What to do now with the Russian ADR? Part 2

Monday, 12. September 2022
  • Zerich Securities offers to sell Russian ADR –

Now that Clearstream is again refusing to pass on the Russian ADRs, the only option left for ADR holders at the moment is either to take the “Russian route” under the new Russian law or to wait one year and hope for a cash settlement. Both are not without risks. What is new now is the offer by Zerich Securities to buy 20 non-sanctioned Russian ADRs at a discount of 20 per cent.

By suspending trading in Russian ADRs, the New York and London exchanges have done a disservice to ADR holders. Now Clearstream is once again leaving Western investors out in the cold, after previously allowing a temporary transfer to the broker Freedom Finance.  The ADR holders are now suffering more from the Western sanctions, as are the people in the EU from the high electricity and gas prices, which may lead to a wave of insolvencies in the EU. The sanctions are doing more damage in the West than Russia anyway. Russia has high current account and balance sheet surpluses and a proverbially bulging war chest – also because of the nonsensical sanctions. Gazprom even achieved new record profits. The Moscow stock exchange has recently developed very positively, but Western investors have nothing to gain from this, as they are prohibited from trading as foreigners.

Those who want to take the somewhat costly Russian route can either turn to some specialised law firms with good contacts in Russia or to Freedom Finance. The deadline is 12 October, but it is possible that the deadline of 12 October will be extended, which remains to be seen. It is also possible that Clearstream will stop obstructing ADR holders, which also remains to be seen. Independent of Russia, there are new opportunities on the Eastern European stock exchanges, especially in Georgia and Kazakhstan, whose presidents are both against the Ukraine war.

Andreas Männicke gives his assessments of the geopolitical dangers, but also of the possibilities of converting the ADR/GDR into original Russian shares in his stock market letter EAST STOCK TRENDS (www.eaststock.de) and in his new EastStockTV video, episode 198 at www.YouTube.com.

What to do now with the Russian ADR?

There is good news and bad news regarding the conversion of ADRs into original Russian shares. After Russia introduced a law on forced conversion, where no Western partners are needed, Clearstream has made the transfer impossible, although it still works sporadically under Euroclear. It would make sense to sue Clearstream now, as well as the New York Stock Exchange, because it is outrageous to leave Western ADR holders out in the cold like this. Nevertheless, I advise you to open an account with Freedom Finance, because on the one hand Clearstream can change its impossible behaviour, and on the other hand the deadline of 12 October can be extended.  In addition, Freedom Finance can also help you in individual cases to go the very time-consuming Russian route if you open an account there, But here, too, haste is called for.

Are Russian ADR holders threatened with total loss?

It was an outrage that the New York and London stock exchanges prohibited the trading of Russian ADR/GDR even when trading on the Moscow Stock Exchange restarted on 24 March, i.e. 1 month after the start of the war. A Duma law of April 2022 provides for the termination of all ADR/GDR programmes and also for no dividends to be paid. However, dividends can be claimed after the ADR programme ends. Since the ADRs have now again been terminated on the part of the Russian issuers, the ADR holders are in a very precarious situation. On the one hand, they can wait and hope for a cash settlement after one year in August 2023, although it is completely unclear how high this will be. On the other hand, they can and should convert the ADRs into original Russian shares in the hope that after the end of the war or after the end of the sanctions, trading in Russian shares will again be possible for foreigners, which is not the case at the moment, because foreigners are not allowed to trade in Russian securities on the Moscow Stock Exchange. What is needed now is a Russian depository. This can be Gazprombank, Citibank of Moscow or the broker Freedom Finance. NorNickel is so far the only Russian company that has applied for an extension of the ADR until April 2023. It remains to be seen how this application will be decided by the Bank of New York and also in Russia.

Is something similar to what happened with Russian ADRs also possible with Chinese shares on Wall Street?

Not only many private investors are affected by the at least temporary “quasi-expropriation”, but also all Eastern European funds and emerging market funds with Russian ADR in their portfolios, where trading was also suspended because the Russian ADR could not be valued or trading on the Moscow Stock Exchange was no longer possible. It is incomprehensible why Western investors are being left in the lurch so much only because of the sanctions, which are nonsensical and ineffective anyway. Now, however, many investors are also wondering whether something similar could happen to Chinese shares listed on the New York Stock Exchange, especially if there were to be a war in Taiwan.

