The Corporate World : Leaving Russia

"If you haven't started the process already or if you still have doubts about it, then it's going to get harder."

"Russia has no interest in letting foreign companies out of the market easily."

"The moral-ethical issues are so serious that we have no room to return to Russia."

Finnish coffee head, Rolf Ladau, Paulig Rus LLC

 

"[Russia is using a] symmetrical response [to the sanctions imposed by the west], including the seizure of foreign assets and their possible nationalization."

“The same applies to the refusal of foreign companies to work in our country. [Western firms leaving the country are being] moronic for dancing to the tune of Washington and Brussels."

"[Moscow would respond] fundamentally and harshly [to the departures]. Whatever the reasons for the exodus, foreign companies must understand that it will not be easy to return to our market."

Dmitry Medvedev, former Russian president, Putin ally

A closed Uniqlo shop at a shopping mall in Moscow in April. Fast Retailing, the Japanese company that operates Uniqlo, is among the many companies that have suspended operations in Russia.  Credit...Kirill Kudryavtsev/Agence France-Presse — Getty Images

Any foreign companies still uncertain how they can manage to rescue their stranded Russian assets, were likely to have had a bad day viewing President Vladimir Putin's seizure as a powerful warning, of  the Sakhalin oil and gas project. How best to exit the least painless way to limit the financial impact in a way that won't place employees at risk and even to leave a way open at some future date to return to the Russian market has given company managers a giant headache. 

And for those that have peremptorily decided to risk financial ruin but save their reputations. their departure has been a windfall to companies and entrepreneurs in Russia itself, alongside countries that remain on the exterior perimeter of almost universal U.S.-led sanctions against Russia in the wake of its invasion of Ukraine. Prized assets are being snapped up at bargain-basement prices.

The leading issue in the pullouts was to find a suitable buyer to seal a deal. Paulig for example was an early pullout and was sold at minimal loss to a private Indian investor. Over a thousand Western companies have made the decision to join the exodus from Russia, scrambling to comply with sanctions and at the same time trying to avoid recriminatory threat of retaliation from the Kremlin.

To date only a small number of these corporations have managed to sell their assets or have chosen to hand the keys over to local managers in the desperate, undignified rush to uphold ethical and moral values their Western public demands of the businesses they frequent and in compliance with their own governments' reaction to the territorial invasion Russia embarked upon under the pretext of cleaning up a den of Nazi vipers.

Among the forty or so companies that have managed to extricate themselves, identified by a Reuters survey, have been McDonald's, Societe Generale and Renault where deals have been announced. Executives at companies who managed to divest assets speak of the complexity and uncertainty associated with selling swiftly along with the hefty discounts required; ample reason to explain why it's taking so long to completely withdraw.

It still remains uncertain what the Kremlin might permit foreign companies to commit to; their staff are understandably nervous facing government threats of retaliation and the pool of potential buyers have been limited by sanctions, while sales prices are steeply discounted. Negotiations take place virtually given fears of reprisal making it risky to make a trip to Russia in the current climate.

A new law is being prepared, expected to be introduced and enforced shortly which would allow Moscow to take control of Western companies' assets in Russia. Back in March, Burger King ended its corporate support for Russian outlets; its 800 restaurants remain open, however. Part of the problem is the complexity of its joint venture-type franchise agreement.

 

Desperate sellers are reduced to looking for buyers from within non-sanction countries such as India, Turkey and China. There is as yet no universal set of rules that companies anxious to leave can rely upon to successfully emerge at the other end of a successful departure without foregoing all their assets entirely slipping into the ownership of the state. 

Renault left after selling its share of a lucrative joint venture to the Russian state for a ruble, while McDonald's handed its 800 branches over to a Siberian businessman for a symbolic sum. Both look to a future with the possibility of return. There is nothing particularly new about Russia inheriting the assets of foreign investors; it has done just that in the past, leaving potential investors wary of being caught. The normalization of relations with the dissolution of the Soviet Union put those fears to rest. 

 

Once bitten, twice shy doesn't necessarily apply in the face of corporate caution on the balance scale with profit.