Russia Russia resortes to severe threats to intimidate foreign companies to stay – Nationalization of foreign assets would be unprecedented, says EK expert

Russia has threatened to seize or nationalize the assets of foreign companies if they leave the country. So far, the threat has not materialized, and conflicting information about Russia’s intentions speaks to the ambiguity of the plans.

Russia plans serious retaliation against foreign companies that suspend their operations and withdraw from the country. The state has said it is preparing for seizures of assets of U.S. and international companies.

The aim of the measures is to intimidate companies still operating in Russia to stay in the country and, on the other hand, to show that there is a desire to preserve jobs. Russian ruling party takes the presentation forwardaccording to which Russia could take control of companies that own at least a quarter of the land in “unfriendly countries,” such as the European Union.

“The Russian administration is already promoting actions that include bankruptcy proceedings and the nationalization of assets [lähtemään pakotetuissa] in foreign companies, ”former Russian prime minister and current vice-chairman of the Security Council Dmitry Medvedev wrote on Thursday on Vkontakte.

“Whatever the reasons behind the departure, foreign companies need to understand that returning to our market will not be easy.”

Russian measures to nationalize or confiscate property are still at the planned stage. In Russia, alternatives have also been presented to foreign companies if they decide to suspend their operations.

The confiscation or nationalization of foreign property is a drastic measure. In practice, the property would be transferred to the state without compensation.

If taken, such actions would go down in history.

“The nationalization of foreign assets is unprecedented,” says the Director of EU Influence and Business Policy at the Confederation of Finnish Industries (EK). Petri Vuorio says.

Instead, there are several examples of nationalization in Russia’s own history. For example, in the early 2000s, the oil company Yukos was nationalized hard. At the same time the businessman, Vladimir Putin critic and former oligarch Mikhail Khodorkovsky was transit for years to prison.

Business the managing director of the research institute Aki Kangasharju does not see that Russia will now necessarily carry out seizures.

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“I believe this pattern of seizure is more of a political game and information warfare than a real threat,” Kangasharju says.

On the other hand, many did not want to believe that Russia would start a large-scale offensive war in Ukraine. Many experts have stated that almost anything can now be expected from Russia.

Russia’s intentions to seize property are countermeasures to Western sanctions. Kangasharju states that there are no good alternatives for companies if Russia decides to take control of the companies’ assets by some means.

“Russia would not want companies to leave. Any acceptance of sanctions by the West is illegal, ”Kangasharju says.

At the very least, however, it is not yet clear that the intimidation of Russia would be such that companies would remain in the country because of it.

“I think the flow will continue and the isolation of Russia will become more total. It’s exciting to see who stays there and on what basis, ”Kangasharju says.

Russia According to EK Vuorio, has provided partly contradictory information about its intentions and it is not entirely clear what plans will actually proceed. This speaks to the fact that there is not necessarily a clear plan, but Russia is putting pressure on the West.

Major owner of Nornickel, one of the richest oligarchs in Russia Vladimir Potanin has criticized seizure plans. Potanin, who played hockey with Putin, says the nationalizations would take Russia to 1917 and lead to investor distrust for decades.

Before seizure talks Russia gave foreign companies three options, says Vuorio.

First, companies could continue to operate normally.

According to preliminary data, another option is for the company to temporarily transfer its operations to a Russian partner. One such partner could Bloombergin according to the Russian Development Bank Vnesheconombank.

The owners of a foreign company should decide within five days whether the company will continue to operate in Russia at a later date or whether the assets will be put up for sale. This would begin the process of a few months, during which the property could be sold at auction or the company could return to Russia and take control of the property again.

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“It is unclear whether this Russian partner could also be the company’s own local management,” says Vuorio.

The third option given by Russia is the liquidation of assets, ie bankruptcy proceedings.

The contradiction arises from the fact that Russia, on the other hand, had time to ban the sale of foreign property. However, it was subsequently reported that the companies could sell their assets in Russia during the special procedure.

“There are so many exits pending that Russia is trying to save jobs with this procedure. Russian rhetoric is that if you continue there, everything will be fine. If you leave, there are such actions on the list of considerations, ”says Vuorio.

Still The situation of companies continuing in Russia is difficult and the information and regulation provided is confusing. Local management is criminally liable if the company violates Russian law. In Russia, compliance with Western sanctions is illegal.

“Businesses need to be careful and there is no fast bandwidth. Foreign companies try to handle the matter correctly in terms of legislation and in such a way as to avoid unreasonable financial losses, ”says Vuorio.

So far, for example, food giant Danone has said it will continue to operate in Russia. Other large grocery companies, such as Unilever, Nestlé and Procter & Gamble, will also continue to operate in Russia on a limited basis, claiming that their products are essential to people’s lives.

“Then know how the company [Danone] imagines selling yogurt in the west. The people are everywhere here [Venäjän boikotissa] involved, ”Kangasharju says.

Kangasharju says that Russia’s counter-sanctions and the effects of the war could be catastrophic for some individual companies, but so far the situation is not taking Finland into recession.

“The problems are punctual, although for a single company the situation can be totally difficult.”

The nationalization or confiscation of the assets of a foreign company would now mean that the company would lose virtually everything it has invested in Russia. On the other hand, it is conceivable that the businesses in Russia right now are quite worthless in terms of sales anyway.

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According to EK’s Vuorio, it is unlikely that the state will be able to run foreign companies smoothly at all. Continuing to operate on state information systems alone and without Western spare parts may prove impossible.

“It is clear that the Russian state will not be able to run Western businesses with sufficient efficiency,” says Vuorio.

Great Of the Finnish companies, for example, Fortum has not yet announced its withdrawal from Russia. Fortum and its subsidiary Uniper have 12 power plants in Russia. The book value of the Group’s fixed assets in Russia and the Nord Stream 2 gas pipeline project, which has been practically sunk, is approximately EUR 5.5 billion.

Last year, one-fifth of Fortum’s comparable operating profit, or about EUR 500 million, came from Russia. The sudden cessation of operations in Russia would be a huge blow to the company.

According to Kangasharju, the collapse of Fortum would not be as important to the Finnish economy as it was to Nokia, for example, whose subcontracting chain was widely intertwined.

What what could the West do in retaliation if Russia implements nationalization or confiscation plans?

It is likely that Western countries will tighten economic sanctions. Kangasharju states that it is not economically sensible for Finland or other Western countries to take control of local subsidiaries of Russian companies.

Russia’s actions called illegal by the President of the United States Joe Biden press secretary Jen Psaki noted that possible seizures would lead to “even greater financial pain” in Russia.

Luxury products are not directly sanctioned, but many brands have announced they will suspend operations in Russia. These include Chanel, Hermes, Prada and luxury giant LVMH, among others. Gucci’s Moscow movement was closed on Thursday.

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