Kremlin may impose stricter rules on foreign companies exiting Russia report.
Kremlin may impose stricter rules on foreign companies exiting Russia report.
Russia Introduces New Rule to Make It Harder for Foreign Companies to Leave the Market
Foreign businesses looking to exit the Russian market already face numerous challenges, but a new law being considered by Russia’s government could make the process even more difficult. According to reports from Interfax news agency, the Kremlin is in the process of approving a new rule that would give it priority rights to acquire shares from foreign shareholders leaving the country.
Under this proposed rule, the Russian government would have the first right to acquire shares from strategic companies that have foreign shareholders exiting the market. This preferential right would apply to companies deemed as strategic enterprises, including food giant Danone and Finnish energy firm Fortum, both of which have had their Russian operations seized by Moscow this year. The move to seize these assets came after people close to Vladimir Putin’s regime expressed interest in acquiring them, as reported by the Financial Times.
The alleged “super priority” rights granted to the Kremlin would supersede the rights of other entities that may also have a claim to the shares of these exiting foreign shareholders. In effect, this means that the Russian government could have the final say in acquiring these shares, regardless of any other rights or interests.
The introduction of this new rule comes at a time when Russia has been imposing an increasing number of restrictions and measures on companies looking to exit the market. A study from Yale University, last updated on July 18, reveals that although 1,000 companies announced voluntary cutbacks on operations shortly after the Ukraine war began in February 2022, only 529 foreign companies have successfully made a clean break from Russia. The remaining companies have been facing logistical delays and other obstacles in their attempts to leave.
Furthermore, Russian authorities have been implementing punitive measures on companies exiting the market. In December 2022, Russia started forcing companies selling their assets to do so at a 50% discount. This has resulted in Russian businessmen acquiring the assets of 110 Western companies that have partially or fully left Russia at significantly reduced prices, as reported by the independent Russian newspaper Novaya Gazeta. These assets were collectively valued at 35 billion euros, or nearly $40 billion, at the end of 2022.
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In addition to the discounted asset disposal, exiting companies are also charged an exit fee of at least 10% of the sale value. Starting from March 2023, the Russian government has further imposed a requirement for sellers from “unfriendly countries” to donate at least 10% of the sale proceeds to the Russian budget. These measures have added to the challenges faced by foreign companies seeking to exit the market.
The proposed rule granting the Kremlin priority rights to acquire shares adds another layer of complexity and uncertainty for foreign companies considering leaving Russia. It further emphasizes the government’s efforts to retain control and limit foreign influence in strategic sectors of the economy.
However, it’s important to note that the new rule is still in the approval process, and the Russian finance ministry has not provided any official comment on the matter. Nevertheless, if implemented, it could have significant implications for foreign businesses operating in Russia and potentially discourage future investments in the country.
Foreign companies operating in Russia will need to navigate these increasingly challenging conditions and carefully evaluate their long-term strategies in light of the evolving regulatory landscape.
