Russia says broker will take bids from March 25 for frozen assets swap

By Thomson Reuters Mar 11, 2024 | 6:44 PM

MOSCOW (Reuters) – Russians who own frozen foreign securities will be able to apply from March 25 to sell them to foreigners with frozen assets in Russia, the Russian finance ministry said on Monday, a plan some investors and regulators said would run afoul of Western sanctions.

The transactions will take place through a Russian broker, in line with a decree issued by President Vladimir Putin last November that paves the way for Russian and foreign investors to unblock assets that have been frozen by Western sanctions and Russian counter-measures since the start of the war in Ukraine.

A spokesperson for Britain’s Foreign, Commonwealth & Development Office said Russia’s appointment of a broker has no relevance or impact on sanctions.

“(It) highlights Putin’s increasingly desperate attempts to mitigate the effect of G7 (Group of 7) sanctions,” the spokesperson said.

Some investors were also sceptical about the West’s willingness to make concessions to Russia.

Bernard Horn, president and portfolio manager at Polaris Capital Management, a Boston-based equity investment firm which owns shares in Russia’s biggest diamond producer Alrosa, said Russia’s move seems “more of the fog of war and investing.”

“As far as we’re concerned we’re still operating fully under all the sanctions,” he said.

With Russia needing to fund its efforts in Ukraine, one could understand why Moscow might want to try to get Russian capital back into the country, he added.

“This is a way for them to sort of do that in a backdoor way,” he said. “However, given recent comments from Western authorities looking to use frozen Russian assets to make Russia pay for the war, or to financially assist Ukraine, this scheme would be an obvious retort. I think it seems to me that it conceptually violates the purpose of the sanctions.”

The Russian finance ministry said applications must be placed with Russian broker Investitsionnaya Palata (Investment Chamber) between March 25 and May 8, and settlement of transactions should be completed by Sept. 1, 2024.

As a result of sanctions, more than 3.5 million Russians have frozen assets abroad worth around 1.5 trillion roubles ($16.3 billion).

The new mechanism allows citizens of what Russia deems “unfriendly” countries to buy these assets using funds from special “type-C” accounts in Russia, which are otherwise effectively blocked.

The finance ministry said the Russian-owned foreign securities will be pooled into lots which foreign buyers can bid for between June 3 and July 5.

If the foreign buyers’ applications are approved, they will be able to transfer the securities freely from a Russian depository to a foreign one.

The broker will set an initial auction price of the securities in roubles, based on the closing price at March 22, and the eventual sale price must be at this level or higher.

Euroclear, one of the foreign securities depositories which holds foreign securities of Russian investors, said it had no comment as it is difficult to assess if the Russian proposal is doable at the moment.

Russians can’t apply to sell more than 100,000 roubles worth of foreign securities under the scheme. According to the central bank, 80% of affected Russian investors have frozen foreign assets up to that threshold.

(Reporting by Elena Fabrichnaya in Moscow and Darya Korsunskaya in London; Additional reporting by Davide Barbuscia, Elizabeth Piper and Hew Jones; Writing by Mark Trevelyan and Lidia Kelly; editing by Mark Heinrich and Lincoln Feast.)