Russian investors proposed a plan for the sale of frozen foreign assets

The Ministry of Finance has announced the key parameters of the planned exchange of blocked foreign assets, in which Russian citizens have invested trillions of rubles, with funds from foreign investors. According to the plan, the brokerage company Investment Chamber will handle the exchange of assets; the collection of applications from Russian investors will begin before the beginning of May, from foreign investors – in June. Calculations will be completed in early September, with the minimum selling price set on March 22. One of the key risks of this plan is that foreigners will not buy assets from Russians due to the risk of secondary sanctions, as well as restrictions on such transactions from European financial regulators.

On Monday, March 11, the Ministry of Finance announced that the brokerage company Investment Chamber will perform the function of organizing trading for the sale of blocked foreign securities of Russian private investors to non-residents. This decision was made by a government commission on February 2, 2024. The auction organizer is a licensed type of activity. But, as the broker stated, to implement the decision of the legal commission, no additional permits or licenses are required for the upcoming transaction. In addition, the Investment Chamber revealed details of the upcoming unlocking, which should be completed before September 1 of this year.

At the end of November, the Central Bank presented to the market an asset exchange scheme, according to which the organizer of trading, through brokerage and management companies, will collect applications from private investors for the sale of a portfolio of securities within the maximum amount and offer them to foreign investors, who will be able to pay with rubles blocked in “C” accounts. However, until recently, the issue of the organizer of trading, the start date of trading and the pricing of the securities necessary for the formation of portfolios of private investors had not been resolved.

Acceptance of applications from Russian private investors, according to the broker’s message, will continue from March 25 to May 8. The transaction involves only securities that are accounted for in NSD accounts in foreign organizations: shares and depositary receipts of foreign issuers, investment units and ETF shares.

According to the list of securities provided by the broker, 3,834 securities can be offered for sale.

“We expected that all Russian investors, including those whose securities were blocked in St. Petersburg Bank, would be able to take part in the “exchange,” notes NAUFOR President Alexey Timofeev.

When forming portfolios of private investors, the ruble price of securities in effect on March 22, 2024 and multiplied by the dollar exchange rate on the same day will be taken into account. At the second stage, the auction organizer forms a single pool from the securities presented for redemption and divides it into lots that are maximally identical in content and cost, and sets a single starting bid for all lots, which cannot be less than the average cost of all lots. From June 3 to July 5, non-residents will send applications to the auction organizer to purchase lots with securities at a price not lower than the starting price. At the same stage, as noted by the CEO of the Investment Chamber, Alexey Sedushkin, there will be active communication with foreign investors, but so far they have not been able to assess the interest from non-residents.

At the last, fourth stage, the Investment Chamber, as a result of a competitive selection of applications from non-residents, will determine a single final sale price for all lots. “In their offers they will indicate the number of lots (not a specific lot) they would like to purchase and the price they are willing to pay for this number of lots. Among all these offers, we will choose the maximum price that will allow us to sell all the lots,” notes Alexey Sedushkin. If the applications of non-residents are approved, the securities will be transferred to their special transit securities accounts, which allow them to withdraw purchased foreign securities from the Russian depository infrastructure to a foreign one, and the funds for these securities will be transferred to the accounts of brokers and managers for further transfer to resident individuals.

The majority of market participants, brokers and management companies surveyed by Kommersant stated that the infrastructure was ready to conduct operations. Director of Legal Affairs at Management Company “Pervaya” Oleg Goransky said that the company had previously worked out several scenarios for exchanging information with other trading participants, conducted several test collections of applications and transfers of information as part of developing processes. Alfa Capital Management Company also worked out the internal application processes in advance.

However, the mechanics of submitting applications may differ between brokers and management companies. At VTB, clients will independently select securities with a total value of no more than 100 thousand rubles. The company will notify clients with all available messages in applications and personal accounts, as well as by email. Managers must first obtain consent from clients to participate in the unlocking, and then form a portfolio. “Consent is given immediately for all products; it cannot be withdrawn,” notes Oleg Goransky.

In general, the proposed scheme is quite workable, but its implementation depends on a number of conditions and, first of all, on the willingness of foreign investors to participate in such an exchange, says Dmitry Lesnov, head of the client service development department of Finam Financial Group.

One of the key conditions for their participation, which market participants told Kommersant about in the fall of 2023, is the ability to identify the seller of securities. But, as the Central Bank and the auction organizer note, no personal data will be transferred to foreign buyers and regulators. Without this information, according to Andrey Timchuk, co-head of the sanctions practice of the Delcredere Bar Association, a non-resident runs the risk that he may buy papers from sanctioned persons. “Unknowingly, it will help circumvent sanctions imposed on a number of individuals, and this is a criminal offense in the EU,” explains the expert.

Even if a non-resident can somehow get acquainted with the full list of investors, problems with transfer to the external circuit will still remain. “Non-residents will likely need to obtain permission from local regulators. And they, in turn, may not satisfy such a request,” says Dmitry Lesnov. As Andrey Timchuk notes, in the case of the purchase of securities, non-residents become their owners after the imposition of sanctions against NSD, and this contradicts the conditions of unblocking. But even in this case, in his opinion, there is a possibility of their unblocking, since regulators in Brussels and Luxembourg are more positive about applications from non-residents than from Russians. “I would like to believe that the volume of funds in type “C” accounts will be sufficient, since in the current circumstances foreign investors have no other options for withdrawing blocked funds from type “C” accounts,” notes the head of the department for interaction with government agencies at Alfa Management Company. Capital” Nikolai Shvaikovsky.

Due to the fact that the exchange of assets will take place in Russian infrastructure, the risks for Russian investors will not be very high, says a top manager of a large management company. At the same time, risks arise from the organizer of the trades, the Investment Chamber. “The company is objectively beginning to play a special role in the unlocking mechanism, which is not provided for by EU sanctions legislation. These risks will increase if investors under sanctions are allowed to participate in the exchange,” points out Andrey Timchuk.

Vitaly Gaidaev