X5 Group is preparing to enter – Kommersant FM

The X5 Group’s “relocation” to Russia could take five months, Kommersant FM’s interlocutors came to this conclusion. Most likely, the suspension of trading in the company’s securities will last the same amount of time; the corresponding decision was made by the Moscow Exchange. As representatives of the site explained, it is related to the claim of the Ministry of Industry and Trade. Previously, the department filed an application with the Moscow Region Arbitration Court demanding to suspend the rights of the Dutch holding X5 Retail Group to its Russian subsidiary, Corporate Center X5 5. How will this process end? Ivan Khorushevsky sorted it out.

It all started in the summer of 2023, when a federal law came into force that introduced the concept of “economically significant organization.” The government was instructed to compile a list of such companies. At the same time, the criteria for inclusion in the list were approved: annual revenue of more than 75 billion rubles, asset value of more than 150 billion rubles, an extensive customer base, an impressive staff and many other points. But most importantly, the authorities received the right through the courts to seek the transfer of such companies from foreign jurisdictions to Russian ones.

The government did not use this opportunity for more than six months. Actually, the list itself appeared only at the beginning of March 2024, and X5 Group was included in it. Soon the Ministry of Industry and Trade demanded that the retailer move to Russia. What will happen next, Sergei Uchitel, partner of the Pen & Paper Bar Association, told Kommersant FM:

“The ultimate beneficiaries of the foreign parent company will simply have to transfer the securities of the Russian subsidiary to its balance sheet. The company will have to issue treasury bonds, which can later be converted into shares. However, the entire conversion mechanism is not spelled out.

Moreover, in order for this to happen, a separate act of the Central Bank of Russia will be required on how the corresponding depository receipts will be taken into account at the Russian consulate.”

Experts call such a move “forced,” although, from the point of view of X5’s beneficiaries, it may well be voluntary. The fact is that the main shareholder of the retailer is the Alfa Group structure CTF Holdings. Co-owner of the consortium Mikhail Fridman, as claims “Kommersant”, he himself wanted to redomicile the company. Regulators in the Netherlands interfered because they did not want to contact the sanctioned businessman.

Now the solution seems to have been found. The problem is that, according to market players, about 70% of X5’s free float shares are owned by foreigners. However, the head of the Infoline-Analytics company, Mikhail Burmistrov, is convinced that it will be possible to reach an agreement with non-residents: “Yes, there are difficulties that foreign shareholders may encounter, because they will have certain restrictions. But this is an objective reality, and, as far as I understand, a tool for repurchasing securities will be implemented here, which has already been successfully tested, for example, by the Magnit company. International shareholders who wanted to divest were then given the opportunity to do so.”

Russian investors were inspired even after X5 was included in the list of economically significant organizations. And after the Ministry of Industry and Trade filed a lawsuit, quotes for the group’s depositary receipts on the Moscow Exchange completely soared to a historical maximum, more than 3.2 thousand rubles. However, after the news about the suspension of trading, the price of securities decreased.

But investors’ optimism has not diminished, noted Finam President Vladislav Kochetkov: “After redomiciliation, the company can fully pay dividends without restrictions that are associated with a significant share of non-residents, and solve other development problems, including those related to market share, through the acquisition of assets. In addition, there may be some other expectations, for example, some kind of share repurchase may take place or something else.”

Experts expect that X5 will pay generous dividends after the move. Their yield could exceed 11%, given record 2023 net income. The retailer’s earnings will most likely continue to grow in 2024. So forced redomiciliation promises positive news for the market, but in itself it will probably be the first and the last.

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Ilya Sizov