ROUBLE T - ACCOUNTS
2. The letter of the Central Bank of Russia (further referred to as 'CBR') introduced several amendments to CBR Instruction 3/4 16. From now on, non-residents having rouble accounts opened with authorised banks are allowed to transfer roubles from T-accounts to I-accounts - previously strictly prohibited, although transfers of roubles from I-accounts to T-accounts were allowed. The transferred funds may be converted into hard currency for repatriation.
3. The CBR letter gives a comprehensive list of rouble receipts eligible for transfer from a T-account to an I-account. The list includes proceeds from sales of goods, services and property, rental payments, insurance payments received from Russian insurance companies, interest on deposits, etc. It is not permitted to deposit cash into T-accounts (except for limits established for representative offices and amounts collected as consulate fees). The new provision applies only to roubles received on T-accounts after 1 June 1996.
4. The restriction on T-accounts which did not allow for the purchase and repatriation of hard currency was the major obstacle to developing sales of goods and services through representative offices or branches. Previously, foreign companies aiming to sell for roubles had to act through a Russian subsidiary or dealer, but the new regulation now permits foreign trade sales and sales in Russia for roubles, an important step towards the full convertibility of the rouble.
5. Non-resident banks are now permitted to buy either their national currency or the foreign currency in which their correspondent accounts are opened for roubles, from rouble accounts opened with Russian authorised banks.
6. Another provision of the letter states that transactions involving State bonds may be implemented through T-accounts only with CBR permission. This restriction may be explained by the introduction of a new type of rouble accounts for non-residents - S-accounts.
7. The CBR has issued a set of regulations providing for wider access to the Russian market in State securities for foreign investors. These regulations apply to the foreign purchase of Russian State debt securities denominated in roubles, including discounted, fixed rate and floating rate bonds. Foreign investors are required to operate through S rouble accounts opened with one of the authorised Russian banks which have received the relevant permission from the CBR. Dealings will consist of the following steps:
- The investor opens an S rouble bank account with a bank and purchases roubles presumably at the official rate of the CBR, which are in turn used to purchase the State securities
- The investor is allowed to hedge the future rouble proceeds with the same bank
- On redemption or sale of the securities, the investor receives the proceeds into the S-account, whilst coupon interest is also credited to S-account
- The investor may re-invest the proceeds, or convert them into hard currency under a forward or option contract concluded earlier
- Hard currency from conversion may be repatriated unconditionally
8. It is important to note that foreign investors are not allowed to convert proceeds in any way other than by a forward or option contract (although a delivery term as short as two days may be agreed). The key factor affecting the profitability of an investment will therefore be the exchange rate stipulated in the forward or option contract. The application of certain technical requirements contained in the new regulations to the banks participating in the program will most likely lead them to increase the hedging rates for foreign investors well above the expected official CBR rates. We understand from various announcements by CBR officials that the overall yield on these investments will range from 10% to 20% p.a. in hard currency terms, which is well below the current rouble yield on State bonds.
9. It should be added that funds from S-accounts cannot be transferred to I- or T-accounts and funds from the latter cannot be credited to S-accounts.
10. It is not entirely clear whether the income of foreign investors from S-account operations will be taxed in Russia. Despite the previous indications that the State Tax Service would exempt such income from Russian taxation, the CBR regulations mention that funds accumulated by investors on S-accounts may be used to pay any Russian taxes which are due in respect of operations with such securities.
11. The list of authorised banks already approved by the CBR for the purpose of participating in the S-accounts program includes twenty or so principal Russian banks. Purchases commenced by non-residents through State owned foreign banks, such as Eurobank and Moskovsky Narodny Bank, may be completed, but no new operations may then be carried out.
LICENSING OF INWARD INVESTMENT
12. Under Russian Law, contributions of hard currency cash into Russian enterprises are considered to be currency transactions connected with the movement of capital and are subject to licensing by the CBR. Neither authorised banks nor the state authorities actively required licences for these transaction before January 1995, when a CBR clarification was issued confirming that the licences were in fact required. Most Russian companies with foreign equity formed before that date did not formally comply with the Law.
13. However, in the last two months, there have been a number of audits by the Federal Foreign Exchange Control Committee in the course of which the authorities have tried to penalise enterprises with foreign equity for failing to have the licence, aiming to confiscate the hard currency equivalent of the cash contribution by foreign shareholders.
14. In view of these developments we would recommend that clients should determine the possible exposure which could arise and consider applying immediately for a CBR licence. Please speak to your usual contact if you require assistance in assessing possible exposure or in filing the licence application.
For further information contact Bauke van der Meer on tel: +7 503 232 5511 fax: +7 503 232 5522 or e-mail directly: Click Contact Link or enter a text search 'Coopers & Lybrand' and 'Business Monitor'
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