Decree 198 establishes the procedure for receiving securities related payments owed to certain categories of holders (“Eligible Holders”) from funds blocked in Type C accounts.
Who is an Eligible Holder?
Decree 198 permits payments to be received by:- Residents and CFCs“CFCs” (Controlled Foreign Companies) are defined as non-resident entities whose ultimate beneficial owners are the Russian Federation, Russian legal entities or individuals, if information on their control has been disclosed to the Russian tax authorities (paragraph 12 of Presidential Decree No. 95 of 5 March 2022 “On the temporary procedure for the performance of obligations owed to certain foreign creditors”); and
- the following financial institutions: the Asian Infrastructure Investment Bank, International Bank for Economic Cooperation, International Investment Bank, New Development Bank, and Russian-Kyrgyz Development Fund.
What does Decree 198 permit?
Under Decree 198, at the Holders’ request, funds accumulated on Type C accounts maintained for foreign nominees or foreign paying agents may be transferred to the Eligible Holders’ Rouble accounts.Which securities are eligible?
Payments from funds held in Type C accounts may be received by the holders of the following securities:- shares of a Russian joint stock company, federal government bonds, and bonds of Russian issuers held at a Russian securities depository;
- foreign issuers’ securities representing shares in a Russian joint stock company;
- Eurobonds linked to obligations of a Russian legal entity (e.g., the Eurobond guarantor or the loan borrower servicing the Eurobond debt) (“Eurobond Obligor”).
How can payments be received?
The key specifics of the procedure established by Decree 198 are as follows:- Holders shall send an application to the Russian securities depository or the Eurobond Obligor requesting payments under securities (“Application”). The period during which such Application may be submitted is limited to no more than 60 days of the date of the official publication of the decision of the Bank of Russia’s Board of Directors approving the list of required documents to be attached to the Application. To date, no such list has been approved.
- The Russian securities depository or the Eurobond Obligor may refuse to make payments under securities if:
- a. the amount of funds specified in the Application exceeds the amount of funds intended to be distributed under the relevant securities and transferred by the Russian securities depositary or the Eurobond Obligor to Type C accounts;
- b. the Russian securities depository or the Eurobond Obligor has reasonable doubts about the completeness and/or reliability of the documents or information provided.
- If a decision is made to pay out funds, the Russian securities depository or the Eurobond Obligor shall notify the foreign nominee or foreign paying agent that payments have been made to the securities owner out of the funds held in its Type C account.
- If no reasoned objection is received from the foreign nominee or foreign paying agent within 10 days of the date of such notice, the Russian securities depository or the Eurobond Obligor shall send an instruction to the credit institution maintaining the Type C account to transfer the funds to the Holder.
What happens to subsequent Eurobond payments after the date of Decree 198?
The obligations owed to the Holders under the Eurobonds which arise after the effective date of Decree 198 shall be performed in the following order:- The Holder may, within 60 days of the date of the next scheduled Eurobond payment, send to the Eurobond Obligor an application to make payments under the Eurobonds.
- The Eurobond Obligor shall verify, with the assistance of the Russian securities depository, the validity of the claims made by the Holder, make a decision and effect payments in roubles in the amount equivalent to the amount of liabilities denominated in a foreign currency at the official exchange rate of the Central Bank of the Russian Federation on the day of the relevant payment.
- The funds remaining after payments are made to the Holders shall be transferred to the foreign nominee’s or foreign paying agent’s Type C account to be passed on to the foreign securities holders.
