to several traders involved in the transactions.
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The implications and the ultimate aim of the decree are unclear and the hold-up in processing the transactions may prove temporary, according to the traders, who requested anonymity because they’re not authorized to discuss the matter publicly.
A representative for the Bank of Russia declined to comment when contacted by Bloomberg.
Among the questions traders have put to the central bank are whether the rule should be applied to depository receipts of Russian companies registered abroad, like Yandex NV, and which deals with bonds and government ruble debt, or OFZs, might be allowed without the permit.
Before Russia invaded Ukraine last year, international investors owned the equivalent of about $150 billion of investments in Russian stocks, government eurobonds and OFZs, according to data from the stock exchange and central bank.
While many larger funds froze their Russian holdings since the war and wrote them down to zero, some investors were still able to exit their Russian assets despite sanctions, capital controls and blocked international clearinghouses. Foreigners sold their securities at a discount to brokerages in nations like Armenia and Kazakhstan, which could then sell them on to investors in Russia.
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Comments from Alexei Klementiev, Senior Associate with the Rybalkin, Gortsunyan, Dyakin and Partners law firm:
“The restriction on domestic sales of securities acquired by Russian investors offshore will reduce incentives for Russian investors to pursue offshore transactions as the opportunities for resale of those assets is subject to ultimate approval within Russia”
“Investors in ‘unfriendly’ jurisdictions will still be able to trade Russian securities among themselves and with parties in ‘friendly’ jurisdictions without approval from the Central Bank, but to bring the money into Russia, that transaction will need to be approved. And if a Russian investor bought Russian securities from investors in ‘unfriendly’ jurisdictions after March 1 2022, brought them to Russia, and now tries to sell them to another investor in Russia, they will need approval for that transaction too”
(Updates with lawyer comments from eighth paragraph.)
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