Possibility of dividend repatriation
Investors from friendly countries will be able to receive Sberbank dividends to regular accounts and repatriate them (i.e., transfer them to their accounts abroad). Investors from unfriendly countries, however, will be able to receive dividends on special “blocked” type-C accounts. At present, funds from type-C accounts can only be spent on reinvesting in Russian government bonds, paying taxes in Russia, and paying bank and depositary fees. Such funds can also be transferred to “blocked” type-C accounts of other “unfriendly” investors.
Note that the list of “unfriendly” countries, approved by the Russian Government, includes Australia, Albania, Andorra, the United Kingdom, all EU countries, Iceland, Canada, Liechtenstein, Micronesia, Monaco, New Zealand, Norway, South Korea, San Marino, North Macedonia, Singapore, the United States, Taiwan, Ukraine, Montenegro, Switzerland, and Japan.
Why was it necessary to convert depositary receipts?
It is worth to recall that following the adoption of Federal Law No. 114-FZ on April 6, 2022:
- Russian issuers are required to ensure the termination of depositary receipt issuance programs;
- foreign depositary receipt issuers are obliged, within the timeframes established by the depositary agreements between them and the Russian issuers of the corresponding shares, to write off depositary receipts and pay investors the funds in the amount provided by such depositary agreements, which is usually significantly lower than the market value of the shares.
This also applies to Sberbank’s depositary receipts – this is why Interactive Brokers voluntarily converted the depositary receipts.
However, such consequences do not occur for investors who managed to convert depositary receipts in time. Moreover, although foreign issuers are formally required to write off depositary receipts and pay their value to investors, in practice, this is impossible due to sanctions and countersanctions restrictions. Therefore, the issue of converting depositary receipts is particularly relevant for investors.
As a general rule, depositary receipt holders are entitled to receive the shares for which such depositary receipts were issued through conversion. At the same time, Law 114-FZ stipulates that investors entitled to receive the underlying shares will be determined as of the effective date of Law 114-FZ. This means that after this date, the purchase of depositary receipts does not entitle the holder to receive the underlying shares, and therefore, the conversion of such depositary receipts is not possible.
Also, according to Law 114-FZ, investors can demand the payment of all unpaid dividends after converting their depositary receipts and receiving shares of Russian issuers, i.e., becoming direct shareholders of such issuers. This is particularly relevant for investors holding depositary receipts of such Russian issuers as Gazprom PJSC and Lukoil PJSC, as these Russian issuers distributed substantial dividends that could not be paid to depositary receipt holders due to sanctions and countersanctions restrictions. This also holds significant importance for those who have invested in Sberbank.
In summary, Sberbank shareholders holding shares through Russian brokers will be able to automatically receive dividends. Those who hold shares through foreign brokers should act swiftly and apply to the Moscow branch of Raiffeisenbank with a special statement. While the dividend collection procedure for such investors has not yet been published, it is expected to be released shortly.