Stay, go or hand over the keys, Russia’s offer to foreign companies

Companies and investors around the world were faced with the dilemma on Friday of an offer from Moscow to speed up their departure from the country and allow them to hand over the holdings to local managers until they return.

The options were offered by the deputy prime minister Andrey Belousov a week after the Russian invasion of Ukraine and a day after French bank Societe Generale warned it could be divested of its operations in Russia, sending a chill through companies seeking to remain in the country.

Belousov outlined three alternatives for foreign companies.

“The company continues to work fully in Russia”, he said in a statement. “Foreign shareholders transfer their stake to be managed by Russian partners and can return to the market later”, he added, or “definitively ceases its operations in Russia, closes production and lays off employees”.

No path is without risk. Those who stay could face a backlash in Western markets, where the public has rallied to the Ukrainian cause, those who transfer shares could be handing over the keys with little collateral, while those who leave could face a huge loss in The best case.

The Russian invasion has prompted the United States and Europe to impose sweeping sanctions, affecting everything from global payment systems to a host of high-tech products, making doing business in Russia increasingly complex and precarious. .

For ordinary Russians, this means deep economic hardship.

Some multinationals, such as energy majors BP and Shell, have already said they are pulling out, while others have refrained from leaving Russia for now. TotalEnergies has said it would stay but would not invest further.

IKEA on Thursday announced plans to close stores but said it would pay its 15,000 Russian employees for at least three months.

no easy fix

Italian tire maker Pirelli said on Friday it was constantly monitoring developments through a specially constituted “crisis committee,” adding that it did not expect to shut down either of its two Russian plants.

Its rival, Finland’s Nokian Tyres, said last week that it was shifting production of some product lines out of Russia.

But there are no easy solutions even for those looking for an exit, when the commercial counterparts are limited.

For those looking for the door, the Russian first deputy prime minister said that an accelerated bankruptcy plan “will support the employment and social welfare of citizens so that bona fide entrepreneurs can ensure the effective operation of companies.”

Many companies are still trying to count the cost of their exposure to Russia, a number that for many continues to change with each new round of sanctions announced by the United States, the European Union (EU) and Great Britain.

So far, companies, banks and investors from around the world have announced that they have more than $110 billion of exposure of some kind to Russia. This figure could increase.

Data from the research firm Morningstar, meanwhile, shows international fund exposure worth $60 billion in stocks and bonds.