In principle, ADRs can be converted into shares. However, the way in which the exchange works depends on the individual case. On the one hand, an exchange via Western banks is possible in principle, as the Russian NSD (National Settlement Depository) will again waive fees until the end of 2022. This, in turn, is a necessary prerequisite for the exchange as of now, since the NSD is sanctioned. However, this does not mean for all investors that ADR can be exchanged without further ado. Details on this can be found below.

Under the conversion of ADR in the ordinary procedure, the exchange is initiated together with your house bank or broker. Measures are necessary for this, which we will inform you about below.

However, forced conversion is to be distinguished from the ordinary procedure. Forced conversion (at times also called compulsory conversion means that the conversion is carried out on the basis of a Russian law (Law No. 319-FZ of July 14, 2022), on the spot in Russia. Measures are also necessary for this, which we also inform you about below.

In our opinion, it is clearly better to convert via the “western route,” i.e., the ordinary procedure.

Further explanation:

The forced conversion involves considerable effort and expense. In contrast, conversion in the ordinary procedure is significantly cheaper and therefore preferable.

However, conversion in the ordinary procedure is not possible in many cases, despite the waiver of fees by the National Settlement Depository (NSD). Moreover, various banks in Germany (apparently) still do not know that conversion in the ordinary procedure fails for many of their customers. Decisive (and, incidentally, publicly available) pieces of information are sometimes disregarded for weeks. A keyword here is “Clearstream”. In our experience, banks are at times weeks behind the curve. Therefore, often outdated information is given to investors – and false hopes are raised.

In view of this, anyone wishing to convert their ADRs into shares should first check, or have someone check, whether conversion in the ordinary procedure (also known as the standard procedure) is actually possible. If this is the case, we believe that the ordinary procedure should be followed.

Only to the extent that the ordinary procedure cannot be considered should one check or have checked whether a forced conversion can be considered.

The conversion in the ordinary procedure is simpler in relation to the forced conversion: You must (1.) have a securities account to which the shares are booked. This requires a securities account with a connection to the NSD (National Settlement Depository). You must (2.) order the conversion from your broker or house bank. While the order to the broker should not cause any problems, the opening of a C-deposit with connection to the NSD is a hurdle that you have to overcome. You will also need to provide correct information afterwards. Otherwise, the application will fail. However, please also see our information below on Clearstream Banking Frankfurt (CBF).

You can easily set up a securities account online at Gazprombank, for example. This will allow you to order the exchange of Gazprom ADRs. So you proceed as follows:

1. You open a securities account at Gazprombank (C securities account). The deposit can be opened free of charge.

2. You then apply to your broker for conversion in the ordinary procedure, observing the relevant deadline and providing correct and complete information about your securities account. Attention: Many investors have given incorrect information about the securities account – and failed. So please find out in advance how exactly and which data is to be conveyed. Your bank will not advise you on this.

Gazprombank serves as an example here. This is the custodian bank for Gazprom shares. In the following we will also inform you about other ADR and C-custody accounts of other banks.

NSD waives fees until the end of 2022, which is why the books for conversion are basically open again until then. However, your broker already needs a request from you before that and will set a shorter deadline.

In principle, you can open a c-depo at any bank that has a connection to the NSD. However, we know of only one bank that allows you to open a c-depo (unverified) by submitting an application by e-mail, and that is Gazprombank. Anyone who opens such a securities account can then, in principle, submit an application to exchange their Gazprom ADR and have the shares booked to the c-depo.

If your securities account is verified with Gazprombank, you can also book in shares of other issuers. If, on the other hand, your securities account is unverified, you can only book Gazprom shares.

For Lukoil ADR, the responsible custodian bank in Russia is AO Citibank. This bank does not currently offer to open unverified C securities accounts. As we were informed locally, it is not expected that this situation will change.

Basically, with an unverified c-depo account you can only convert ADR into shares at the respective responsible custodian bank in Russia.

Therefore, you must first know which is the responsible custodian bank for the shares that are the underlying of your ADRs. The responsible custodian for Gazprom shares is for example Gazprombank. For Lukoil shares, the responsible custodian is AO Citibank. JSC Raiffeisenbank is responsible for Gazpromneft. The latter has now also replaced JP Morgan as the custodian bank, for example for Rosneft.

