NOT FOR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, THE PEOPLE’S REPUBLIC OF CHINA, AUSTRALIA, CANADA OR JAPAN.
These “Terms & Conditions of UC RUSAL Plc’s Sponsored Russian Depositary Receipts Program” (the “Terms & Conditions”) are not an offer for sale of any securities in the United States. Securities may not be offered or sold in the United States absent registration under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or an exemption from registration under the Securities Act. Any securities described in these Terms & Conditions have not been and will not be registered under the Securities Act, and there is no intention to conduct a public offering of any securities in the United States.
The Terms & Conditions do not constitute or form part of any offer or invitation to make offers, sell, exchange or transfer of, or any solicitation of any offer to subscribe for or purchase, or advertisement of, any securities in Hong Kong, the United States, the Russian Federation, France or elsewhere, nor shall they (or any part of them) form the basis of any investment decision, contract or commitment whatsoever, and these Terms & Conditions are for information only. The distribution of the Terms & Conditions may be restricted by law in certain jurisdictions, and persons into whose possession the Terms & Conditions or other information referred to herein come should inform themselves about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation of the laws of any such jurisdiction.
Documents in respect of the Russian depositary receipts have been duly registered by the Russian Federal Service for the Financial Markets and publicly disclosed in the Russian Federation in accordance with applicable laws and regulations. At the same time, no securities issued or to be issued by UC RUSAL Plc’s, including securities underlying the Russian depositary receipts, have been or will be registered in the Russian Federation or admitted to public placement and/or public circulation in the Russian Federation. Such securities are not intended for “placement” or “circulation” in the Russian Federation except as permitted by Russian law.
The Terms & Conditions contain no information or material which may result in them being deemed (i) to be a prospectus within the meaning of section 2(1) of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong), or an advertisement or extract from or abridged version of a prospectus or an advertisement in relation to a prospectus or proposed prospectus, within the meaning of section 38B of the Companies Ordinance or an advertisement, invitation or document containing an invitation to the public falling within the meaning of section 103 of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), or (ii) in Hong Kong to have effected an offer to the public without compliance with the laws of Hong Kong or being able to invoke any exemption available under the laws of Hong Kong, and the Terms & Conditions are subject to material change. These Terms & Conditions do not constitute a prospectus, notice, circular, brochure or advertisement offering to sell or inviting offers to acquire, purchase or subscribe for any securities in Hong Kong or calculated to invite such offers or inducing or intended to induce subscription for or purchase of any securities in Hong Kong.
These Terms & Conditions are only being distributed to and are only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth entities, and other persons to whom they may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). The securities described herein are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on these Terms & Conditions or any of their contents.
In any EEA Member State that has implemented Directive 2003/71/EC (together with any applicable implementing measures in that Member State, the “Prospectus Directive”), these Terms & Conditions are only addressed to and directed at qualified investors in that Member State within the meaning of the Prospectus Directive.
These Terms & Conditions do not constitute an investment, legal, tax, financial or other advice to the prospective holders of Russian depositary receipts. You should consult your own legal, tax, financial and other advisors as to holding or conducting transactions with Russian depositary receipts and the related consequences.
TERMS & CONDITIONS OF UC RUSAL PLC’S SPONSORED
RUSSIAN DEPOSITARY RECEIPTS PROGRAM (“RDR PROGRAM”)
KEY TERMS OF RDR PROGRAM Participants
Issuer of Underlying Securities
United Company RUSAL plc (Jersey) (the “Company”) is the issuer of securities
underlying the Russian depositary receipts (“RDR” or “RDRs” as appropriate). The
Company (www.rusal.com) is a parent company of a group being the world’s largest producer
of aluminium. The Company’s offices are located at Ogier House, The Esplanade, St. Helier, Jersey, JE4 9WG.
Issuer of RDRs (Depositary)
Sberbank of Russia (“Sberbank”, or the “Depositary”) acts as the issuer and depositary of RDRs. Sberbank (www.sbrf.ru) is the largest credit institution in Russia and the CIS. The Depositary’s offices are located at ul. Vavilova 19, Moscow, 117997, Russian Federation.
Custodian
In depositary receipts programs, a depositary typically appoints a custodian to safekeep the underlying securities. Clearstream Banking S.A., located at 42 Avenue JF Kennedy, L-1855 Luxembourg (the “Custodian”) was appointed as a custodian of securities underlying the RDRs. The Depositary may replace the Custodian with another custodian from a list of custodians approved by the Russian Federal Service for the Financial Markets (the “FSFM”) at any time and at its own discretion, provided that any such change in the Custodian shall not negatively affect rights of holders of RDRs (“RDR Holders”). The Depositary will give prompt notice to the RDR Holders of any such action by posting this information on the RDR Web Page (as this term is defined below).
Russian Depositary Receipt
An RDR is a Russian registered security with no nominal value that (a) certifies a right of ownership of an RDR Holder to a certain number of underlying securities and (b) provides for a right of the RDR Holder to demand from the Depositary provision of certain services related to the rights attached to the underlying securities or delivery of the corresponding number of the underlying securities in exchange for an RDR.
