For foreign companies still figuring out what to do with their stranded Russian assets, President Vladimir Putin’s seizure of a major oil and gas project is a powerful warning: act quickly or else.
Most important points:
- Some companies say Moscow makes it difficult for them to leave
- Burger King withdrew business support for its operations in Russia in March, but outlets there are still operating
- Bankers avoid deals between foreign companies and potential Russian buyers
Companies are grappling with how to leave in ways that limit financial impact, don’t endanger employees and, in some cases, provide an opportunity to return in the future.
Finnish coffee boss Rolf Ladau was one of the early movers.
When Western governments began imposing sanctions on Russia after the invasion of Ukraine in late February, Paulig’s director realized that the coffee roaster there was no longer viable.
Coffee wasn’t on the sanctions lists, but getting beans into Russia was nearly impossible because freight companies stopped shipping to and from the country.
Paying in rubles became more and more difficult.
Two weeks after the conflict, Mr. Ladau decided that Paulig would leave, and two months later did what normally takes a year: find a suitable buyer and close a deal.
In May, Paulig sold his Russian company to Indian private investor Vikas Soi.
More than a thousand Western companies have joined a corporate exodus from Russia – unprecedented in its size and speed – as they struggle to comply with sanctions and amid threats of Kremlin retaliation.
However, Paulig is one of a relatively small number that has sold assets or handed over the keys to local managers.
A Reuters tally shows that fewer than 40 — including McDonald’s, Societe Generale and Renault — have announced deals.
Interviews with half a dozen executives at companies that have divested assets show how complex and uncertain it is to sell quickly and at deep discounts, and why it can take so long for many.
The obstacles are enormous:
- Confusion has arisen over what the Kremlin would allow foreign companies to do
- staff nervous after government threats of retaliation
- sanctions have limited the pool of buyers and there is little time to view them
- sales prices have been greatly reduced
- the negotiations are being conducted virtually because fears of reprisals make it too risky to visit Russia in person.
As Moscow prepares a new law that is expected to come into effect soon – allowing it to take control of the local businesses of Western companies that decide to leave – the stakes are mounting.
“If you haven’t started the process or if you still have doubts about it, then it gets more difficult,” Ladau told Reuters, speaking for Putin’s attack on Sakhalin’s oil and gas project.
No blueprint to leave Russia
Many western companies got into trouble when they tried to leave.
Burger King withdrew business support for its Russian branches in March, but the fast-food chain’s 800 or so restaurants are still open.
Lawyers say part of the problem is the complexity of the joint venture franchise agreement.
UniCredit has sold some assets through swaps, but has had to expand its search for potential buyers to countries like India, Turkey and China.
Four months later, there are few signs that companies have found a blueprint to free themselves.
Renault sold its share of a lucrative joint venture to the Russian state for 1 ruble. McDonald’s handed over 800 stores to a Siberian businessman for a token sum – both have agreed on buyback clauses.
SocGen sold its Rosbank unit to Interros Capital, a company associated with Russian oligarch Vladimir Potanin.
Many have given the keys to local managers. Nearly all of them have incurred significant write-offs totaling tens of billions of dollars.
Mr Ladau waives a buy-back clause.
Experts say it will be difficult for new owners in an increasingly isolated Russia without access to Western goods.
The cost of everything from food to energy is rising and the economy is in recession.
Still, the departures have provided an unexpected windfall for businesses and entrepreneurs in Russia and non-sanction countries as they pick up valuable assets at bargain prices.
No bankers due to sanctions
One aspect of the exodus highlights its unusual nature: the absence of bankers who would normally play key roles in deals.
Sources say banks have steered clear over concerns about sanctions violations.
Instead, companies rely on lawyers in Russia and international advisors with knowledge of the country to find and vet suitors, to make sure they’re legit, off-sanctioned, and have the financial credentials.
Privately-owned Finnish food company Fazer signed a deal back in April, selling its Russian bakery business to Moscow-based rival Kolomenskij Bakery and Confectionery Holding.
The speed belies the complications.
Initially, Russia threatened to ban the exits of listed foreign companies. When the company asked for clarification, its local legal advisers said it could be a mistake.
The rules can change at any time.
“So everyone was in a terrible hurry,” said Sebastian Jagerhorn, head of legal affairs and compliance.
Lara Saulo, who runs the bakery business, said even advisers in Russia gave conflicting advice along the way.
Putin’s attack on Sakhalin on Thursday was clearer.
“Soon they will retaliate, not just with gas, but in other ways,” said a senior executive whose company is struggling to get out.