Russia’s offer to foreign companies: stay, leave or hand over the keys

  • Broad Western Sanctions Create Minefield for Investors
  • Exxon faces ‘complicated process’ on exit
  • SocGen has warned it could be stripped of Russian assets
  • Toyota stops production, Russian Pirelli plants continue
  • Banks count each penalty cost change

MOSCOW, March 4 (Reuters) – Businesses around the world grappled with a dilemma over what to do with their Russian investments on Friday as Moscow laid out their options: stay in the country, exit entirely or hand over their holdings to local managers until they return.

First Deputy Prime Minister Andrei Belousov explained the government’s position just over a week after Russia invaded Ukraine and a day after French bank Societe Generale (SOGN.PA) sent a cold in the business world by declaring that the Russian authorities could seize his assets. in the countryside.

Belousov presented three alternatives for foreign companies.

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“The company continues to work fully in Russia,” he said in a statement. “Foreign shareholders transfer their share to be managed by Russian partners and can return to the market later,” he added, and: “The company is permanently ending its activities in Russia, closing the production and dismissal of employees”.

No route comes without risk. Those who remain could face a backlash in Western markets where the public has rallied to Ukraine’s cause, those transferring shares could hand over the keys with few guarantees, while those who quit could at least better suffer a big loss or may have to sell for a nominal sum.

“It’s a complicated process,” said Darren Woods, chief executive of US energy giant Exxon Mobil (XOM.N), which is pulling out of oil and gas investments involving partnerships with Russia’s Rosneft and others. worth $4 billion. Read more

He added that this would “require careful management and close coordination with our consortium partners”.

Businesses had little time to prepare.

Russia’s invasion – which Moscow calls a “special operation” – prompted the United States and Europe to impose swift and sweeping sanctions, affecting everything from global payment systems to a range of high-tech products . Read more

Doing business in Russia has suddenly become very complex and increasingly precarious, while ordinary Russians are already beginning to feel deep economic difficulties.

CLOSE STORE

Like Exxon, BP and Shell (SHEL.L) have said they are stepping down, while others have so far delayed their withdrawal from Russia. TotalEnergies (TTEF.PA) said it would stay but not invest further. Still others, like Japan’s Toyota, suspended production at their factories, while IKEA closed its stores but said it would pay its workers for three months.

“Western companies probably haven’t lost so much money so quickly to geopolitics since the Shah was overthrown in Iran,” said Renaissance Capital chief economist Charlie Robertson, referring to the Islamic revolution more than four decades ago that led to an exodus from the West. companies.

Still, some companies plan to continue. Italian manufacturer Pirelli said it had set up a “crisis committee” to monitor the situation, but did not plan to halt production at either of its two Russian factories. .

Rival Nokian Tires of Finland said last week it was shifting production of some product lines out of Russia.

But there are no easy solutions, even for those looking for an exit when trade counterparts are limited.

British insurer and asset manager Royal London has announced plans to sell its Russian assets, which it said made up only around 0.1% of its portfolio. Read more

“We can’t trade these things anyway, but as soon as we can we obviously intend to give them away,” said general manager Barry O’Dwyer.

For companies packing their bags, Russia’s First Deputy Prime Minister said an accelerated bankruptcy plan “will support the employment and social welfare of citizens so that bona fide entrepreneurs can ensure the efficient operation of companies”.

Many companies, meanwhile, are still trying to calculate the cost of their exposure to Russia, a figure that many believe keeps changing with each new round of sanctions announced by the United States, the European Union and Great Britain.

‘EXTREME SCENARIO’

So far, global companies, banks and investors have announced that they have exposure in one form or another to Russia of more than $110 billion. This number could increase. Data from research firm Morningstar shows international fund exposure to the tune of $60 billion in stocks and bonds. Read more

Norway’s sovereign wealth fund, the world’s largest, said it had written off the value of its roughly $3 billion in Russian assets.

Meanwhile, SocGen, which has $20 billion in exposure to Russia, said on Thursday it had sufficient reserve for an “extreme scenario, in which the group would be stripped of ownership rights to its assets. banks in Russia”. Read more

Dutch bank ING (INGA.AS) said its exposure to Russia and Ukraine now stands at around 700 million euros ($770 million) in outstanding loans, basing its calculations on the latest sanctions, which Western states believe could be further tightened. Read more

BASF (BASFn.DE), the world’s largest chemical group, said it was halting new business in Russia and Belarus, except food production for humanitarian causes. He also alluded to the minefield of the new rules introduced by the sanctions.

“BASF will only carry out activities in Russia and Belarus that fulfill existing obligations in accordance with applicable international laws, regulations and rules,” he said.

Swiss food giant Nestlé (NESN.S), maker of KitKat bars and Nescafé coffee, said it was halting advertising in Russia, while Swiss watchmaker Swatch Group said it would continue operations in Russia but would suspend its exports.

Deutsche Bank (DBKGn.DE) said it had stress-tested its operations given it has a large technology hub in Russia, but was confident it could handle day-to-day business worldwide.

The German lender had opened a new office in Moscow in December, a move which it said represented at the time “a significant investment and commitment to the Russian market”.

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Reporting by Reuters correspondents in Moscow, Sabrina Valle in Houston; Giulio Piovaccari in Milan, Toby Sterling in Amsterdam, Silke Koltrowitz in Zurich, John Revill in Zurich, Tom Sims and Frank Siebelt in Frankfurt and Richa Naidu in London; Written by Edmund Blair; Assembly Pravin Char

Our standards: The Thomson Reuters Trust Principles.

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