RDRs under the RDR Program are placed by means of an open subscription. The maximum number of RDRs that may be issued at any time under the RDR Program is described below. The RDRs may be issued during an unlimited period of time until the RDR Program is closed (for information on termination of the RDR Program, please see section “Amendments and Termination of the RDR Program” below).
RDRs to be issued on the Company’s underlying securities will be considered “domestic securities” for the purposes of Russian currency laws and regulations, and will thus be subject to rules established by such laws and regulations with respect to dealings with domestic securities.
Type of RDR Program
The RDR Program is a program sponsored by the Company, i.e., RDRs are issued by the Depositary in co-operation with the Company where the Company makes certain undertakings to the RDR Holders.
For these purposes, the Company and the Depositary have entered into an agreement on RDRs (the “Deposit Agreement”). The Deposit Agreement and the Depositary’s decision on the RDR issue (the “Decision on Issue”), which incorporates the Deposit Agreement, specify rights and obligations of the Company and the Depositary under the RDR Program.
If you acquire an RDR, you will agree to all the terms and conditions set out in the Decision on Issue and the Deposit Agreement. By acquiring an RDR you will also appoint the Depositary to act as an agent on your behalf in certain circumstances.
The Decision on Issue and the Deposit Agreement specifying the terms of the RDRs are governed by Russian law.
Underlying Securities
RDRs represent ownership rights to the Company’s ordinary shares with nominal value of US$0.01 each, ISIN - JE00B5BCW814, CFI - ESVUFR (“Shares”), including Shares listed on The Stock Exchange of Hong Kong Limited (the “SEHK”) (Stock code: 486).
The Company’s global depositary shares listed on the professional board of Euronext Paris (“RUSAL” for Reg S GDSs and “RUAL” for Rule 144A GDSs) are not underlying securities for the purposes of the RDR Program.
Maximum Size of RDR Program
The maximum size of the RDR Program is 2,000,000,000 RDRs, which represents 100% of the total authorized share capital (both issued and not yet issued) of the Company. The maximum size of the RDR Program does not necessarily indicate that RDRs will be issued in the quantity specified above.
As of the date of these Terms & Conditions, no offering of RDRs either by the Company or any of its shareholders is contemplated. At the moment, it is expected that RDRs will be issued on already issued Shares against their deposit into the RDR Program by then existing shareholders of the Company.
RDR/Share Ratio
Each RDR will represent its holder’s ownership right to ten (10) Shares.
Fungibility
The Company’s shareholders shall be able to receive RDRs against the deposit of Shares, and, vice versa, RDR Holders shall be able to receive Shares against their RDRs, in both cases subject to limitations, which would depend on an investor’s status and applicable laws and regulations. Investors should familiarize themselves with any such limitations.
Listing of RDRs
RDRs have been listed (quotation lists “V”) on both CJSC “MICEX Stock Exchange” (“MICEX”) (ticker: “RUALR”) and OJSC “Russian Trading System” Stock Exchange (“RTS”) (ticker: “RUAL”). Sberbank has engaged VTB Capital, Troika Dialog and Renaissance Broker to act as market makers on these stock exchanges in accordance with applicable rules.
WHERE YOU CAN FIND MORE INFORMATION Initial Disclosure Package
The Depositary has filed and registered with the FSFM the following documents:
(b) the Deposit Agreement (attached to and forming part of the Decision on Issue);
(c) the RDR prospectus (the “RDR Prospectus”) that incorporates Russian
translations of (i) the prospectus with respect to the Company and Shares, dated 31 December 2009, disclosed at the time of the Company’s application to listing in Hong Kong (the “HK Prospectus”) (the HK Prospectus is attached as Appendix XVI to the RDR Prospectus), (ii) the Company’s annual report for the year 2009, and (iii) the Company’s consolidated interim condensed financial information for the three- and nine- months ended 30 September 2010.
Please note that these Terms & Conditions provide for a summary description of the material terms and conditions of the RDRs and material rights of RDR Holders, but do not provide for all of the information contained in the Decision on Issue, Deposit Agreement, RDR Prospectus and HK Prospectus. Summaries by their nature lack the precision of the information summarized, and the rights and obligations of RDR Holders will be determined by reference to the terms of the Decision on Issue and the Deposit Agreement and not by these Terms & Conditions. We, thus, urge you to review all such documents in their entirety. The Decision on Issue, the Deposit Agreement and the RDR Prospectus are available in the Russian language only.
Ongoing Disclosure
Disclosure Related to Depositary
The Depositary is subject to ongoing periodic and one-off disclosure requirements in Russia as an issuer of securities. The Depositary is required to make available to the public its quarterly reports and notices of material events related to its business, as well as other information required to be disclosed pursuant to the Federal Law on the Securities Market No. 39-FZ dated 22 April 1996 (as amended) (the “Securities Market Law”) and the Federal Law on the Joint Stock Companies No. 208-FZ dated 26 December 1995 (as amended). The disclosure is made in the Russian language and is available on the Depositary’s web site.
