Filenews 1 March 2022
The Russian invasion of Ukraine is triggering a mass exodus of businesses from Russia, reversing three decades of investment by Western and other foreign companies in the country since the collapse of the Soviet Union in 1991, Bloomberg agency reported.
The list of companies severing ties or reviewing their operations is constantly growing as foreign governments step up sanctions against Russia, close airspace to its aircraft, and exclude some banks from SWIFT. Some companies have concluded that the risks, both to their reputation and to their finances, are too great to continue their activities in the country. Activity in Russia has become deeply problematic.
The rouble slipped as much as 30% on Monday after the US banned transactions with the Russian central bank, blocking its ability to develop its $630 billion foreign exchange reserves. dollars to strengthen the currency.
For some companies, the decision to leave Russia is the end of decades with profits, albeit sometimes with heavy investments. Foreign large energy companies have made profits since the 1990s. Russia's biggest foreign investor, BP Plc, spearheaded its surprise announcement on Sunday that it would withdraw from 20% of its stake in state-controlled Rosneft, a move that could lead to a write-off of $25 billion. dollars and reduce global oil and gas production by a third.
The share was the product of a protracted battle in 2012 to control TNK-BP, a joint venture between the oil giant and a group of billionaires. Now the company is weighing whether to sell its stake back to Rosneft, according to people with knowledge of the situation.
Shell Plc followed on Monday. Citing Russia's "irrational act of military aggression", it announced that it is ending partnerships with state-controlled Gazprom, including the installation of Sakhalin-II liquefied natural gas and its involvement in the Nord Stream 2 pipeline project, which Germany blocked last week. The value of both projects amounts to around EUR 3 billion. dollars. Kwasi Kwarteng, the UK's business minister, met with Shell's chief executive, Ben van Beurden, on Monday to discuss the company's involvement and welcomed the move.
"Shell made the right choice," he tweeted. "There is now a strong moral imperative for British companies to isolate Russia. This invasion must be a strategic failure for Putin."
Equinor ASA, which is Norway's largest energy company and is mostly state-owned, has also announced that it will begin withdrawing from its joint ventures in Russia, worth about $1.2 billion. Dollars. "In the current situation, we see our position as unsustainable," chief executive Anders Opedal said. These moves left Exxon Mobil Corp. and TotalEnergies SE as the only major energy companies with significant drilling activities in Russia.
Exxon oversees Sakhalin-1 along with Rosneft and companies from Japan and India, while TotalEnergies has a significant stake in Novatek PJSC, Russia's largest independent gas producer. Patrick Pouyanne, chief executive of TotalEnergies, said at a conference last Thursday that he does not see Russia's invasion having an impact on the company's operations because they are too far from the front. But the general trend seems to be in the direction of withdrawal, at least for now.
"I wouldn't be surprised to see more announcements coming afterwards for retirements," said Allen Good, a strategist at Morningstar. "BP had extra pressure given the British government, I'm not sure TotalEnergies will face the same pressures since the relationship between France and Russia is different."
When the Soviet Union disintegrated, foreign companies saw huge opportunities - a huge new market of millions of consumers as well as minerals and oil - and poured out to buy, sell and cooperate with Russian companies.
With Russia's invasion of neighbouring Ukraine, this trend stopped. Norway's sovereign wealth fund, the world's largest, has announced that it is freezing Russian assets worth about $2.8 billion. dollars and will unveil an exit plan by March 15.
Large law and accounting firms are also taking stock and are potentially facing huge repercussions. Baker McKenzie is so far one of the few law firms that have publicly stated that they will sever their ties with several Russian clients in order to comply with the sanctions. Chicago-based company's clients include Russia's Finance Ministry and VTB, Russia's second-largest bank, which has been hit by asset freezes and sanctions from the US, the UK and the European Union. The law firm said Monday that it is reviewing its activities in Russia.
"We are not commenting on the details of specific customer relationships, but this will in some cases mean a complete exit from the relationship," a spokesman for Baker McKenzie said.
London-based company Linklaters said in a statement that it is "reviewing all the company's operations related to Russia".
Some of London's largest law firms - including Allen & Overy and Clifford Chance - either did not respond to questions about the handling of their Russian clients or declined to comment. London's courts have long been a battleground for wealthy Russians seeking to resolve disputes over business deals that went wrong and failed marriages.
Other companies have come under fire because they have not withdrawn completely?. Bob Sternfels, chief executive of McKinsey & Co. on Sunday condemned the Russian invasion of Ukraine and said the company would no longer cooperate with any government entity in Russia. But it has not completely withdrawn. For some inside and outside the company, his move was insufficient.
