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Another blow against tycoons

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Putin bans Russian companies from participating in foreign exchanges

Russian business plans to pay off foreign investors to avoid bankruptcy

Sanctioned or not, Russian billionaires face new obstacles after President Vladimir Putin ended an era of foreign action.

Putin signed legal amendments on April 16 requiring Russian companies to delist their foreign shares, ending a process that accelerated with the annexation of Crimea in 2014, Bloomberg reports.

This could force tycoons such as Russia’s richest man, Vladimir Potanin, as well as steel billionaires Vladimir Lisin and Alexei Mordashov, to reconfigure the ownership structure of companies they own – in part – through shares abroad that pay dividends abroad. currency.

“Most companies – and their major shareholders – that have been listed or have depositary receipts abroad have benefited greatly from financial freedoms and economic ties with the West,” said Anton Zatolokin, head of research at Discovery Broker. “By destroying what took 30 years to build, they are taking a direct and indirect blow.”

Few things in the late 1990s and 2000s showed Russia’s growing economic influence and global financial integration better than the country’s largest companies, such as Norilsk Nickel and Lukoil, which registered depository receipt programs in New York, London and Frankfurt.

Russia’s initial public offerings abroad peaked at $ 17 billion in 2007 and have declined in recent years, according to data collected by Bloomberg. Such announcements have raised a total of just $ 6 billion since Russia’s annexation of Crimea in 2014, when international sanctions showed how vulnerable companies are in foreign markets when geopolitics deteriorates.

Some tycoons took advantage of the fall in the share price of their companies to increase their positions. Lukoil Chairman Vagit Alekperov has regularly bought depository receipts from the market over the years, according to Bloomberg calculations.

Following the invasion of Ukraine on February 24, trading in depository receipts of Russian companies was frozen by foreign exchanges. The international sanctions that followed targeted tycoons, banks and even the country’s foreign reserves, while devaluing the shares of the country’s listed companies to cents and pennies in a matter of days.

According to the amendments signed by Putin, trading in depository receipts on foreign exchanges must stop 10 days after the bill was published. At the same time, the laws allow special exceptions if companies request permission to continue trading.

So far, no one has done so, and even before the bill went into effect, JPMorgan & Chase began allowing holders of depository receipts in Russian companies to cancel them, Reuters reported, citing its sources. Citigroup Inc. has opened an account for the cancellation of depository receipts for En + Group, one of the largest shareholders in which is the billionaire Oleg Deripaska, according to company documentation.

“The rights of shareholders who believe in Russia and have invested in the Russian market for many years and who cannot hold Russian shares directly have been violated,” steel tycoon Lisin said in an interview with Kommersant this month, commenting on the law. “They have nothing to do with politics and there is a risk that their property rights will simply be lost.”

The business is planning how not to fail

A lobby group of Russian big business has unveiled a plan to protect bond payments to prevent companies from defaulting as some of the country’s largest corporations try to pay back foreign investors.

Companies, including steel company Severstal and Russian Railways, missed coupons on their foreign debt after international banks delayed processing money for fear of violating international sanctions over Russia’s invasion of Ukraine.

To avoid a wave of cross-default and the freezing of foreign assets, the Union of Industrialists and Entrepreneurs has proposed introducing the role of payment agent and bond register. The work will be assigned to the Moscow-based National Settlement Depository by a vote of bondholders, the union said in letters to Bank of Russia Governor Elvira Nabiulina and Prime Minister Mikhail Mishustin.

The aim would be to avoid a situation where foreign creditors could declare default if their payments are delayed, and to demand a freeze on assets abroad against a company. There is a risk that “far exceeds the amount of the debt, not to mention the coupons due and interest payments on it,” the union said.

People without Russian citizenship can too receive payments for bonds on special accounts in foreign currency in Russian banks along with the right to sell securities to the Ministry of Finance or its agent, the union suggested in a letter seen by Bloomberg and first reported by the newspaper “Kommersant”.

It is unclear whether the proposals will be accepted. Representatives of the government and the Bank of Russia said the letters had been received and would be reviewed.

“All companies want to pay local investors, the question is what to do with foreigners,” said Dmitry Dorofeev, a portfolio manager at Alfa-Capital Management Company in Moscow, with about $ 4 billion in assets under management. “Many exporters face the risk of cross-default and asset freezes.”

Regarding changing debt conditions by voting for bondholders, “each case will be unique” because each bond has a different threshold, he said.

 “For many loans, the share of Russian holders is over 50%,” Dorofeev said. “There are many companies that will be able to make the changes and do everything legally.”

Putin’s meeting with business

President Putin will meet with executives and owners of big business on Wednesday, according to Bloomberg sources.

No agenda has been announced for the meeting.

Kremlin spokesman Dmitry Peskov said Putin would continue to hold meetings with various industries. On Monday, Putin told senior officials that the West’s “economic blitzkrieg” was not working and sanctions had failed.

Putin convened a meeting of senior Russian business officials on February 24, the day the invasion of Ukraine began. The televised meeting was later cited by the European Union as an excuse for sanctions against several individuals because it showed they were members of an “inner circle of oligarchs” close to the president.

Photo: Severstal steel company

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