Disclosure Related to Company and Shares
Immediately upon registration of the RDR Program, the Depositary has become subject to ongoing periodic and one-off disclosure requirements with respect to the Company and Shares under Russian securities laws. Such disclosure will be made with respect to the information on the Company and Shares that is provided to the Depositary by the Company.
For the purposes of such disclosure, the Company undertakes to furnish the Depositary with the Company’s annual and interim reports (as applicable), which will include a review of the Company’s operations, financial statements prepared in accordance with IFRS (audited or reviewed, as applicable), as well as any public announcements of price-sensitive information related to the Company and Shares after such announcements have been made by the Company in Hong Kong. The disclosure of such information on the Company and the Shares will be made in the same form as is made available to the Company’s investors in Hong Kong, but will be translated into the Russian language. The Company’s reports will be included into the Depositary’s quarterly reports in a form of separate attachments thereto.
Copies of Documents
Electronic copies of the documents with respect to the RDR Program specified above (both those comprising the initial disclosure package and ongoing disclosure) will be available on the following Depositary’s web page: http://www.sberbank.ru/rdr/ (the “RDR
Web Page”). Copies of the documents can also be inspected at the Depositary’s offices at the
address indicated above. You can request copies of the documents upon prior notice and payment of a duplicating fee to the Depositary.
Disclosure on Interfax Russian Newswire
Notices of material events related to the Company, as well as information on the publication of the Company’s financial statements by the Depositary on the RDR Web Page, will be made available on the Interfax Russian newswire within one (1) day after the relevant information has become available to the Depositary.
ISSUANCE, TRANSFER AND CANCELLATION OF RDRS Issuance of RDRs
Issuance of RDRs is carried out against the deposit of Shares to a custody account opened with the Custodian (the “Custody Account”) by a holder of such Shares (or its agent,
e.g., broker). Shares may be deposited by you or your agent (if you are a holder of Shares), as
well as by any holder of Shares who would like to deposit the Shares and issue RDRs in your favour. The issuance of RDRs will not be made until the Shares have been duly transferred and credited to the Custody Account. The Shares deposited to the Custody Account will be held by the Depositary in the interests of the relevant RDR Holders.
To receive RDRs on your account, you will have to deliver to the Depositary documents and information forming part of an application package for the issuance of RDRs. Such application package may be delivered to the Depositary either (a) directly (in the event you have undergone all the necessary KYC procedures directly with the Depositary), or (b) through:
(i) a Russian registrar of RDRs appointed by the Depositary, currently CJSC “The
Registrar Company “STATUS” (www.rostatus.ru) (the “RDR Registrar”), if
you have decided to open an RDR account directly with the RDR Registrar, or (ii) a custodian that has a co-operation agreement with the Depositary, or a
sub-custodian that has necessary arrangements with such a sub-custodian, if you have decided to open an RDR account with such a custodian or sub-custodian.
RDRs are issued in whole numbers only. Issued RDRs will be recorded on your account opened (at your discretion):
(a) directly with the RDR Registrar;
(c) with sub-custodians, who, in turn, maintain accounts with custodians maintaining respective accounts with the RDR Registrar, or with other custodians or sub-custodians.
Transfer of RDRs
As an RDR Holder, you will be entitled to transfer your RDRs (e.g., in the event of their sale and purchase) to a third party. Transfers are made upon the transfer instruction of the RDR Holder (or its agent) to the RDR Registrar, or to the RDR Holder’s custodian or sub-custodian, depending on whether RDRs are accounted directly with the RDR Registrar or with custodians (sub-custodians).
Cancellation of RDRs and Withdrawal of Shares
As an RDR Holder, you will have the right to demand from the Depositary delivery of the corresponding number of Shares in exchange for your RDRs. The relevant RDRs will then be cancelled on your account, and the Shares will be transferred from the Custody Account to your or your agent’s account. Transfer of Shares will not be made until your RDRs have been cancelled on your account.
Cancellation of RDRs and withdrawal of Shares is carried out pursuant to (a) an instruction for RDR cancellation and (b) application for withdrawal of Shares.
An instruction for RDR cancellation is delivered either to the RDR Registrar, or a custodian (sub-custodian) (depending on whether RDRs are accounted directly with the RDR Registrar or with a custodian (sub-custodian)).
An application for withdrawal of Shares is delivered to the Depositary either (a) directly (in the event you have undergone all the necessary KYC procedures directly with the Depositary), or (b) through:
(i) the RDR Registrar, if you have decided to open an RDR account directly with the RDR Registrar, or
(ii) a custodian that has a co-operation agreement with the Depositary, or a sub-custodian that has necessary arrangements with such a sub-custodian, if you have decided to open an RDR account with such a custodian or sub-custodian.
Once canceled, the RDRs will not provide for any rights under the Decision on Issue and the Deposit Agreement. Cancelled RDRs may be re-issued pursuant to the procedure described above as long as the maximum size of the RDR Program has not been utilized in full.
Limitations on Issuance of RDRs and Withdrawal of Shares
Please note that your ability to deposit Shares and receive RDRs, as well as to cancel RDRs and withdraw Shares may be limited by certain legal and practical considerations applicable at the time of the deposit of Shares and issuance of RDRs, or at the time of the cancellation of RDRs and withdrawal of Shares, respectively, as described in the Decision on Issue.
