By Pierre Laurent, Moscow correspondent for Eurasia Business News, August 9, 2022
On 5 August 2022, the Russian President signed a decree prohibiting nationals of “hostile states” until 31 December 2022 from transactions relating to shares of Russian companies on the list of strategic enterprises and joint-stock companies approved by a decree of 4 August 2004.
This list includes companies related to the Production Sharing Agreement for the Sakhalin-1 project and the Agreement on The Development and Production of Oil at the Kharyaga Field in the Russian Arctic. The prohibition of transactions also covers shares constituting the authorized capital of commercial companies that manufacture equipment in the oil and gas sectors and provide maintenance and repair services for such equipment as well as shares constituting the authorized capital of Russian banks. This presidential decree actually makes it impossible to quickly withdraw foreign capital invested in companies in Russia.
The federal government and the Bank of Russia must prepare by August 15 a list of Russian banks to which this ban on the outflow of foreign capital will apply. Moreover, under the terms of the decree, the Russian president reserves the right to authorize the sale of shares held by nationals of “hostile states” by a special decision. The duration of the restriction on transactions can also be extended by presidential decree.
This new regime resulting from the decree of August 5 leads to the freezing of foreign assets in Russian companies. It is a direct response to the European, British and American sanctions taken since March 2022 against Russian companies, banks and businessmen.
The lists of “no entry and exit” shares held by foreigners will be partially compiled by the government (banks and energy companies). Separately, the list mentions the participants in the Sakhalin-1 project. The august 5 decree does not apply to the “Sakhalin-2” project, in respect of which the government is conducting separate negotiations with Shell, Mitsui and Mitsubishi.
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Despite the short period of freezing of the stock assets of foreigners in the Russian Federation from 5 August to 31 December 2022, this freeze can be extended “several times” by simple decree. It is currently almost impossible to sell these assets in Russia to non-residents (even if they are nationals of “friendly countries”), due to restrictions on the movement of capital and the reduction in the acceptance of the dollar and the euro by Russian financial actors. Finally, any hypothetical sale of Russian stock market assets on the non-resident market over the counter is only possible by decree, with the personal permission of the Russian president.
On Monday, August 8, the Bank of Russia announced the introduction of a ban on the conduct of transactions by custodians and registrars with securities credited to the accounts of foreign custodians or authorized holders after March 1, 2022. The prohibition also applies to securities purchased by non-residents of friendly countries and controlled by foreign companies (with the exception of residents of Belarus) from other non-residents during the period from 25 June 2022 until the date of reclassification of the type “C” deposit account into a regular deposit account. Restrictions are imposed for a period of six months. The Central Bank sent the relevant instructions to professional market participants on 4 August.
The Bank of Russia also announced the preparation of draft amendments to the procedure for applying risk surcharges for foreign currency loans. “Premiums for loans and borrowings to legal persons in foreign currencies, as well as investments in debt securities denominated in foreign currencies, should be differentiated according to the issuer of the currency (friendly or hostile countries),” the Central Bank said.
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