(Bloomberg) – The invasion of Ukraine has caused a mass exodus of companies from Russia, attracting three decades of investment from Western and other foreign companies there since the collapse of the Soviet Union in 1991.
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The list of those who cut ties or reconsider their operations is growing by the hour as foreign governments tighten sanctions against Russia, close airspace to its planes and block some banks from SWIFT’s messaging system. With the fall of the ruble and the US ban on transactions with the Russian central bank, operating in Russia has become deeply problematic. Some companies have concluded that the risks, both reputational and financial, are too great to continue.
For some companies, the decision to leave Russia is the result of decades of lucrative, albeit sometimes heavy, investment. Foreign energy companies have been pouring money since the 1990s. Russia’s largest foreign investor, BP Plc, said in a surprise announcement Sunday that it would abandon its 20 percent stake in the state-controlled Rosneft move, which could lead to a write-off of $ 25 billion and a reduction in global oil and gas production. by one third.
The pledge is the product of a protracted battle in 2012 to control TNK-BP, a joint venture between the oil giant and a group of billionaires. It is now being considered whether to sell its stake back to Rosneft, according to people familiar with the matter.
Read more: Big oil goes to Russia decades later
Shell Plc followed on Monday. Citing Russia’s “senseless act of military aggression,” she said she was ending partnerships with state-controlled Gazprom, including the Sakhalin II liquefied natural gas facility and his involvement in the Nord Stream 2 pipeline project, which Germany is blocking. last week. Both projects are worth about $ 3 billion. Kwasi Kwarteng, the UK’s business secretary, met with Shell CEO Ben van Beurden on Monday to discuss the company’s involvement and welcomed the move.
The story continues
“Shell made the right call,” he tweeted. “British companies now have a strong moral imperative to isolate Russia. This invasion must be a strategic failure for Putin.
Equinor ASA, Norway’s largest energy company and majority state-owned, has also announced it will begin withdrawing from its $ 1.2 billion joint venture in Russia. “In the current situation, we consider our position untenable,” said CEO Anders Opedahl.
France’s TotalEnergies SE, which is involved in major liquefied natural gas projects in Russia, has said it will no longer provide capital for new developments in the country, a modest concession to growing political pressure. Among other major energy companies, Exxon Mobil Corp. oversees the Sakhalin-1 project with Rosneft and companies from Japan and India.
“I wouldn’t be surprised to see more reports of outings,” said Alan Good, a sector strategist at Morningstar.
When the Soviet Union collapsed, foreign companies saw huge opportunities – a huge new market of millions of consumers, as well as minerals and oil – and poured in to buy, sell and partner with Russian companies.
With Russia’s invasion of neighboring Ukraine, this trend has stopped. The Norwegian Sovereign Wealth Fund, the world’s largest, has said it is freezing about $ 2.8 billion in Russian assets and will come up with a plan by March 15.
Large law and accounting firms are also taking stock and facing potentially huge consequences. Baker McKenzie has said he will sever ties with several Russian clients to enforce sanctions. Clients of the Chicago-based firm include Russia’s finance ministry and VTB, Russia’s second-largest bank, which has been affected by asset freezes and sanctions from the United States, the United Kingdom and the European Union. The law firm said Monday it was reviewing its operations in Russia.
“We do not comment on the details of specific customer relationships, but in some cases this will mean a complete exit from the relationship,” said Baker spokesman McKenzie.
The London-based Linklaters said in a statement that it was “reviewing the entire work of the company related to Russia”. KPMG LLP has said it will sever ties with some clients subject to the recent wave of sanctions against Russia, according to a LinkedIn publication by its UK chief Jonathan Holt.
London companies
Some of London’s largest law firms – including Allen & Overy and Clifford Chance – either did not respond to inquiries about working with their Russian clients or declined to comment. The courts in London have long been a battleground for wealthy Russians seeking to resolve disputes over failed business deals and failed marriages. British judges promise a justice system that allows even suspicious money, a fair hearing in case of disputes.
Other companies have been criticized for not getting out completely. McKinsey & Co.’s global managing partner. Bob Sternfels turned to LinkedIn on Sunday to condemn Russia’s invasion of Ukraine and said the company would no longer do business with any government entity in Russia. But he did not withdraw. For some inside and outside the company, his move was insufficient.