In particular, Russian laws and regulations in force as at the date hereof do not allow RDR Holders to cancel RDRs with a transfer of withdrawn Shares directly to an account of a third party (unless such a third party is your agent). If you would like to transfer Shares to a third party, you will need to cancel RDRs and withdraw Shares with their transfer onto your or your agent’s account, and only after that transfer Shares from such account to a third party’s account. Further, such Russian laws and regulations are not clear with respect to whether RDRs may be cancelled and Shares may be withdrawn and transferred to your or your agent’s account, if you are not a “qualified investor”, as this term is defined in Article 51.2. (Qualified Investors) of the Securities Market Law. You are advised to monitor changes to the relevant Russian laws and regulations. Neither the Company, nor Sberbank assumes any obligation to update investors or make any announcements in respect of such changes.
The Depositary may refuse to deliver RDRs or Shares when the Company’s books or the books of the Depositary are closed and operations with RDRs and Shares are suspended. The Depositary may close its books and suspend operations with RDRs and Shares from time to time for a number of reasons, as specified in the Decision on Issue, including in connection with certain Company’s corporate events.
The issuance of RDRs or withdrawal of Shares may be delayed until the Depositary receives all the required information, documents, confirmations and satisfactory evidence of compliance with all applicable laws and regulations from the depositor and/or the future or existing RDR Holder, as the case may be. RDRs and Shares will be delivered only after all applicable fees, charges and taxes (including the Depositary’s fees) have been paid in full.
Please note that depending on your status and applicable laws and regulations you may be subject to certain selling and transfer restrictions with respect to RDRs and Shares. A summary of selling and transfer restrictions with respect to investors from Russia, the United States, the European Economic Area, including the United Kingdom, and Hong Kong is provided in section 10.10 “Other information” of the RDR Prospectus.
Terms of Operations with RDRs
Please note that (a) forms of certain documents mentioned in this section of the Terms & Conditions, (b) detailed procedure for registration of a potential investor into RDRs with the Depositary, (c) detailed procedure for the deposit of Shares and issuance of RDRs, (d) detailed procedure for the cancellation of RDRs and withdrawal of Shares, (e) details of the Custody Account, and (f) details of custodians that have entered into co-operation agreements with the Depositary are provided in the rules and regulations on RDR dealings available on the RDR Web Page (as may be updated from time to time).
RIGHTS OF RDR HOLDERS General
As an RDR Holder, you will have, among others, the following rights:
(a) the right to vote at the Company’s shareholders’ meetings;
(c) the right to receive other distributions, including those distributions made in the event of the Company’s liquidation.
Voting Rights
You will have no direct voting rights with respect to the Shares represented by your RDRs, but will have a right to instruct the Depositary to exercise voting rights with respect to such Shares.
After the Depositary receives a notice from the Company that a shareholders’ meeting is planned to be convened and related materials, it will publish a notice of such meeting on the RDR Web Page. The notice will state such information as is contained in the materials received by the Depositary from the Company and will describe how you may instruct the Depositary to exercise the voting rights with respect to the Shares represented by your RDRs.
Provided the Depositary receives duly completed voting instructions from you within the specified time period, the Depositary will cause the Shares on deposit with the Custodian to be voted in accordance with your voting instructions. Shares for which no voting instructions have been received or for which voting instructions have not been received on time or did not meet the applicable requirements will not be voted. Specifically, no discretionary proxy will be given either to the Depositary, or to the Company. Voting results will be published at the RDR Web Page once they become available to the Depositary.
The ability of the Depositary to carry out voting instructions may be limited by certain legal and practical considerations. Because of the additional procedural steps involved in communicating with RDR Holders, the process for exercising voting rights may take longer for RDR Holders than for the Company’s other shareholders. Although the Company and the Depositary will make all reasonable efforts to enable you to exercise voting rights, they cannot guarantee that you will receive voting materials in time to enable you to return voting instructions to the Depositary and the Company in a timely manner.
RDR Holders may only exercise their voting rights with respect to Shares in accordance with the Company’s charter, laws and regulations of Jersey and Hong Kong, the Decision on Issue and the Deposit Agreement.
Dividends
General Information
As an RDR Holder, you will have a right to receive dividends the Company pays in respect of the Shares deposited with the Custodian and represented by the relevant RDRs. You will be notified by the Depositary of the dividend distributions by publication on the RDR Web Page. Distributions will be made pursuant to the terms of the Decision on Issue and the Deposit Agreement in proportion to the number of RDRs held by you as of a specified record date. Your receipt of any distributions may be limited by certain legal and practical considerations.
Please note that the terms of the Company’s debt restructuring agreements currently limit the Company’s ability to pay dividends. For more information, please see section “Risk
Cash Distributions
Cash distributions in respect of RDRs may be made in Roubles only.
