VK will become more Russian – Vedomosti

The Board of Directors of VK Company Limited (VK) has approved the possibility of re-registering a company from the British Virgin Islands (BVI) to the Russian Federation, the company said in an official statement. The board of directors of VK made the corresponding decision on February 13, 2023. The representative of the company did not specify how long the re-registration process will take and what kind of regulatory approvals it will require.

VK Company Limited is the main legal entity of the company, which owns the Russian VK LLC. The VK Group is one of the largest players in the Russian telecom and IT sector, including, in particular, Mail.Ru, Vkontakte and Odnoklassniki social networks. Until October 2021, the group was called Mail.ru Group. The general director of the VK group is Vladimir Kiriyenko.

As a result of the re-registration, VK expects to maintain the status of an international public company, the statement emphasizes. This means that the company will be able to register in one of the “Russian offshores” – special administrative regions (SAR) in the Kaliningrad region or on Russky Island in Primorye, explain the lawyers interviewed by Vedomosti.

“In the current situation, when the vast majority of assets are based and generate revenue in Russia, and the number of Russian securities holders has increased, redomiciliation is in the interests of the company and its shareholders, and is also the best practice for public companies to exit foreign offshore jurisdictions,” the VK statement.

“This will be the first time that an IT company has redomiciliated to Russia,” says Kirill Lyakhmanov, Chief Legal Counsel of the Intellectual Property Practice at EBR law firm.

As a new registration address, VK can choose one of the CAPs with special taxation conditions, Kira Vinokurova, special adviser on sanctions issues at Pen & Paper, notes. This can be done by the provisions of the Law “On International Companies”, which has been in force in the Russian Federation since 2018.

The process of redomiciliation from the BVI is quite simple in terms of the requirements of the original jurisdiction, Lyakhmanov notes. According to him, for this it is necessary to submit a set of documents confirming the absence of debt to local creditors, refusal to liquidate in the process of redomiciliation and approval from the board of directors.

From the Russian side, the process on paper also seems simple: it is enough to fulfill the conditions of foreign origin and conclude an agreement on investments in Russian assets for 50 million rubles, the lawyer continues. But in practice, the redomiciliation process can take several years. “For example, UC Rusal spent almost two years on the process. This may be due, among other things, to difficulties in agreeing on an investment agreement,” Lyakhmanov added.

Also, one of the difficulties for VK will be regulatory issues related to the fact that its shares (through global depositary receipts) are traded on the Russian stock exchange, Moscow Digital School expert Vladislav Chukanov draws attention. The company will definitely need to go through regulatory processes with the Central Bank of Russia, as well as the Moscow Exchange, he clarifies. “The Central Bank will be very careful to ensure that the rights of retail shareholders are not violated during the move,” Chukanov said.

VK needs re-registration so that the rules of foreign jurisdiction, primarily sanctions, do not apply to this company, Vinokurova continues. “From the moment of redomiciliation, the company, firstly, will no longer be obliged to comply with British sanctions, and secondly, if sanctions are imposed on the company itself or its beneficiaries, the risks of blocking the company will decrease,” she notes.

“In addition, when a foreign company redomiciliates to Russia, tax benefits and other unobvious advantages are provided, for example, the ability to restrict access to the Unified State Register of Legal Entities to information about the founders and the sole executive body of an international company,” the lawyer continues.

At the same time, there are some downsides to VK when redomilating. For example, the company is unlikely to be able to maintain “previous corporate agreements in full” due to the lack of “the same flexibility in the corporate legislation of the Russian Federation in comparison with the Anglo-Saxon jurisdictions,” Vinokurova added.

Re-registration in the Russian Federation for VK looks “absolutely logical”, since the company conducts its main activities in the Russian Federation, the head of the information and analytical content department believes.BCS The world of investments” Vasily Karpunin.

Potentially, the change of jurisdiction may have a positive impact on the company’s papers, the liquidity of trading, estimates Artem Mikhaylin, an analyst at Veles Capital Investment Company. “Now many VK investors, holders of receipts have their securities blocked in the same Euroclear, and they cannot convert them, since the shares are not traded. Probably, redomiciliation will open the way for resolving this issue,” Mikhaylin suggested.

“In general, now Russian investors in VK shares will understand that external infrastructure risks due to foreign registration will go away, and this is a factor in favor of the attractiveness of securities,” Karpunin agrees.

In 2022, analysts expected similar re-registrations from other companies operating in the Russian Federation, whose business is registered abroad, but so far this process has not been completed for almost anyone, Karpunin noted. In 2023, this trend could become massive, he added.

According to the analyst, at the end of January 2023, “the possible re-domiciliation of the company from the island of Jersey (owned by the UK; unfriendly jurisdiction of the Russian Federation)” was announced by the gold mining Polymetal, but this company expects to re-register in Kazakhstan, and not in Russia. Also, until February 2022, such companies as UC Rusal and “Ribbon“, said Karpunin.