Hold or fold?
That is the dilemma facing the hundreds of Western companies still operating in Russia as Donald Trump returns to the White House with a promise to end the Ukraine conflict while Moscow’s tougher exit conditions make it costlier to leave.
Many companies, including Renault, McDonald’s and Heineken have left Russia since Moscow sent troops into Ukraine in February 2022, usually taking hefty writedowns and selling their assets at steep discounts demanded by the Kremlin.
Others have stayed. Makers of food and hygiene products, such as PepsiCo, Procter & Gamble and Mondelez have maintained a presence citing humanitarian reasons. European lenders Raiffeisen Bank International and UniCredit remain ensnared by profits stuck in Russia and the need for exit approval from Moscow.
Russia tightened its exit terms in October to encourage businesses to stay, demanding discounts of at least 60% on exit transactions and a 35% “voluntary contribution” to Russia’s budget from the deal price, termed an “exit tax” by Washington.
“Trump’s election victory adds 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 continues to ratchet up the costs of leaving the Russian market, Trump may reduce the costs of staying, creating a kind of stasis.”
It is far from clear what Trump can accomplish in his second term, with his advisers now conceding the conflict will take at least months to resolve.
Yet his mere arrival may give some companies the political cover to stay on in Russia, while others could see prospects for potential sanctions relief as an opportunity to leave.
“We might see some sanctions being dialled down if the new administration is able to negotiate a settlement of the conflict in Ukraine,” said Alan Kartashkin, Partner at Debevoise and Plimpton. That could unfreeze some foreign-owned assets stuck in Russia, unlocking another wave of exit deals, he said.
Companies already reluctant to leave may be more likely to wait things out, said an M&A investor who has worked on dozens of deals. Another person, who has advised on over 100 exits, said Trump’s return may also cause those looking to cut ties with Russia to change plans and decide to stay.
Alexei Yakovlev, director of the finance ministry’s financial policy department, told reporters in December that negotiations on exit deals were ongoing, without naming specific companies.
Asked whether Trump’s arrival may pause exits or see some companies return, he said: “That’s beyond our understanding.”
EXIT TAX
A lot has changed since the relative free-for-all in dealmaking of 2022, six of the people said, particularly in terms of navigating the whims and demands of the exit committee.
Russia’s government is keen to protect the federal budget and close loopholes that allowed local buyers to snap up assets on the cheap. Deals now require valuations by independent appraisers selected by Russia’s Economy Ministry, and auctions for assets between local buyers.
Russian President Vladimir Putin must approve deals over 50 billion roubles ($488 million) and buyers must demonstrate economic grounds for any deal, such as showing how their failure to buy a particular factory might cause a drop in output.
“The possibility of selling a large asset at the minimally accepted conditions is significantly limited,” said a Russian lawyer.
The number of deals has shrunk to less than 20% of what it was at its mid-2023 peak, said one adviser. Another said higher budget contributions were pricing out sellers, particularly for management buyout deals.
High interest rates at 21% have made deal financing too costly for some buyers, said Suren Gortsunyan, a partner and co-founder of law firm Rybalkin, Gortsunyan, Dyakin and Partners (RGD).
RISK OF SEIZURE
Some large deals still make it through and multinationals can extract some funds from Russia, as deals are now structured so that buyers pay the exit tax.
Consumer goods firm Unilever sold its Russian assets, including four factories, just before more restrictions came in October. That deal was worth close to 500 million euros, according to a person familiar with the matter.
Unilever declined to comment.
Asset seizure remains the key risk facing companies that do choose to stay, four people said. Russia has placed around a dozen foreign-owned assets under temporary Moscow-appointed management, which some say may be Russia’s tactic to push the price down for local buyers.
“The big assets for sale are under constant pressure,” one corporate adviser said.
When Moscow seized control of Carlsberg’s stake in Baltika Breweries in July 2023, Carlsberg said its business had been stolen.
Less than a month before that seizure, it had found a willing buyer. That transaction fell through, but in December, the Danish brewer secured a 34-billion-rouble sale of its assets, government documents seen by Reuters showed.
Carlsberg declined to comment beyond its previous statements.
Ultimately, for Western firms in Russia grappling with costlier exit rules and seizure threats Trump’s arrival brings more unknowns.
“Trump is a wild card,” said one financial services professional. “You just don’t know what he’s going to do.”
($1 = 102.4500 roubles)
(Reporting by Alexander Marrow and Elena Fabrichnaya)
