The Regulations introduce new restrictions on the percentage of the issued share capital of a Russian incorporated company that can be offered overseas; or, in the case of GDRs, the percentage of issued share capital which can be deposited into a GDR programme. The percentages depend on several factors including principally the size of the issuer and the historical volume of trading in the issuer’s shares.
As a consequence only larger, more sophisticated entities can access a wider pool of foreign investors through an issue of shares or GDRs. See the table below for the relevant percentages:
|Stock Exchange List in the Russian Federation||Percentage of entire issued share capital (at any one time) which can be offered overseas or deposited into GDR programme|
|A List Quotation (large companies)||Not more than 25 per cent.|
|B List Quotation (medium size companies)||Not more than 15 per cent.|
|V or E List Quotation (small companies)||Not more than 5 per cent.|
These restrictions are relaxed where shares are offered for sale in a jurisdiction in which a local securities regulator has entered into a cooperation agreement with the FSFM (the Cooperation Jurisdiction). This relaxation allows smaller Russian issuers that are quoted on the B, V or E Lists to offer up to 25 per cent of their shares either directly or through a GDR programme to overseas investors.
Where GDRs are to be offered by a Russian incorporated company on an overseas stock exchange], the depositary bank must also be incorporated in the Cooperation Jurisdiction in order to benefit from this relaxation. It is understood that a number of depositary banks are incorporating subsidiaries in Germany and Cyprus to take advantage of this provision.
As at the date of this briefing, the FSFM has entered into cooperation agreements with the following countries: France, Germany, Oman, Syria, Cyprus, Turkey, the United Arab Emirates, India, China, Brazil, Belarus, Kyrgyzstan and Venezuela.
Surprisingly, the Russian legislator failed to extend the 25 per cent restriction to overseas holding vehicles that control Russian corporate groups. As a result, Russian companies can easily avoid the 25 per cent limitation by interposing a foreign holding vehicle which may act as the issuer for the Russian-based group.