Whenever the Company makes a cash distribution in respect of the Shares on deposit with the Custodian represented by RDRs, the Company will transfer the respective funds to the Depositary. Since the funds will be transferred in a foreign currency, pursuant to the Decision on Issue the Depositary will arrange for such funds to be converted into Roubles and distributed among the RDR Holders.
The conversion into Roubles will be made by the Depositary in a reasonable manner and at a reasonable exchange rate without any additional commission charged to the RDR Holders. The amount of dividends actually received by the RDR Holders, may, thus, be subject to fluctuations in the exchange rate between the Rouble and the respective foreign currency.
The amounts transferred to the RDR Holders will be net of the Depositary’s fees and expenses, as well as all applicable taxes and governmental charges. Distributions will be made in whole Roubles and kopecks. Fractional amounts of Roubles and kopecks left after cash distribution among the RDR Holders may be withheld and dealt with by the Depositary in accordance with its then current practices.
The Depositary will apply the same method for distributing the proceeds of the sale of any property, including securities, transferred to it as distributions in respect of Shares on deposit with the Custodian represented by RDRs.
Distributions of Securities
Whenever the Company makes a distribution of securities, including distribution of additional Shares, in respect of the Shares on deposit with the Custodian represented by RDRs, the Company will transfer such securities to the Depositary’s account. Such account will be separate from the Custody Account.
In the event of distribution of additional Shares, the Depositary will distribute to you either such Shares or additional RDRs representing such Shares, depending on the instruction received from you. In the case of distribution in the form of RDRs, only whole RDRs will be distributed. The remaining Shares will be distributed in the form of Shares to your account, if you instruct so. In the absence of such instruction, the Depositary may sell the remaining Shares and transfer the sale proceeds to you.
In the event of distribution of securities other than Shares, the Depositary will either transfer such securities to your account, or will sell them and distribute to you the sale proceeds depending on the instruction received from you.
Fractional entitlements of securities, including of additional Shares, will be sold and the sale proceeds will be distributed among the RDR Holders pro rata to their holdings.
No distribution of securities, including additional Shares and RDRs, will be made, if such distribution would violate any applicable laws or regulations (e.g., the Russian or U.S. securities laws). In such a case, the Depositary may sell securities in a manner it deems practicable and will transfer the sale proceeds to you.
Distributions Other than in Cash or Securities
Whenever the Company makes a distribution of dividends other than in cash or securities, for the Shares on deposit with the Custodian, the Depositary will sell such property in a manner it deems practicable and will distribute the proceeds of the sale among the RDR Holders.
Related Matters Rights Issues
The Company may, from time to time, make an offer or invitation to its shareholders to subscribe for or to acquire Shares, securities or other assets. Whenever the Company intends to extend such an offer, the Company will give prior notice thereof to the Depositary. The Depositary will then notify the RDR Holders accordingly by a publication on the RDR Web Page that will describe the relevant procedures.
Redemption of Shares
Whenever the Company or a third party extends an offer to purchase or makes a claim for compulsory acquisition of any of the Shares, the Company will give notice thereof to the Depositary. The Depositary will then notify the RDR Holders accordingly by a publication on the RDR Web Page that will describe the relevant procedures.
The Company has agreed in the Deposit Agreement that it will use all reasonable endeavors to assist the Depositary in connection with both rights issues and tender offers/compulsory acquisition of Shares.
You may have to pay fees, expenses (including those of the Depositary), taxes and other governmental charges in connection with rights issues or tender offers or compulsory acquisition of Shares.
TAXATION Russian Tax Considerations
Taxation upon a Purchase of RDRs
No Russian tax implications generally should arise for the RDR Holders, whether they are Russian resident or non-resident RDR Holders, upon the purchase of the RDRs. However, in some circumstances, taxable income in the form of a material benefit may arise for an RDR Holder who is an individual if the RDRs are purchased at a price that is below the market value. Such income would be subject to taxation at the rate of 13% with respect to individuals who are Russian residents and at the rate of 30% with respect to non-resident individual RDR Holders if such income is received by the latter from the sources in Russia.
Taxation of Dividends
According to the clarifications issued by the Russian Ministry of Finance, the Company should be regarded as the source of the income with respect to dividends distributed under the
Taking into account the above, payments of dividends by the Company to a Russian resident RDR Holder should generally be subject to Russian income tax at the rate of 9% to be imposed on the gross dividend amount receivable by each Russian resident RDR Holder. Russian resident RDR Holders are obligated to pay this tax on their own behalf.
No Russian tax implications should generally arise for non-resident RDR Holders upon receipt of dividends under the RDRs.
Taxation of Capital Gains
A Russian resident RDR Holder that is a legal entity or an organisation not organised under Russian law that holds the RDRs through a permanent establishment in Russia should generally be subject to Russian profits tax at a rate of 20% of capital gains realised on the disposal of the RDRs by an RDR Holder. Capital gain should be generally determined as the gross proceeds from the disposal of the RDRs less the related costs, provided such costs are economically justified and confirmed by appropriate documents.
No Russian tax implications should arise for a non-resident RDR Holder which is a legal entity or an organisation (which owns the RDRs other than through a permanent establishment in Russia) upon the disposal of the RDRs.