Law firms with good contacts in Russia

There are some law firms that are looking to transfer DR to a depository in Russia. One of them is the law firm Schirp & Partner (www.schirp.de) from Berlin, which, however, involves some notarial certification and also not inconsiderable costs.  Another is Goldenstein & Partner (https://www.goldenstein-kanzlei.de/leistungen/adr-gdr-umwandlung/ ) in Berlin/Potsdam. The deadline was originally 12 August, but has now been extended to 12 October, with the deadline for the law firm now being 13 September. It is 20 ADR/GDR for Schirp and only 6 ADR for Goldstein that can be converted and transferred to a depository in Russia (usually Gazprombank in the case of Gazprom shares or Citibank of Moscow). Since Clearstream no longer makes transfers, the only option left at the moment is the Russian route of forced transfer.  Investors would then have to issue a notarised power of attorney and send the documents such as a deposit statement, passport, etc. to the law firms. However, you have to hurry here, as this will only be possible this week (until 13 September at the latest), when the notarised postille must be available. You must therefore go to a notary beforehand. Everything else will then be done for you by the law firms.

Clearstream again obstructs ADR holders during transfer

As mentioned, Citibank of Moscow, Gazprombank or the Cyprus-based broker Freedom Finance, which has a branch in Berlin, were and still are considered as custodians. But also some other German law firms and auditors try to manage the conversion of the ADR into original Russian shares for a certain fee. At Freedom Finance there are German-speaking contacts and advisors who can help you with the transfer.  However, all this advice is of no use at the moment, as Clearstream is once again refusing to move the ADR from one bank/broker to another. The “match” is not working at the moment as it did before, for whatever reason. However, the conversion of ADRs into original shares still works at Freedom Finance, only the ADRs have to arrive at Freedom Finance. The deadline for conversion is 12 October, but it may be extended again.

Clearstream has now made the transfer of ADRs impossible because there is a new Russian law that makes the conversion possible without Western partners. How this will look in practice is currently being tested, but it is very complicated. Basically, Clearstream should be sued for not forwarding the ADRs to the Russian custodian NDS or to the broker Freedom Finance, although NDS does not charge any fees for this (until 12 October). One now has to wait and see what will be possible again soon. In addition, many direct brokers such as Consors, Comdirekt and ING Bank already caused problems before. They were not very cooperative and in some cases did not know exactly what was possible and what was not. Previously, the transfer was relatively problem-free at savings banks, Raiffeisen banks and also at the broker Interactive Brokers, where the transfer sometimes took only 1 day. Now, however, nothing at all is possible through Clearstream at the moment, but this can change again quickly. NorNickel has applied to continue the ADR programme until April 2023. We will have to wait and see what happens with this application. Upon request, you can now also go the Russian way with Freedom Finance if Clearstream should continue to “not participate”. But here, too, you have to hurry because the deadline of 12 October will soon be reached.

Freedom Finance with a wide range of offers

However, opening an account with Freedom Finance could be worthwhile for you even without the Russian ADR exchange. This is because Freedom Finance, as a broker, also offers other attractive investment opportunities such as participation in IPOs (soon perhaps also with Porsche) on German stock exchanges and on NASDAQ in particular, soon also special pre-IPO programmes in the early stages, but also direct trading on the Hong Kong stock exchange with many investment opportunities. You then also have the advantage of having a direct advisor who supports and accompanies you in your investment decisions. There is hardly anything like that at the big banks any more, because you often don’t get any special information there. The service of the banks has become worse and worse over the years due to cost-cutting. Often you only end up in some call centre, where the advice is very poor. In addition, often only in-house products such as funds are offered. You would be better off with Freedom Finance if you want to buy shares yourself. At Freedom Finance you also get an interest rate of 3% p.a. on the uninvested money in a USD account, which is still quite a lot these days.

If your bank/broker has problems converting the ADR/GDR into original Russian shares and Clearstream is again involved or the deadline of 12 October is extended, please use the following link, https://freedom24.com/invite/?utm_source=referral&utm_medium=invite&utm_campaign=pfu2952896, to register with the broker Freedom Finance and open an account there. The account can then be opened online (preferably using a smartphone). You will need a passport or ID card, a recent bill with your address on it (e.g. electricity or water bill) and then go through a verification process online via video/photo. The conversion fees are 3% and €100 for each ISIN. But Clearstream would now have to “join in” again soon.

Zerich Securities/Mind Money (Cyprus) wants to enable the sale of Russian ADRs

Another offer is now being made by the broker from Cyprus Zerich Securities Ltd (www.zerichsecurities.com) or Mind Money EU, which is offering to buy 22 non-sanctioned companies as ADRs at a discount of 20 per cent to the respective stock exchange price on the Moscow Stock Exchange. These are the following shares: Gazprom, LUKoil, Rosneft, Tatneft, Mosenergo, PIK Group, Polyus Surgutneftegas, Sistema, MMC Norilsk (NorNickel), LSR Group, JSC.

OGK 2, Mechel, Acron. MTS, NLMK, EN+, Agro Group.