Subsequently, one or more c-depos have to be opened. At present, however, it is not possible to open unverified c-depos at JSC Raiffeisenbank and AO Citibank, but only at Gazprombank. Therefore, if you want or need to open a suitable securities account for other ADR, you either have to verify a securities account and travel to Russia. Or you can open a securities account with our help at a non-custodian bank, but with a connection to NSD. At the moment we can only offer this to investors who have ADR with a value of at least 300,000 Euros. We are working on a solution for investors with smaller investments.

If the statements of many banks are to be believed, then yes. However, the banks have not taken into account that Clearstream Banking Frankfurt (CBF) must support the procedure. However, this is not the case according to CBF’s communication of November 3, 2022. According to this, the conversion in the ordinary procedure would not be supported as long as the mandatory conversion was ongoing.

Whether CBF will play along before the end of the year is open as of now. It is quite possible that investors whose ADR are held in collective safe custody at CBF will not be able to convert until the end of 2022, so that the currently open window for conversion cannot in fact be used after all. However, people should stay well informed over the next few days and weeks so that they can react quickly in the event of a change on the part of CBF.

Furthermore, we see possibilities to transfer the ADR to other custodians. However, legal assistance is required for this, as the banks’ willingness to cooperate is meager.

Yes, we are of the opinion that a change of depository makes a lot of sense in principle. Securities held at other depositories have been successfully exchanged for shares in the past, while there have been significant problems with securities held by the custodian CBF. However, a depository switch of ADRs held in CBF is currently not officially possible, while it has nevertheless been successful in some cases – and that is why we continue to pursue this path and recommend investors to change depositories.

In principle, yes. To our knowledge, however, this is not possible at present with ADR, which are deposited at CBF. This may change and then it is advisable to relocate the ADRs. However, it should also be borne in mind that such a change can lead to complications if you want to go down the path of forced conversion. For the forced conversion it is true that a change of the depository (which takes a certain amount of time) can lead to complications with regard to the proof of the chain of custody.

According to the Law No. 319-FZ of July 14, 2022, the forced conversion could originally be applied for until October 11, 2022. In the meantime, the deadline was extended by one month and applications could be submitted up to and including November 10, 2022. Thus, the deadline has expired.

However, according to the Interfax news agency, the Financial Market Committee of the Duma is planning a new law. In particular, the Financial Market Committee expressed dissatisfaction with the current procedure at custodian banks in Russia. These would proceed differently with regard to the applications and requirements for the conversion (which we can confirm from our practical experience). Therefore, a law is planned in which the requirements will be specified in detail – which has not been the case so far and which is why the custodian banks have a wide discretion.

We expect the law to be passed. Then there shall be again the opportunity for investors to convert ADR by means of the forced conversion.

UPDATE: Duma has passed the law. We analyze and will share further details soon.

UPDATE: We have analyzed the situation for ADR holders based on new Russian laws. We CANNOT carry out a forced conversion based on the new Russian law for ADR holders. While the Duma has amended the (original) Law No. 319-FZ of July 14, 2022, the recently amended law lacks an important provision related to ADR holders. Only a so-called forced transfer of shares is now possible again, yet not a conversion of ADR. Unfortunately, the provisions that allow for actions with regard to the “forced transfer” of securities cannot be used in an analogous way with regard to the “forced conversion” of ADR. Therefore, we cannot assist investors at this time to convert their ADR by means of forced conversion.

We do not know when the new law will be passed. Nor do we know within what period the possibility of forced conversion is to be granted. We have received further information on this from local bank employees. However, this is not official and should be treated with caution. In the end, the only thing that counts is what the Duma passes as law. It is therefore important to wait for the law to be passed.

Update: We have been informed that Duma has passed the law. We will analyze and share further details soon.

Update: We have analyzed the law. While some actions can be taken again under this law, this is not true for ADR holders. We cannot assist investors to convert ADR into original shares by means of the forced conversion.

