Trump’s return adds new twist to Western firms’ Russia exit dilemma

#Trumps #return #adds #twist #Western #firms #Russia #exit #dilemma

London/Moscow: Hold or Fold? That’s the dilemma facing hundreds of Western companies still operating in Russia as Donald Trump returns to the White House promising to end the conflict in Ukraine while Moscow’s tough exit conditions keep him there. It has made it expensive to get out.

Many companies, including Renault, McDonald’s and Heineken, have left Russia since Moscow sent troops to Ukraine in February 2022, usually taking heavy writedowns and selling assets at steep discounts demanded by the Kremlin. are

Others have stayed. Manufacturers of food and hygiene products, such as PepsiCo, Procter & Gamble and Mondelez, have maintained their presence citing humanitarian reasons. European lenders Raiffeisen Bank International and UniCredit are stuck in Russia due to stranded profits and the need for exit approval from Moscow.

Russia tightened its exit terms in October to encourage businesses to stay, demanding at least a 60 percent discount on exit transactions and a 35 percent “voluntary contribution” to Russia’s budget from the deal price, which Washington called called ‘Exit Tax’.

Reuters spoke to 15 lawyers, bankers, consultants and businessmen involved in dozens of Western corporate exodus from Russia for this story. He said existing companies will be watching closely to see what Trump, who will be sworn in as president of the United States on Monday, can deliver and adjust their plans accordingly. . Some requested anonymity to speak freely.

“Trump’s election win has added another layer of uncertainty for multinationals with assets in Russia,” said Ian Massey, head of corporate intelligence, EMEA, at global risk consultancy S-RM. “While the Kremlin is increasing the costs of leaving the Russian market, Trump can reduce the costs of staying, creating a sort of stalemate.”

It is unclear what Trump can achieve in his second term, with his advisers now acknowledging that the dispute will take at least months to resolve. Yet its mere arrival may give some companies political cover to stay in Russia, while others may see potential sanctions relief as an opportunity to leave.

“If the new administration is successful in negotiating a resolution to the conflict in Ukraine, we may see some sanctions lifted,” said Alan Kartashkin, partner at Debois & Plimpton. That could unfreeze some foreign-owned assets stuck in Russia, he said, and unlock another wave of foreign deals.

One M&A investor who has worked on dozens of deals said companies that are already reluctant to exit are more likely to wait things out. Another person, who has suggested more than 100 exits, said Trump’s return could also cause those seeking to cut ties with Russia to change plans and decide to stay.

Alexey Yakulio, director of the finance ministry’s fiscal policy department, told Reuters in December that talks on exit deals were ongoing, without naming specific companies.

Asked whether Trump’s arrival could stem the exit or cause some companies to return, he said: “It’s beyond our understanding.”

Get out of tax.

Much has changed since the 2022 free-for-all in dealmaking, the six people said, particularly in terms of navigating the exit committee’s wishes and demands.

The Russian government is keen to protect the federal budget and close loopholes that have allowed local buyers to snap up assets on the cheap. Deals now require appraisals by independent appraisers selected by Russia’s Economy Ministry and an auction of assets among local buyers.

Russian President Vladimir Putin must approve deals worth more than 50 billion rubles ($488 million) and buyers must demonstrate an economic basis for any deal, such as their inability to buy a particular factory. How can it cause a reduction in production?

“The possibility of selling a major asset on minimally acceptable terms is quite limited,” said a Russian lawyer. The number of deals has fallen to less than 20 percent of what it was in mid-2023, one consultant said. Another said higher budget partnerships are driving sellers’ prices, especially for management buyout deals.

A high interest rate of 21 percent has made financing the deal too expensive for some buyers, said Soren Gortsonian, a partner and co-founder of the law firm Raibelkin, Gortsonian, Deakin & Partners (RGD).

Risk of possession

Some large deals still happen and multinationals can take some funds out of Russia, as the deals are now structured so that the buyers pay an exit tax.

Consumer goods firm Unilever sold its Russian assets, including four factories, before further sanctions came in October. The deal was worth around 500 million euros, according to a person familiar with the matter.

Unilever declined to comment.

The four people said asset forfeiture is a key risk facing companies. Russia has placed about a dozen foreign-owned assets under Moscow-appointed temporary management, which some say could be a Russian ploy to drive down prices for local buyers.

“Large assets for sale continue to be under pressure,” said a corporate consultant. When Moscow took over Carlsberg’s stake in Baltica Breweries in July 2023, Carlsberg said its business had been stolen.

Less than a month before the takeover, it had found a willing buyer. The transaction fell through, but in December, the Danish brewer secured a sale of its assets worth 34 billion rubles, according to government documents seen by Reuters.

Carlsberg declined to comment beyond its previous statements. Ultimately, Trump’s arrival in Russia brings more unknowns with threats of costly exit rules and confiscations for Western firms. “Trump is a wild card,” said one financial services professional. “You don’t know what he’s going to do.”