In the realm of investment, Depositary Receipts (DRs) are a common financial instrument that provides an opportunity for investors to gain exposure to foreign equities. These DRs represent shares of foreign companies and are a means for investors to diversify their portfolios. However, questions often arise about how these DRs can be converted into actual shares. In this article, we will delve into the different conversion procedures, deadlines, and essential information for holders of DRs.
Declarative Conversion
Declarative conversion is an option available for those who hold or are beneficial owners of DRs, the rights of which are recorded in foreign depositories. This conversion method was completed on November 24, 2022. However, if you hold DRs in foreign depositories, you still have the option of using the standard conversion procedure.
Automatic Conversion
Automatic conversion, on the other hand, was performed exclusively for DRs held in Russian depositories, particularly those acquired at the SPB Exchange. The shares resulting from this conversion were credited to the accounts of investors in the same depositories where the respective DRs were initially placed.
Standard Conversion
If your DRs were not automatically converted, and you did not utilize the declarative conversion procedure, you can still opt for the standard conversion process. This can be initiated through a request to your broker/depository or to The Bank of New York Mellon (BNY Mellon). Keep in mind that the standard conversion procedure is currently suspended by The Bank of New York Mellon, so it is advisable to check their dedicated website for the latest information on its resumption.
Conversion Deadline
As of now, the standard conversion procedure remains suspended by The Bank of New York Mellon depository bank. However, the depository bank retains the right to resume the conversion of DRs. When this procedure restarts, a notice will be posted on the dedicated website of the bank. It's worth noting that the declarative conversion procedure was completed on November 24, 2022, and Gazprombank executed the shares' transfer under the automatic conversion procedure in September 2022.
Dealing with a Refusal from Your Broker
If your broker refuses to perform the standard conversion procedure, you have options. You can transfer the depositary receipts to another broker without changing their ownership under any circ*mstances. Alternatively, you can submit an application for conversion yourself using the provided instructions. Remember that if your depositary receipts were purchased at SPB Exchange or are held in a Russian depository, they were converted automatically.
Voluntary Conversion
It's important to understand that the conversion of DRs into shares is a voluntary process, except for the automatic conversion procedure. The automatic conversion occurs without the need for action on the part of the investor, but for other conversion methods, it's a matter of personal choice.
Post-Conversion Share Handling
Once the conversion is completed, the resulting shares can only be credited to your account with a Russian depository. Therefore, if you wish to have the shares in a different account, it's necessary to establish one with a Russian depository.
Entitlement to Dividends
Under Federal Law No. 114-FZ, holders of DRs are not entitled to receive dividends until the DRs are converted into shares. However, the right to receive undrawn dividends is retained for three years, allowing shareholders to receive any pending payments following the conversion.
Non-Conversion Consequences
If DRs are not converted into shares within one year from the termination of the Deposit Agreement, The Bank of New York Mellon will have the authority to sell Gazprom's shares represented by the corresponding DRs. The proceeds from such sales will be used to make payments to the remaining owners of the depositary receipts. In this scenario, the DR owners become unsecured creditors of the Depository, subject to regulatory constraints.
Post-April 27, 2022 DRs
DRs purchased after April 27, 2022, cannot be converted into shares, except under certain conditions defined by Federal Law No. 319-FZ, which provides exceptions for specific transaction types and circ*mstances.
Selling Shares After Conversion
Russian residents have the ability to sell the shares after the conversion. For non-residents, the regulations are governed by the Russian President's Decree No. 95 and related clarifications.
For further inquiries, you may contact the issuer of the DRs, The Bank of New York Mellon (www.adrbnymellon.com/resources/contact-us), the depository of Gazprombank (depo@gazprombank.ru), or the division for institutional investor relations of PJSC Gazprom (ir@gazprom.ru).
Understanding the intricacies of converting DRs into shares is crucial for investors. It's a process that involves various options and considerations, and being informed is essential for making sound financial decisions.
