JPMorgan Emerg. EMEA - Russian Court Order - Update

JPMorgan Emerging Europe Middle East & Africa Securities

06/09/2024 18:00

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RNS Number : 3160D  JPMorgan Emerging EMEA Securities  06 September 2024

 

 

LONDON STOCK EXCHANGE ANNOUNCEMENT

 

 

JPMORGAN EMERGING EUROPE, MIDDLE EAST & AFRICA SECURITIES PLC ('the
Company' or 'JEMA')

 

Legal Entity Identifier: 549300II3MHI98ZLVH37

 

Russian Court Order - Update

 

The Board announces that in conjunction with the Company's duly appointed
depositary, who appoints the Company's custodian, the Board is considering the
options available to the Company in the event that JPMorgan Bank International
('JPMBI'), the sub custodian of the Company's Russian assets in Russia,
becomes insolvent. The circumstances in which such an event may occur are
included in the explanation provided by the Company's Custodian ('J.P.
Morgan') below in italics.

 

Further to our prior communications with clients, J.P. Morgan has faced actual
and threatened litigation in Russia seeking payments on transactions that J.P.
Morgan cannot make and is contractually excused from paying as a result of,
relevant sanctions laws.

 

The value of the current claims against J.P. Morgan exceeds the total amount
of available assets that J.P. Morgan holds in Russia. The outcome of these
claims and the impact they will have on JPMBI (our affiliate sub-custodian in
Russia) is uncertain. If the claims are enforced despite the actions taken by
J.P Morgan to challenge the claims and to seek the proper application of law,
J.P. Morgan's  assets in Russia could be seized in full or J.P. Morgan could
be prevented from complying with its obligations. This could result in the
insolvency of JPMBI and impact JPMBI's ability to continue to operate under
instruction from J.P. Morgan. As such, J.P. Morgan may be unable to continue
to provide safekeeping, settlement and asset servicing of our clients' Russian
securities in the same manner as it does currently. Additionally this may
impact our clients' RUB cash.

 

As previously notified, VTB Bank filed a lawsuit against nine J.P. Morgan
legal entities on 17(th) April 2024 in Russia seeking to recover $439.5
million held with J.P. Morgan in NY. Following preliminary hearings, the
Russian court has scheduled a main hearing on 11(th) September 2024, when it
is due to consider JPMBI's defence. If judgment is given at this hearing, J.P.
Morgan would have the right to appeal and the appeal process would likely last
approximately 2 months.  No seizure of J.P. Morgan's assets under the
judgment is expected to take place during this time.

 

J.P. Morgan continues to take the appropriate legal and regulatory steps to
avoid this outcome, including challenging these claims and appealing any
judgments it does not think are valid. Whilst the specifics of any impact of
these claims or their enforcement on clients would need to be considered on a
case-by-case basis, they may constitute a Force Majeure and / or Country Risk
event (as defined in the contracts that clients have with J.P. Morgan).

 

As previously communicated, we understand that Russian Decree 8 offers
protection to client securities and RUB cash in S type accounts from the
enforcement of court decisions issued after 3(rd) January 2024. The Russian
courts have so far respected this. However, the situation remains dynamic.
In addition, Presidential Decree 442 published on 23(rd) May 2024 established
a framework for compensating the Russian Federation and/or the Central Bank of
Russia for damage caused by "unfriendly" actions of the United States of
America.  Decree 442 indicated that a detailed procedure would be published
within four months, however, details of that further procedure remain yet to
be published and analysed by market participants.

 

In response the above information, Eric Sanderson, the Chairman of the Company
commented that:

 

"The above information adds to our existing concerns regarding the Company's
Russian assets. If JPMBI were to be declared insolvent the Manager has advised
us that the Company's Russian assets could not be serviced by them and due to
the current sanction regime it would not be possible for JPMBI to transfer the
Company's Russian assets to another custodian. The Board will provide a
further update once the court decision is announced.

 

By way of a reminder of the extent of the Company's holdings in Russian
assets, as stated in the Company's Half Year Report and Financial Statements
to 30(th) April 2024 available on the Company's website
www.jpmeemeasecurities.com, the Company's Russian securities comprised
approximately 8% of the published net asset value of the portfolio. The
Company's portfolio comprised 100 stocks. Of these, 26 were Russian securities
which have been nominally valued following the imposition of sanctions in
early 2022.

 

The Company's Half Year Report to 30(th) April 2024 also referred to the
balance on the Company's 'S' account as at 2nd May 2024 being equivalent to
approximately £25.2 million with an additional £7.9 million of dividends
that had been announced but not yet received on that date (at exchange rates
applicable on that date). As previously detailed, the balance in the 'S'
account cannot be remitted to the Company and may never be received. They are
not recognised in the Company's net asset value or in its income statement.

 

 It should be noted that the value of the Company's Russian assets in its
balance sheet should be considered together with the Company's share price,
which is trading at a very elevated premium to its net asset value."

 

 

6th September 2024

 

For further information:

 

Paul Winship, Neil Martin, JPMorgan Funds Limited             0800
20 40 20

Hugh Jonathan, Deutsche Numis
 
            020 7260 1000

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