President Vladimir Putin’s takeover of a major oil and gas project is a powerful wake-up call for foreign companies still deciding what to do with their idle Russian assets: Go fast, or…
Companies are struggling to find ways to exit the Russian market and limit financial impact without putting employees at risk and, in some cases, leaving open the possibility of their return in the future.
When Western governments began imposing sanctions on Russia after the invasion of Ukraine in late February, Rolf Ladau, CEO of Finnish food company Paulig, realized that the coffee roasting business was no longer viable.
Coffee was not on the sanctions lists, but getting the beans into Russia was almost impossible, as shipping companies stopped operating in the country and it became difficult to pay in rubles.
Two weeks after the conflict, Ladau decided to leave the company and two months later did what usually takes a year – finding a suitable buyer for the assets and signing a deal. In May, Paulig sold his Russian business to Indian private investor Vikas Soi.
More than 1,000 Western companies participated in a corporate exodus from Russia, unprecedented in scale and speed, as it sought to comply with sanctions and amid threats of retaliation from the Kremlin.
More than 1,000 companies in the West have participated in a corporate exodus from Russia, unprecedented in scale and speed, in the face of sanctions and the Kremlin’s threats of retaliation.
But Paulig was one of the relatively few companies that sold assets or transferred keys to local managers. A Reuters count shows that less than 40 companies have made deals, including McDonald’s, Société Générale and Renault.
The obstacles are huge: confusion has arisen about what the Kremlin is allowing foreign companies to do; officials are nervous after the Russian government’s threats of retaliation; sanctions have limited the pool of buyers and there is little time left to analyze them; selling prices were heavily discounted; and negotiations are actually taking place because the fear of retaliation makes visiting Russia in person too risky.
The stakes escalate as Moscow drafts a new law that will come into effect soon, and the government allows Western companies that decide to leave the country to take control of their local businesses.
“If you haven’t started the process or if you still have doubts about it, it will get harder,” Ladau told Reuters ahead of Putin’s entry into the Sakhalin oil and gas project.
“Russia is not interested in allowing foreign companies to exit the market easily.”
No Project
Many Western companies had trouble exiting: Burger King stopped corporate support for its stores in Russia in March, but the fast-food chain’s approximately 800 stores are still open. Lawyers say part of the problem is the complexity of joint venture-style franchise agreements.
UniCredit has sold some assets through barter but has had to expand its search for potential buyers to countries such as India, Turkey and China.
Four months later, there are several signs that the companies have come up with a plan to leave the country.
Renault sold its share in a profitable joint venture to the Russian state for one ruble; McDonald’s gave a Siberian businessman more than 800 stores in exchange for a coin; both agreed to buyback clauses.
SocGen sold its Rosbank unit to Interros Capital, a subsidiary of Russian oligarch Vladimir Potanin.
Many companies gave the keys to local managers, and nearly all recorded hefty losses worth tens of billions of dollars.
Experts say it will be difficult for new owners to do well in an increasingly isolated Russia, where there is no access to Western goods, the cost of everything from food to energy is rising and the economy is stagnating.
Still, the exit proved a win-win for companies and entrepreneurs in Russia and non-sanctioned countries as they bought valuable assets for a bargain.
no banker
One aspect of the exit highlights its unusual nature: the absence of bankers who would normally play a key role in business.
Sources say banks have withdrawn due to concerns about sanctions violations.
Instead, companies rely on lawyers in Russia and international consultants with country knowledge to find and veto suitors – making sure they are legitimate and have financial credentials, not on sanctions lists.
Private Finnish food company Fazer signed an agreement in early April, selling its bakery business to Moscow-based Kolomenskij Bakery and Confectionery Holding as a competitor.
At first, Russia threatened to ban the exit of foreign listed companies. When Fazer asked for clarification, local legal counsel said it might have been a mistake.
Rules can change at any time. “So everybody was in a rush,” said Sebastian Jagerhorn, head of legal affairs.
“Soon (Russia) will retaliate by other means, not just gas exports,” said a senior executive whose company is struggling to leave Russia.
source: Noticias
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