Limit foreigners in “Yandex” and Mail.ru Group

State Duma Deputy from “United Russia” Anton Gorelkin on the last day of the spring session introduced amendments to the Parliament, which limit the right of foreigners to own and manage information important for the development of infrastructure Internet resources. As in the situation with officially registered media, ownership of foreigners and foreign companies is limited to 20% of shares or shares. But in contrast to the media work in Russia, such a resource with a greater proportion of foreigners can still allow a special government Commission.

Resource selection
The amendments vaguely describe what a significant information resource is: the number of its users, the volume and composition of accumulated information, the expected effect on the development of national information and communication infrastructure, data exchange technologies are taken into account. Such a resource can be recognized as a website or software that allows the owner to collect data about Russian users. Under this definition can get a variety of Internet platforms and digital platforms, mobile applications, and even Telecom operators. A special government Commission can recognize the resource as an information resource, and Roskomnadzor is preparing proposals for it.

For whom the project was prepared
The restriction is aimed at IT companies operating in Russia, primarily Yandex and Mail.ru Group, said “Vedomosti” Gorelkin. He believes that 3-5 services, possibly including Telecom operators, will be recognized as information significant. These are strategic players who process a huge amount of data, including personal data. At the same time, these are actually foreign companies with an opaque, according to the Deputy, ownership structure.

In free circulation on us, Nasdaq is 85% of the shares of “Yandex” class A (each such share has one vote). The largest shareholder of the search engine is its founder Arkady Volozh, who as of February 2019 had 10% of the company’s capital and 48.4% of the votes, Yandex reported.

Exactly half of capital Mail.ru the Group are traded in the form of receipts on the London stock exchange. They also give 21% of votes, 59% of votes – the Russian “MF Technology”, 12.4% – the South African Naspers, 4.5% – the “MegaFon” and 3.3% – the Chinese Tencent.

The government Commission in each case will be able to prescribe the ownership structure of the IT company, the author of the amendments adds. For example, officials will indicate what share of the company can be placed on foreign exchange or remain with foreign owners.

How to deal with offenders
If the resource is recognized as significant, but its owners do not comply with the requirements to limit the share of foreigners, the foreign shareholders retain only the right to vote in respect of 20% of the shares or shares. Also, the owners of the resource are forbidden to place any advertising on such a site. It turns out that the amendments are focused primarily on services that earn on advertising. Blocking and closing resources are ineffective, explains Gorelkin, failure in advertising is a much more effective tool of influence.

Gorelkin introduced the project at the request of employees of the presidential administration, employees of two Internet companies told Vedomosti. One referred to the preliminary discussion of this issue with officials, the second – to the interlocutors among the deputies of the State Duma.

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Foreign participation in the capital of Russian technology companies is not the first time the authorities are concerned. In August 2017, the Ministry of communications proposed to limit foreign participation in the so-called traffic exchange points, but the definition proposed by officials covered not only these infrastructure elements but also the networks of Telecom operators as a whole. This worried the industry. In October, four major Telecom operators criticized the initiative in a letter to Nikolay Nikiforov, then the Minister of communications. In November, the wording was criticized by the Ministry of economic development.

How investors react
Investors “Yandex” negatively assessed the bill. First, at the opening of the exchange on Friday, July 26, search engine quotes rose sharply: the company published the financial results of the II quarter, which were positively evaluated by analysts. Yandex’s revenue again increased by more than 40% and profitability improved. At the peak of the quotes added on Friday more than 10% to the closing price of the previous day. But after 19.00 Moscow time quotes began to respond to news about the possible limitation of foreign capital, and by 20.00 Moscow time, the entire growth of quotations was eaten, for a few minutes quotes even went into the negative, but then again a little more expensive. At 20.30 GMT the entire “Yandex” cost $12.69 billion, which is 1.1% more than the day before.

Trading on the London stock exchange where receipts are traded Mail.ru Group, by the time the news of the amendments was closed.

What the market thinks
Representative Mail.ru the Group believes that the probability of adoption of amendments in this form is low, the company intends to participate in its discussion. But even in the case of adoption in the current form of government, the Commission may agree on the current management structure Mail.ru Group, as have the Russian shareholders more of a controlling stake in this company.

The project does not contain clear criteria for information resources, it is not even indicated that we are talking about Russian companies, a skeptical leading analyst of the Russian Association of electronic communications Karen Ghazaryan. To protect critical infrastructure and information, Russia already has a relevant law in place, he recalls, and it is impractical to combine several different rules for technology companies.

“If the bill is adopted, the unique ecosystem of Internet businesses in Russia, where local players successfully compete with global companies, may be destroyed. As a result, end-users will suffer, – said the representative of Yandex. – We believe that the draft law in its current form should not be adopted and we are ready to participate in its discussion.”

The data of Russian citizens in “MegaFon” is securely protected, says the representative of the operator. He calls the current version of the amendments crude, its application will lead to discrimination against Russian companies working with big data, and foreign Internet companies will continue to develop their own projects in this area. This could lead to a collapse of the emerging big data market in Russia, he concludes.

“VimpelCom” is studying the bill, his representative said. The representative of MTS declined to comment.

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