Overall, the results were very mixed, but not for our clients. On the contrary, especially with Gazprombank, investors were repeatedly confronted with new hurdles. However, we were successful with all of the forced conversion applications we filed with Gazprombank as well as with the two other important depo banks in this matter, Raiffeisenbank and Citibank. Our success rate is 100%. As far as can be seen, WEISSWERT is the only law firm that has been able to achieve such success. We have issued a Press Release (please click here).

Then the first thing to do is to study the law. We have gained a lot of experience with the previous procedure of forced conversion. The challenge has been not only high formal requirements (notarizations, apostilles, translations, submission in person or by authorized representative, etc.), but not least the fact that custodian banks have communicated the requirements in detail inadequately. Also, custodian banks, including Gazprombank, have changed the requirements over time.

Since the Financial Market Committee now wants to set out the requirements themselves in detail in law, the broad discretion of the custodian banks is likely to be massively restricted. In our view, this is to be welcomed. However, one is well advised to first study the law in detail. Only on this basis is it possible to assess what needs to be done in concrete terms and whether the documents can be provided in the form envisaged by the Duma.

Essentially, we need a power of attorney from you as well as a copy of your passport. In addition, we need a specific bank confirmation from your broker or house bank regarding your ADR. What may sound simple must be well planned:

The power of attorney should be formulated in such a way that you can actually make the applications later. It is also advisable to draft the power of attorney in Russian. We always provide our clients with a power of attorney that has already been tested by us, so that there are no unpleasant surprises. You will also receive a translation so that you can understand the content even without any knowledge of Russian. The power of attorney must be signed in Germany before a notary (signature certification). The power of attorney must also be apostilled at the local district court. The decisive factor is not your place of residence, but the district court in which the notary’s office is located.

The passport copy must be certified (certified copy). The certified copy must also be apostilled.

The bank confirmation must contain various details about your ADR. Among other things, they should have an indication of the ISIN (not just WKN!). Other basic details such as the number of units, the name of the holder and the custody account must be included. In addition, the chain of custody must be disclosed. Also, a statement must be made that the pieces were held by you on 4/27/2022 (but alternatively, we could provide a time period that includes the date of 4/27/2022). Likewise, the “impossibility” must be addressed in the bank confirmation. That is, it must be explained that (and why) the ADR cannot be exchanged for shares through the ordinary procedure.

We have generally had very good experience with most banks in producing such letters. If we had something to find fault with, the banks have usually made improvements in the form we requested. In some cases, we even drafted the letter for the banks. The banks then only had to decide whether they could and wanted to issue such a statement. Believe it or not, some banks were happy to have us help them with this. And we were happy, too. Because that way we had the formulations and formalities under control.

Despite all our efforts: we had bank confirmations of varying quality. Not every bank confirmation met our ideal. It was therefore a great challenge for us to develop solutions to achieve success in Russia with bank confirmations of varying quality (not every letter was signed and stamped in ink, for example…) and in each individual case. We know the ways of solution.

All documents must be translated in Russia. True, the power of attorney is in Russian. But the certification is not. Neither is the apostille. The certification and apostille must therefore also be translated. Translations are not enough either: subsequently, a Russian notary has to certify, and this in view of the translations.

Since all this can take a lot of time, but we were faced with tight deadlines and, according to some custodian banks, “fresh” documents had to be submitted (not older than 15 days), we scanned the documents before they were flown out to Moscow so that translators in Moscow could work on translations even before the documents reached Moscow. Likewise, we organized the fastest possible transport by air, including handover “from lawyer to lawyer”, in order to reduce any risks and delays to a minimum.

Yes.

Yes.

Yes. However, we are currently unable to do so, as only a forced transfer of shares is possible again on the basis of the new law, but not a forced conversion of ADR. A key provision that has not made it into the new Russian law.

The costs depend, among other things, on the specific requirements, i.e. the new legal requirements, for which we are still waiting. However, the procedure has already been complex in the past under Law No. 319-FZ, as well as time-consuming and full of surprises. It is true that we have achieved excellent results with it (see above). However, we have also expended a great deal of effort to ensure these successes. In principle, this will continue to be the case. You should therefore expect costs of several thousand euros. In our opinion, forced conversion is not a valid option for smaller investments. In our opinion, forced conversion is a valid option for ADR investments of at least 50,000 euros and more.