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Since the Ukrainian invasion, companies have had 558 days to find a way out of Russia. For those who haven’t done so, time may be running out.
Jocelyn Spottiswoode of Alaco, a business intelligence consultancy, told an investor conference organized by Barclays that Russia could publish a list of companies from “unfriendly countries” in early September. Those on the list are at risk of expropriation, the bank told customers.
List of Yale School of Management More than 200 companies In Russia, 300 factories are still operating normally and another 300 have taken partial measures to buy time. Many, if not most, look like potential targets for nationalization.
Russia’s corporate blacklist could include any entity with 4,000 or more employees, revenue of more than $825 million or assets of more than $1.65 billion, according to Spotiswood. It is not clear whether the thresholds relate only to operations in Russia.
Her comments followed a report in June by the Financial Times that Vladimir Putin was drafting new legislation that would give the Russian state preferential rights to buy any Western assets at “substantial discounts”.
Barclays said foreign-owned commodity groups would face the greatest risk of expatriation in the coming months, while tech firms were less vulnerable because of their operational complexity.
Another risk for consumer staples makers is the Russian public’s high regard for Western brands, such as JDE Peet’s coffee and Unilever’s Cornetto, which are seen as redistributed assets by the state.
In July, Russia seized the local business from Danone and Carlsberg by presidential decree, even though the two companies were finalizing sales to local buyers. Why the Kremlin intervened is unclear. Maybe it didn’t like the deals, or maybe Vladimir Putin’s allies were rewarded after the invasion and failed coup and hatched the idea of owning a brewery or a yogurt factory, Barclays said.
“Putin’s goal is to do everything possible to prevent the collapse of the Russian economy and appease Russian oligarchs who are frustrated with the economic situation,” Barclays’ consumer staples team said in a note released Monday. “Ensuring that everyone is happy and that the Russian economy is Crashing is the number one priority.”
Below is a list of its main targets, with those that violate expected standards marked in red:
Of these names, Unilever is perhaps the most controversial. Unilever’s new chief executive Hein Schumacher says the “least bad” option for now is to stay in Russia, limited to the import and export of products.The company, which employs around 3,000 people in Russia, paid £30m in corporate tax to the Kremlin last year and acquiesced to Moscow’s order that its employees eligible for military service.
Nestlé employs about 7,000 people in Russia and uses almost the same Unilever’s strategy. Most of the rest have scaled back their local operations, but only a few have committed to exiting entirely. Heineken last week agreed to sell its Russian brewery to Arnest for €1. British American Tobacco has spent 18 months trying to reach a deal to sell its Russian business to a local partner, while Philip Morris International has failed to find an exit route. Coca-Cola HBC (CCH) — which makes up about 12% of its revenue in Russia — has rebranded its local unit as Multon Partners and is selling products including Dobry, similar cola.
Since December, companies wanting to exit Russia have been required to accept discounts of at least 50 percent of market value offered by the Kremlin and to pay the government “voluntarily” between 5 percent and 10 percent of the deal price. The criteria could be further tightened, Spottiswood said: state fees could become mandatory and preference would be given to buyers in Russia, China and India.
Carlsberg shares fell 1.8 percent and Danone just 0.7 percent on the day Russia took control of its operations, but both companies have rebounded during the week. No company wants to be seen capitulating. But investors appear to have pulled out of Russia, even if management has not, so the hesitation-then-force expropriation tactic may have become the least-worst solution for them.
Further reading:
— European firms suffer €100bn losses from Russian operations (FT)
-Russia takes action to catch ‘naughty’ Western companies
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