A Russian resident RDR Holder who is an individual should generally be subject to income tax at the rate of 13% on the gross proceeds from a disposal of the RDRs less any available cost deduction (including the cost of acquisition of the RDRs). Unless the tax is withheld by the payer (which may occur in certain circumstances), the resident individual RDR Holder would be liable to pay the tax to the Russian budget.
If proceeds from a disposal of the RDRs are received from a Russian source, a non-resident RDR Holder who is an individual will generally be subject to tax at a rate of 30%, subject to any available double tax treaty relief, of the gross proceeds from the disposal less any available cost deductions (including the cost of acquisition of the RDRs). Unless the tax is withheld by the payer (which may occur in certain circumstances), the non-resident individual RDR Holder would be liable to pay the tax in Russia.
Tax Consequences of Deposit of Shares and Issuance of RDRs
In accordance with clarifications of the Russian Ministry of Finance, receipt of the RDRs (which certify the title to the Shares) should not be regarded as a disposal of such Shares for Russian tax purposes since the RDR Holder retains the title to the Shares under such deposit of the Shares and issuance of the RDRs. Based on the above, no Russian tax implications should arise for the RDR Holders upon deposit of the Shares and issuance of the RDRs.
Tax Consequences of Cancellation of RDRs and Withdrawal of Shares
In accordance with clarifications of the Russian Ministry of Finance, no Russian tax implications should arise for an RDR Holder upon cancellation of the RDRs and withdrawal of the Shares (providing that, as a result of such transaction, the RDR Holder would receive the number of the Shares represented by such RDRs).
However, if cancellation of the RDRs would result in the RDR Holder’s receipt of any property other than the Shares in the number represented by the RDRs cancelled, then such transaction should be regarded as a disposal of the RDRs for tax purposes. The Russian tax implications related to such transaction would be the same as described in the section “Taxation of Capital Gains” above.
Cypriot Tax Considerations
As the Company is registered in Jersey, but is a tax resident in Cyprus, the relevant Cypriot tax implications should be considered by the RDR Holders.
As to transactions with RDRs, no tax implications should in general arise in Cyprus for the RDR Holders.
Distribution of dividends under RDRs should not generally lead to the tax consequences in Cyprus for the RDR Holders, except if such dividends are distributed by the Company to RDR Holders which are Cypriot tax resident individuals. In this case, the dividends distributed under the RDRs would be subject to the 15% defence contribution tax in Cyprus. The respective amount of defence contribution tax should be calculated, withheld and transferred to the Cypriot budget by the Company acting as a tax agent.
Hong Kong Stamp Duty Considerations
As the Company’s Shares are listed in Hong Kong, certain Hong Kong stamp duty considerations may be applicable to the Shares in the RDR Program.
Hong Kong stamp duty is assessed to sales, purchases and transfers of shares registered in Hong Kong that effectuate the transfer of beneficial ownership of such shares, at 0.2% of either the higher of the consideration for the shares or their fair value.
Based on the current practice with American depositary receipts and other depository receipts, the purchase and sale of RDRs should not be subject to Hong Kong stamp duty. However, the Hong Kong Stamp Duty Ordinance does not directly regulate this; the relevant legislation remains ambiguous and the Hong Kong tax authorities may take a different approach.
The deposit of Shares with the Custodian by the existing shareholder and the issuance of RDRs with respect to such Shares in favor of such shareholder does not result in a transfer of beneficial ownership and, therefore, should not be subject to stamp duty. The purchase of the Shares preceding their deposit with the Custodian would normally be subject to stamp duty pursuant to the general stamp duty rules.
At the same time, the cancellation of RDRs and the withdrawal of the Shares will be deemed to effectuate a transfer of beneficial ownership, in respect of which stamp duty has not been previously assessed, and a stamp duty at 0.2% will be assessed in respect of such operation. The Depositary will be deemed a tax agent and will pay the stamp duty on account of and on behalf of the last RDR Holder.
Qualifications
conducting transactions with RDRs. This summary is based upon applicable tax laws in effect as at the date of the RDR Prospectus. These laws are subject to amendment, including with retroactive effect. Any such amendment may, however, arise that could alter or modify the statements and conclusions made herein and could affect the tax consequences relevant to holding and conducting transactions with RDRs. This summary does not purport to be a legal opinion or to address all tax aspects that may be relevant to RDR Holders. Each prospective holder of RDRs is urged to consult its own tax advisor as to the particular tax consequences to such RDR Holder of the ownership and disposition of RDRs. No representations concerning the Russian, Cypriot or Hong Kong tax consequences to any particular potential investor are made in this summary. This summary does not address the current state of the Russian, Cypriot and Hong Kong tax systems and their respective tax risks. For further details with respect to tax issues please refer to section 10.8 of the RDR Prospectus.
