We Have 10 Trillion Rubles of Foreigners Hostage

NEW – June 29, 2022

At the end of February, the Bank of Russia actually froze non-residents’ money invested in the Russian stock market. This applied to the stock and bond markets. If the share of non-residents in bonds is about 18%, then in shares in free float, as much as 70%. That is, you imagine the situation.

Foreigners actually took tribute from our stock market, with their own invented instrument. The Russian stock market is unique in the world. It is valued for the highest dividend yield. Last year it was 9.4%. This is first place in the world. There are practically no bubbles like Tesla or Robin Hood in our market. Behind the shares of our companies are fundamental factors in the form of real production. Therefore, foreigners have been breaking into our market in recent years. As of June 30, 2021, their share was 80.9%. After the beginning of the growth of geopolitical tensions, non-residents began to sell their shares, reducing their share to exactly 70%.

Now this money is frozen. The total value of shares and bonds held by non-residents is estimated at 10 trillion rubles. However, these are still paper assets. Today it is 10 trillion, tomorrow it could be 15 trillion, and so on. For example, in Sberbank alone we have 44% of non-residents, which, according to current quotes, formally amounts to 1.388 trillion rubles.

And now the question is – what to do with these assets?

At the moment, the Central Bank is developing a project to launch trading in securities of non-residents. True, they will trade among themselves in a separate glass. Money, of course, will not be able to withdraw. In fact, they will stew in their own juice, formally performing operations, but from a monetary point of view, they will be meaningless. The only hope for foreigners is that someday the restrictions will be lifted. And then they can take their assets. However, the restrictions are unlikely to be lifted at least until our gold reserves are unfrozen, which, of course, will never happen.

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Indeed, there are risks that this separate glass may be full of holes and securities will still somehow flow from one to another according to grey schemes. Immediately, the government commission headed by the Ministry of Finance will arrive in time, allowing, for example, individuals to buy back shares from non-residents. Or at least allow buyback. However, the main question is whether non-residents will be able to withdraw money even after the sale of assets. We hope it doesn’t come to that. If the government commission or the Central Bank still allow foreigners to take real money, this will be a real betrayal of Russia’s interests. Although the individuals sitting in these departments have sacrificed the interests of our country more than once.

Be that as it may, it is necessary to think about what to do with the frozen assets of non-residents. Because money should work for our economy anyway. A simple freeze is a good Russian response to the actions of the West, but useless from the point of view of the country’s development.

In our opinion, it is necessary to act as follows. For non-residents, indeed, it is necessary to create a separate glass, access to which “from the outside” will be available to issuing companies, as well as the state represented by the National Welfare Fund. Companies will be able to redeem only their shares and receipts, NWF – anything. Recall that the shares that belong to non-residents are not soap bubbles, but assets behind which there is real production.

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Accordingly, non-residents will receive cash on their accounts, which they will not be able to withdraw. All of this will be on special accounts, similar to type C accounts. Further, corporate, project and infrastructure bonds with a maturity of 15-20 years should be sent to this glass. With the condition of repayment in case of unfreezing of funds. With no other options, non-residents will be forced to buy bonds. Otherwise, their funds will be eaten up by inflation.

Thus, the amount of several trillion rubles will be used to finance the real sector of the economy. Given the fact that dividends and coupon payments will drip into this glass, the amount will constantly grow.

Indeed, there is a risk that the vast majority of non-residents will not want to sell shares or buy bonds. For different reasons. In this case, there is a tool for forced buyback of shares, for example, for half the price or with any other discount. It is also possible to introduce a mechanism for forced purchase of bonds, which will become a unique practice.

Yes, some will fear violating Western restrictions. But it can also be used to one’s advantage. For example, to forcibly give the Black Rock fund or the Goldman Sachs bank, which were sitting in our assets, shares of some kind of Severstal or KAMAZ. Let’s see how they will justify themselves by formally violating American law. Of course, they will not bear any responsibility, but the show promises to be spectacular.

Konstantin Dvinsky

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