The top executive of the consulting company in Ukraine called on companies to go further and start, where possible, to close “offices and retail outlets” in Russia, where McKinsey has been operating for nearly 30 years.
Pressure on others through sales and joint ventures in Russia is growing. Daimler Truck Holding AG, one of the world’s largest manufacturers of commercial vehicles, has said it will suspend operations in Russia until further notice and may reconsider ties with a local partner in the Kamaz PJSC joint venture. Labor officials said they “considered it appropriate” for the world’s largest truck manufacturer to also unload its shares in Kamaz, according to an email from the company’s works council.
Volvo Car AB and Volvo AB, a truck manufacturer, have also announced they are suspending sales and production in Russia. Harley-Davidson Inc. said it had shut down its business in Russia, which, along with the rest of Europe and the Middle East, accounted for 31% of motorcycle sales last year.
General Motors Co. said it was suspending supplies to Russia, citing “a number of external factors, including supply chain problems and other issues beyond the company’s control”. GM exports about 3,000 cars a year to Russia from the United States. In Japan, most major carmakers have said business with Russia will remain as it is, although Mitsubishi Motors Corp. said he would meet to assess the risk of his activities there.
Others see their share prices falling. French carmaker Renault SA fell 12 percent on Monday; Russia is the second largest market and its subsidiary AvtoVAZ, where Renault has a 68% stake, produces Lada cars, which own about a fifth of the Russian market. Renault also manufactures Kaptur, Duster and other vehicles at its own plant in Moscow.
Ford Motor Co. said it did not plan to withdraw from its joint venture in Russia with Sollers for the production of commercial vans, at least for now. “Our current interest is entirely in the safety and well-being of the people of Ukraine and the surrounding region,” Ford said in a statement. “We will not speculate on the consequences for business.”
Mastercard Inc. and Visa Inc. said they had blocked certain Russian activity from their payment networks in order to comply with international sanctions.
Banned from football
In a move that will resonate far beyond the business community, the world football organization FIFA and the European body UEFA have banned Russian teams from participating in the games. “Football is fully united here and in full solidarity with all the people affected in Ukraine,” a joint statement said. The entertainment world has also reacted, with Sony Pictures halting the release of new films in Russia, according to Nikkei, which quoted the company as saying.
The boycott of one of Russia’s most iconic products, vodka, is also gaining momentum, with at least three US governors ordering the removal of Russian-made or branded spirits from stores. One of New Zealand’s largest liquor chains has taken thousands of bottles of Russian vodka out of storage, filling empty shelves with Ukrainian flags.
Mark McNami, a European director at the consulting firm FrontierView, was in Moscow two weeks ago to talk to executives about the potential consequences of the invasion. Many rejected the worst-case scenarios, he said, meaning they were not necessarily prepared for what had happened.
Many corporations will have difficulty supporting local operations due to the SWIFT ban and capital controls, he said. Firms in the energy or raw materials sector, or those selling to the Russian government, will face the potential risk of being perceived as “profitable from the war.”
Consumer goods companies with large-scale operations and local production in Russia cannot easily get away with it, even if they want to, but they are facing financial turmoil. Prior to last week’s invasion, Danone SA, which runs Russia’s largest dairy business and has been operating in Ukraine for more than 20 years, said it was introducing additional preparation plans for each military escalation.
Chief Financial Officer Jürgen Esser said the company was trying to buy more local ingredients for its products from both markets, where most raw materials are already local. 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. Most of Baltika’s supply, production and customers are based in the country, which limits the direct impact of many sanctions, a Carlsberg spokeswoman said. The company has limited exports from and imports to Russia, where Carlsberg employs 8,400 people, but it is currently not possible to assess the full extent of the direct or indirect effects of the sanctions, she said. It employs 1,300 workers in Ukraine, where it shut down its breweries last week and sent workers home.
Foreign companies could face repulsion from the Russian government, which could encourage boycotts or, in extreme cases, take measures to seize assets, McNami said.
“If you have iconic brands from Italy, Germany, the United Kingdom and America, you are ready for revenge from the Russian government,” he said.
(Updates with Visa, MasterCard. An earlier update corrects a reference to Coca-Cola HBC’s operations in Ukraine.)
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