Without behind-the-scenes agreements with the authorities in the West, things will not move forward
The time has come for foreigners to submit applications for the redemption of blocked assets collected in lots from Russian investors. This was announced by the broker company officially appointed as the operator of the entire exchange process. The collection of applications began on June 3 and will last until July 5. Russian investors offered foreigners assets worth 35 billion rubles for exchange. Why, despite all the efforts of the authorities, the exchange may not achieve its goals — in the MK material.
Conversations about the need to exchange assets between Russians and foreigners began almost immediately after they were blocked, that is, in the spring of 2022. Let us recall that in March of that year, the international depositories Euroclear and Clearstream stopped operations with the National Settlement Depository. The reason was the introduction of sanctions against our country after the start of the SVO. Thus, the securities of compatriot investors were blocked, and payments on them ceased to be received. In addition to private investors, legal entities were also affected. Shares purchased by management companies that were part of various mutual investment funds were also frozen abroad. As a result, all types of investors from Russia — both individuals and legal entities — have stopped receiving income from their shares of foreign companies since February 2022.
Our country responded to such a blatant violation of all international financial norms with mirror measures. In response, Western assets in Russia were frozen. These funds were concentrated on two types of accounts — “I” and “C”. The first of them is used to service the payment of income on Russian sovereign bonds in favor of foreign owners. But more important in the topic of asset exchange is the “C” account — a special account opened for a foreign investor in a bank, with a broker, in a depository, into which only rubles are received, for example, dividends on shares and coupons on bonds. You cannot withdraw funds from it, but you could use them in the manner prescribed by the Russian authorities, that is, pay taxes or buy OFZ.
The situation was in such a semi-frozen state until the beginning of spring of this year, when the government commission for control of foreign investments decided to launch a mechanism for the exchange of frozen assets between Russians and non-residents on March 25. As a result of this process, foreigners received the right to take back blocked assets using funds stored in type “C” accounts. The Russian authorities have limited the transaction limit to 100 thousand rubles per investor. This is enough to protect the interests of the majority of individuals affected by sanctions.
By May 8, the first stage of the exchange of frozen assets was completed: within its framework, private investors from Russia submitted more than 1 million applications for assets that they would like to sell to foreigners. The total amount of assets offered to foreigners for exchange is 35 billion rubles. Then the broker-exchange operator appointed by the Russian authorities formed 100 lots from this pool. The average cost of each was 353 million rubles — this amount will be the starting amount at the auction.
And on June 3, the second stage of the exchange began, which will end on July 5. During this period, foreign buyers can submit applications for the purchase of lots at a price not lower than that indicated at the start. All analysts unanimously recognized this step on the part of the Russian authorities as friendly and aimed at fulfilling financial obligations. “These 35 billion rubles constitute just over 0.1% of the total amount of blocked Russian assets, about $300 billion, so the exchange of assets is rather symbolic in nature: it is a gesture of goodwill,” emphasized Maxim Osadchiy, head of the analytical department of BKF Bank.
However, the problem is that this exchange is not approved abroad. Thus, the Belgian Ministry of Finance previously refused to recognize the exchange of blocked assets. And Euroclear, the leading depositary in terms of the volume of blocked assets of Russians, said that exchange participants must take into account sanctions risks. “The issue of the success of the exchange lies in the decisions of regulators of unfriendly countries,” notes Albert Koroev, head of the department of stock market experts at BCS World of Investments.
International lawyers point out that negative statements by European regulators do not mean that Brussels will block the exchange process itself, but those who buy Russian securities may have difficulties obtaining permission to unblock them. As noted by Ruslan Spinka, Director of Sales and Client Services at Fontvielle Investment Company, there is a risk that permission will not be obtained, since official statements by Western government officials do not give grounds for optimism. However, they may well be political, so much will depend on whether large foreign owners of capital blocked in Russia will be given behind-the-scenes promises not to interfere with the withdrawal of assets. If so, this can be tracked by demand from foreigners, because participation in the exchange is as profitable for them as it is for Russians.
“In the case of asset exchange, Russia behaves like an ideal market country, for which it is important to protect property rights and seek compromise with counterparties,” believes Alexander Razuvaev, a member of the Supervisory Board of the Guild of Financial Analysts and Risk Managers. “But the West is not going for this yet, is not taking reciprocal steps, which fuels skepticism in the mood of financiers and analysts.”