FEES AND CHARGES
As an RDR Holder, you will be required to pay the following service fees to the Depositary:
Service Fees (VAT exclusive)
Issuance of RDRs Up to RUB 1.1 per one RDR issued
Cancellation of RDRs Up to RUB 1.1 per one RDR cancelled
Cash distributions Up to RUB 0.5 per one RDR held
Distributions other than in cash; rights issues; redemption of Shares
Up to RUB 1.1 per one RDR held
Annual service fee Up to RUB 0.9 per one RDR held on
the applicable record date(s) established by the Depositary
Actual service fees may be less than the maximum amounts indicated above. Actual service fees applicable are disclosed by the Depositary on the RDR Web Page.
As an RDR Holder you may also be required to reimburse the Depositary for certain expenses incurred by it in connection with exercise of rights under the RDR Program by you, as well as to pay certain taxes and governmental charges.
Service fees payable upon the issuance and cancellation of RDRs are paid to the Depositary before the relevant operations are made. Service fees payable for distributions in cash are deducted from the amounts being distributed. An annual service fee is charged by the Depositary as of the applicable record date(s) to be determined by the Depositary. An annual service fee payable by an RDR Holder during the year shall not exceed the maximum amount indicated above.
In the event of an RDR Holder’s refusal to pay the applicable service fees, the Depositary may, pursuant to the terms of the Decision on Issue and the Deposit Agreement, refuse to provide the relevant service until payment is received, and may set off any amounts
outstanding from the RDR Holder against any cash transfer payable to or from the RDR Holder.
Please note that the amounts of service fees may vary over time and may be changed by the Depositary. Maximum amounts of service fees indicated above may be changed no more than once per year. The prior notice of any such changes will be published on the RDR Web Page.
AMENDMENTS AND TERMINATION OF RDR PROGRAM Amendments
The Company may agree with the Depositary to amend the Deposit Agreement at any time without obtaining consent of the RDR Holders. All such amendments to the Deposit Agreement will have to be registered with the FSFM and will be disclosed to the RDR Holders on the RDR Web Page. The Company and the Depositary will give you 30 days’ prior notice on the RDR Web Page of any amendments to the provisions of the Deposit Agreement that relate to the exercise by the RDR Holders of any rights attributed to the RDRs, maximum amounts of service fees, as well as certain other provisions of the Deposit Agreement.
You will be bound by the amendments to the Deposit Agreement if you continue to hold your RDRs after such amendments to the Deposit Agreement become effective. The Deposit Agreement cannot be amended to prevent you from withdrawing the Shares represented by your RDRs.
Amendments to the Decision on Issue will be possible in a limited number of circumstances only (including in the event of amendments to the provisions of the Deposit Agreement).
Termination of RDR Program
Termination of the Deposit Agreement would result in closure of the RDR Program. By acquiring an RDR you will consent to the Company’s and the Depositary’s rights to terminate the Deposit Agreement in certain instances. The Company and the Depositary may agree to terminate the Deposit Agreement, among others (a) when an average amount of RDRs in circulation does not exceed the amount provided in the Deposit Agreement during a certain period of time; (b) upon de-listing of the Shares on the SEHK; (c) upon commencement of any insolvency or liquidation proceedings in respect of the Company or the Depositary; (d) if a significant change in circumstances resulting in impossibity to continue the RDR Program occurs (due to changes in applicable laws and regulations or due to governmental actions); and/or (e) if the Company or the Depositary incur or may incur material losses in connection with the RDR Program.
The Company and the Depositary will have a right to unilaterally terminate the Deposit Agreement in the event of the other party’s violation of certain of its terms. The Company will also have a right to such unilateral termination in the case of suspension of the Depositary’s depositary license for more than 90 days.
In the event of termination of the Deposit Agreement upon the above events, the RDR Holders will be provided with at least 60 days’ prior notice of such termination. Prior to the termination of the Deposit Agreement, you will be able to sell or cancel your RDRs and withdraw the Shares (subject to limitations described in section “Limitations on Issuance of
RDRs and Withdrawal of Shares” above). Upon termination of the Deposit Agreement, the
Depositary will instruct the RDR Registrar to cancel any RDRs that continue to be held on your account, sell the Shares represented by such RDRs and transfer the sale proceeds to you (after deduction of all applicable fees, taxes and expenses).
In the event of cancellation of all Shares or inability of the Depositary to conduct depositary operations due to the termination (cancellation) of its depositary’s license (where such a license has not been replaced with a new one), the Deposit Agreement will be automatically terminated. Upon termination of the Deposit Agreement in these circumstances you will receive, as the case may be, (a) certain cash consideration for your Shares from the Company, (b) the Shares represented by your RDRs, or (c) proceeds of the sale of the Shares represented by your RDRs, as described in more detail in the Decision on Issue and the Deposit Agreement.
RISK FACTORS
We note that any investment in the Shares or the RDRs is subject to a number of risks. Potential investors should carefully consider the risks described and information contained in these Terms & Conditions, the RDR Prospectus and the HK Prospectus before deciding whether to invest in the Shares or the RDRs. Such risks could adversely affect the Company’s business, financial condition and results of operations or ability of the Depositary to perform its obligations under the Decision on Issue or the Deposit Agreement, in which cases the price of the Shares or the RDRs could decline and investors could lose all or part of their investment. The Company and the Depositary have described the risks and uncertainties that they believe are material, but these risks and uncertainties may not be the only ones they face. Additional risks and uncertainties of which they are currently not aware or which they currently deem immaterial may also have a material adverse effect on their businesses, financial condition and results of operations.
