Dividend blow from Putin to oligarchs

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Russian President Vladimir Putin signed the amendment on April 16, which stipulates the exit of Russian companies from overseas stock exchanges, putting an end to the process accelerated by the annexation of Crimea in 2014.

This move could force business people, including Russia’s richest man Vladimir Potanin and steel billionaires Vladimir Lisin and Alexey Mordashov, to restructure the ownership structure of their holdings through overseas shares that pay dividends in foreign currency.

“Most companies and shareholders that are traded in foreign exchanges or issue receipts of deposit have made great gains due to the financial freedoms they have thanks to the relations they have developed with the West,” said Anton Zatolokin, Research Director of Otkritie Broker. By destroying these relations, companies have received both a direct and indirect blow.”

Few things were better indicative of Russia’s economic rise in the 1990s and 2000s than the enrollment of Norilsk Nickel and Lukoil in depository receipt programs in New York, Frankfurt, and London.

According to Bloomberg’s data, after the $17 billion outflow in 2007 alone, Russia’s public offerings abroad began to decline in recent years.

While these IPOs could raise a total of $6 billion after Russia’s annexation of Crimea, this shows how vulnerable businesses are in foreign markets when geopolitical developments reverse.

Some oligarchs are using these declines to increase their stock positions in their companies. According to Bloomberg’s calculations, the head of Lukoil, Vagit Alekperov, has regularly bought the company’s deposit slips from the market over the years.

Cancellation steps are being taken

After Russia’s invasion of Ukraine on February 24, the trading of receipts of Russian companies in foreign exchanges was suspended.

The international sanctions that followed this move, targeting oligarchs, banks and even the country’s foreign exchange reserves, reduced the value of the shares of Russian companies traded on the stock exchange to pennies within a few days.

According to the law amendment signed and approved by Putin, it will be necessary to stop the trading of deposit receipts in foreign exchanges within 10 days from the publication of the decision. However, if companies request special permission, laws may allow special situations.

According to the amendments signed by Putin, the transaction of foreign currency depositary certificates will have to be stopped 10 days after the invoice is issued. At the same time, the law allows private carving if companies request permission to continue trading.

Reuters reported that, citing two sources, no one has ever obtained such permission, and even before the law came into force, JPMorgan & Chase began allowing holders of deposit slips in Russian companies to revoke them.

Citigroup also launched a registry for cancellation applications of global deposit receipts received for En+ Group, of which Oleg Deripaska is the largest shareholder.

steel giant Lisin, who evaluated the law in an interview with Kommersant this month and said, “Shareholders who believe in Russia and have invested in the Russian market for many years and cannot directly own Russian shares, suffer their rights,” said steel giant Lisin. There is a risk that their rights will simply be lost,” he said.

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