Investors are trying to force three banks to convert depositary receipts through the court

At least 10 investors filed lawsuits with the Moscow Arbitration Court due to the refusal of Citibank, Gazprombank and Raiffeisenbank to carry out a forced conversion of depositary receipts into securities of Russian issuers. Banks refused the procedure for formal claims to paperwork.

In Russia, in the summer of 2022, a law was adopted that provided for the automatic conversion of depository receipts into local shares if the rights to securities are recorded in Russian depositories. At the request of the holders, a forced conversion is carried out if the securities are accounted for in foreign infrastructure. Russian depositories could refuse in two cases: if there were doubts about the reliability of the information in the application or if they received applications for more securities than were included in the account. In these cases, investors must apply to the court.

Investors filed 11 lawsuits against Citibank, three against Raiffeisenbank and two against Gazprombank. Interfax. So, Daher Capital Ltd. from the Cayman Islands demands to oblige Citibank to convert 99.36 thousand Phosagro receipts and 50 thousand LUKOIL receipts. Western Gate Group Ltd. from the UAE demands the conversion of receipts of LUKOIL and Magnit, as well as the transfer of accounting for Sberbank shares. Serendipity Fund Ltd. from the British Virgin Islands, he is trying to convert 8 thousand LUKOIL receipts through the court, the plaintiff Ildar Gubaev is seeking to cancel the decisions on the impossibility of accepting for execution an application for the forced conversion of 17.967 thousand LUKOIL receipts, as well as on the forced transfer of accounting rights to 211.87 thousand shares Rosneft.

A representative of a number of applicants who filed suits against Citibank told Interfax that the plaintiffs are usually investment funds with large assets. According to him, the refusal to convert is connected with formal claims to the execution of applications and documents, because of which, according to the bank, it was not possible to identify the client. So, the bank refers to an incorrect translation, typos in it, a signature in only one column of the application, a mismatch between the signatures in the application and the representative’s passport.

Interlocutors of Kommersant in large brokerage companies in December 2022 said that investors began to actively take an interest in and buy depositary receipts of companies registered abroad that do business in the Russian Federation, under the idea of ​​re-registering them in Russian or friendly jurisdiction. The discount on such securities is 70-80% relative to the price on the Russian market. However, it is difficult to predict the timing of a possible conversion.

More about the risks – in the material “Kommersant” “Waiting for friendly re-registration”.

Leonid Uvarchev