The most senior executive of the consulting firm in Ukraine called on companies to go further and start, where possible, closing "offices and stores" in Russia, where McKinsey has been operating for nearly 30 years.
Andrei Caramitru, whose LinkedIn profile says he had been a senior partner of the company for 16 years, criticized McKinsey's decision.
"You should be ashamed. YOU REFUSED to close McKinsey's Moscow office," Caramitru wrote in a LinkedIn post addressed to Sternfels. "Close it! Now! It's bloody money, in your hands, that stains you every day you keep it open."
The pressure on others with sales and joint ventures in Russia is increasing. Daimler Truck Holding AG, one of the world's largest commercial vehicle manufacturers, said it would cease its operations in Russia until further notice and may reconsider its ties with the consortium's local partner Kamaz PJSC. Workers' representatives said they "consider it appropriate" for the world's largest truck maker to also get rid of its shares in Kamaz, the company's works council said.
Volvo Car AB and Volvo AB also announced that they are stopping sales and production in Russia. Harley-Davidson Inc. said in a statement that it has suspended operations in Russia, which along with the rest of Europe and the Middle East accounted for 31% of its motorcycle sales last year.
General Motors announced that it is stopping shipments to Russia, citing "a number of external factors, including supply chain issues and other issues beyond the company's control." GM exports about 3,000 vehicles annually to Russia from the U.S.
Others who have announced little are seeing their stock prices plummet. French automaker Renault SA slid as much as 12% on Monday over how sanctions would hit its operations in Russia, its second-largest market. AvtoVaz's plant, in which Renault owns 68% of the shares, manufactures Lada-branded vehicles that hold about a fifth of the Russian market. Renault also manufactures the Kaptur, Duster and other vehicles at its own factory in Moscow.
Ford Motor has announced that it has no plans to withdraw from its joint venture in Russia with Sollers to produce commercial trucks, at least not for the time being. "Our current interest is entirely focused on the safety and well-being of the people in Ukraine and the surrounding region," Ford said in a statement. "We won't speculate on the business impact."
Some companies are withdrawing from Ukraine and not from Russia, saying they have security concerns as the invasion progresses. Coca-Cola said the European bottling partner, Coca-Cola Hellenic Bottling Company, is immediately closing its operations in Ukraine. He did not answer questions about Russia.
"The safety of our people is our number one priority and we have put in place the contingency plans that include the shutdown of production in Ukraine, the closure of our factory, and we ask our colleagues in the country to stay in their homes and follow local guidelines," a Coca-Cola HBC spokesperson said in a statement.
Exclusion from football
In a move that will have an impact far beyond the business community, the global football organisation FIFA and the European football authority UEFA have banned Russian teams from participating in matches. "Football is fully united here and in full solidarity with all the people affected in Ukraine," they said in a joint statement.
Mark McNamee, a high-ranking executive at the Frontierview consulting firm, was in Moscow two weeks ago and was talking to executives about the possible consequences of an invasion. Many repelled the worst-case scenarios, he said, meaning they weren't necessarily prepared for what happened.
Many companies will find it difficult to support local businesses given swift's ban and capital controls, he said. Companies in the energy or commodities sector or those that sell to the Russian government will face the potential risk of being seen as "benefiting from the war".
Consumer goods companies with extensive activities and local production in Russia cannot easily leave, even if they want to, as they face financial turbulence. Before the invasion last week, Danone SA, which runs Russia's largest dairy business and has been active in Ukraine for more than 20 years, said it had put in place plans to prepare for any military escalation.
Chief financial officer Juergen Esser said the company was trying to buy more local ingredients for its products from both markets, where the vast majority of raw materials already come from the domestic market. Nestle also hedged its bill of exchange exposure, he said. Danone entered the Russian market three decades ago. The country accounts for about 5% of the company's net sales, and Ukraine less than 1%.
Carlsberg A/S is the largest brewery in Russia through its ownership of Baltika Breweries. The majority of Baltika's supply chain, production and customers are based in the country, which limits the direct impact of many penalties, a Carlsberg spokesperson said. The company has limited exports from and imports to Russia, where Carlsberg employs 8,400 people, but for now it is not possible to estimate the full extent of the direct or indirect effects of the sanctions, she said. It employs 1,300 workers in Ukraine, where last week it stopped work in its breweries and sent the workers home.
Source: Capital.gr