Zerich Securities is one of the oldest Russian brokers with very good contacts in Russia. The broker Zerich Securities has now set up the new platform Mind Money (website: https://mind-money.eu/de/ or especially for ADR: https://mind-money.eu/de/faq-russian-adr-conversion ) even in German.

So instead of exchanging ADRs for local shares that cannot be sold, you can also sell toxic assets and go in the cash. Since the sanctions are unlikely to be lifted in the near future, such an option with the sale of ADRs is likely to be of some interest to some investors.

Investors would then have to set up a brokerage account with Zerich Securities or Mind Money EU and then transfer the ADR there. There is also an employee at Zerich Securities who is of German descent and can speak German. However, as long as the transfer from the bank/broker of the ADR holder to the broker Zerich Securities Ltd does not work, it might be problematic that the ADR also end up at Zerich Securities Ltd in Cyprus.

Before you start any procedures, you should in any case contact a manager/advisor of Zerich Securities or Mind Money and also seek legal advice. The staff of Zerich Securities/MindMoney offer personal free assistance in all matters (website ZSL: https://mind-money.eu/de/).

Gazprom with record profits

The decisive factor, if the ADRs arrive, is the respective price converted on the Moscow Stock Exchange. Gazprom earned €42 billion in the first half of the year, more than ever before. in euros.  First Gazprom said it would not pay a dividend, which initially led to a sharp drop in the share price. Then rumours emerged that Gazprom does want to pay a dividend. The dividend yield is even said to be 25 per cent. However, this is not yet official. On 5 September, Gazprom’s share price fell by 1 per cent in Moscow because Gazprom was no longer supplying gas to the EU due to the oil leak at the turbine.

In the case of Gazprom, the prices of just over €6 minus 20 per cent would be decisive. Anyone interested in selling their ADR at a discount of 20 percent to the market price should contact Zerich Securities or Mind Money directly, but at the same time seek legal advice beforehand as to whether such a sale of the ADR is possible at all. Zerich Securities, by the way, has a similar offer as Freedom Finance (also Pre IPOs trading of US shares, trading of Chinese shares in Hong Kong, etc.). and is also a partner of Freedom Finance. The company also wants to show how one can still make money with gas stocks.

First inform, then invest

Inform yourself now also in detail about the background and the development of the Ukraine/Russia crisis but also the future recovery potential of the undervalued shares from Eastern Europe. There are also new opportunities in the Baltics, Romania and Ukraine, with the respective stock indices all up in 2019.  For example, some Ukrainian agricultural stocks have already more than doubled in price since 2016, and in 2018 the PFTS index was already up over 70 per cent again. Kazakhstan stocks were among the top performers in the world in 2017 (+56 per cent), but not in 2018 and not in 2019, but again in 2020/21.

In 2018, 10 stock markets from Eastern Europe were already among the best-performing stock markets in the world, all of which clearly outperformed the DAX and also the US stock market. In 2019, the Moscow Stock Exchange was once again the clear outperformer among all global stock markets, with a plus of over 46 percent in euro terms. However, the Bucharest Stock Exchange (Romania) also rose by over 32 per cent in 2019. The stock markets in Southeast Europe and also in the Baltic countries remained very stable on the plus side (Croatia +13 per cent). In 2020 year 6 stock exchanges from Eastern Europe were among the 30 best performing stock markets in the world and last year even 11 stock exchanges from Eastern Europe.  This year, 5 Eastern European stock exchanges, mostly from the Balkans, clearly outperformed the DAX. After the Ukraine war, it is still worthwhile to look beyond the horizon to Eastern Europe.

Order now a trial subscription (3 issues by e-mail for only 15 €) of the monthly stock exchange letter EAST STOCK TRENDS (EST) with another Ukraine/Kazakhstan/Russia special and a dividend special as well as with a lot of background information and new investment suggestions such as the “Stock of the Month” and lucrative certificates at www.eaststock.de, there under Stock Exchange Letter.  The next EST will be published on 12 September 2022.

TV/radio notes: The last radio interview was on Börsen Radio Networks on 23 August 2022.  The next Börsen Radio Networks interview will be in October. Please also note the last EastStockTV video on YouTube about the Ukraine war and the new outperformance opportunities of the Eastern European stock markets as well as the Stock Exchange Talk with Rainer Hhan and Bastian Stein on 3 September 2022. You can download the interviews at wwww.eaststock.de, there under the heading “Interviews” as well as the videos of EastStockTV. By the way: have you already subscribed to the EastStockTV YouTube channel? Andreas Männicke will also give a talk at Freedom Finance on 8 October at the Börsentag in Berlin.

Subscribe now for free to the Andreas Männicke Newsletter to receive the full content by email.

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