We also note that the risks described in section headed “Risk Factors” of the HK Prospectus are described as at the date of the HK Prospectus and the relevant section has not been and will not be updated since then.
Key Risks
Risks relating to Company and Shares
Due to the derivative nature of the RDRs, their market price may depend upon and be subject to the market price of the Shares. The market price of the Shares depends on a number of factors. In particular, the Company’s business, financial condition and results of operations, as well as some other factors may have significant impact on the market price of the Shares, and, consequently, the RDRs.
The Shares are listed on the SEHK. Consequently, the price of the RDRs may also depend on fluctuations of the price of the Shares on SEHK, including fluctuations caused by speculative trading.
You may find description of some of the risks related to the Company and the Shares in section headed “Risk Factors” of the HK Prospectus.
Risks relating to Depositary
Due to the derivative nature of the RDRs, the Depositary’s financial condition and results of operations as such should not have a significant impact upon the market price of the RDRs. However, to the extent maintaining the Depositary’s banking and depositary licenses and the Depositary’s ability to perform its obligations under the Decision on Issue and the Deposit Agreement is dependent upon the Depositary’s financial condition and results of operations, those may have an impact on its ability to maintain the RDR Program, and, consequently, the market price of the RDRs. You may find the description of some of such risks in the RDR Prospectus.
Termination of the Depositary’s depositary license will result in the automatic termination of the Deposit Agreement and closure of the RDR Program.
Risks relating to Russia
RDRs are securities registered and listed in Russia. Emerging markets such as Russia are subject to greater risks than more developed markets. The regulation and supervision of the securities market is considerably less developed in Russia than, for example, in the United States and Western Europe. Political, economic and social conditions in Russia may have an adverse effect on the price and liquidity of RDRs.
Risks relating to RDRs
Risks relating to RDRs as New Financial Instrument
The RDRs are a new type of security for the market, which in itself may entail a number of risks not relevant for other types of securities.
Although the Depositary and the Company have done their best to ensure that the RDR Program is established based on the best international practices, the RDR Program provides for certain mechanisms that may differ from mechanisms used in depositary receipts programs abroad. When providing services to the RDR Holders with respect to exercising their rights, as well as with respect to issuance, transfer and cancellation of the RDRs, the Depositary will use mechanisms, which may not have been properly tested in practice. The quality of the relevant services will also depend on third parties, including the Custodian, the RDR Registrar and custodians (sub-custodians), over which the Depositary may not have sufficient or any control.
As at the date of the RDR Prospectus, there have been no precedents of Russian depositary receipts on the market. Russian laws and regulations relating to the Russian depositary receipts, though they may seem reasonably developed, have not been tested in practice and their practical application may result in different interpretations by the courts and regulatory agencies, as well as give rise to legal uncertainty. In addition, Russian laws and regulations related to RDRs can change rapidly, which may adversely affect the Depositary’s ability to maintain the RDR Program and perform its obligations under the Decision on Issue or the Deposit Agreement efficiently or at all. Amendments to current legislation may require further investments, lead to changes in the RDR Program or make it unprofitable.
All the above factors may negatively influence the price and liquidity of the RDRs.
Risks of Volatility of RDR Trading Prices and De-listing of RDRs from MICEX or RTS
Prior to the listing of the RDRs on MICEX and RTS there has been no public trading market for the RDRs. An active, liquid trading market for the RDRs may not develop or be sustained going forward. In addition, there may be a limited public float of the RDRs, which can also lead to increased price volatility. Further, in order to maintain listing on a Russian stock exchange, the Depositary is required to comply with listing requirements, including, among others, minimum trading volumes. A failure to comply with the listing requirements may constitute grounds for de-listing of the RDRs. A Russian stock exchange de-listing may have an adverse effect on the price and liquidity of the RDRs.
Tax Risks
The provisions of tax law applicable to the RDR Holders and transactions involving RDRs and Shares are uncertain and lack interpretative guidance. Some of the conclusions and assumptions stated in the section “Taxation” of these Terms & Conditions above with respect to the related Russian tax consequences are based on the limited available clarifications issued by the Russian Ministry of Finance which are of an informational and explanatory nature and do not have the force of law; such clarifications are not binding on the Russian Ministry of Finance, the Russian tax authorities, the Russian courts, the Depositary, or the RDR Holders.
Any interpretation of the applicable tax laws and regulations by the Russian, Cypriot or Hong Kong tax authorities inconsistent with the description of the applicable tax issues above could result in additional costs for the RDR Holders with respect to holding and conducting transactions with RDRs.
OTHER INFORMATION
The Company has appointed CJSC “VTB Capital” as its financial advisor in connection with the establishment of the RDR Program and listing of RDRs on the Russian stock exchanges. As to the legal matters, the Company is being represented by Liniya Prava and Cleary Gottlieb Steen & Hamilton LLP, and the Depositary is being represented by Clifford Chance CIS Limited.
