47 of the world’s biggest 200 companies still haven’t left Russia. Now the Kremlin is preparing ‘expropriation blackmail,’ an expert says

About 300 in the six months since Russia invaded Ukraine Global companies has pulled out of the Russian market, and another 700 have halted new investments and projects or curtailed operations in the country.

Western companies from the US and Europe dominate this long list, including Citi and banks Goldman SachsApparel brands like Burberry and AdidasAnd tech giants like IBM, Intel, Snap And Twitter, According to research from the Yale School of Management.

There is a massive corporate exodus with strict Western sanctions Ruined Russian economyDecades of foreign investment and cooperation are slipping away—despite the Kremlin petrodollar income And his insistence Russia is in a good position.

But not all global companies have retreated from the country. About 47 of the world’s 200 largest companies still do business in or with Russia. The process of letting go, after all, can come with great costs. Now, as for the Kremlin’s new moves, experts say companies that have stalled are now at increased risk of nationalization as Russia wrestles with how best to deal with mass corporate exodus and seeks to regain more control over its economy.

Dirty break

Political and reputational pressures hit companies Get out of Russia in a hurry After the invasion of Ukraine.

But it has proven to be a clean break with the country Expensive and complexAnd many companies that previously announced their intention to leave have continued to do business there as they evaluate how to exit without losing too much money.

French Bank Society General The $3.2 billion hit became a cautionary tale after sales took off Its stake in Russian lender Rosbank and subsidiaries affiliated with Russian nickel billionaires Vladimir Potanin (Who has since Approved). He hastily sold his Russian assets—but to a government-linked businessman, because foreign buyers were few given the risk. As a senior banking executive Told to Financial times: “We are all trying to find a clever way to get out of the country. But what SocGen did is not the best way to do it. There is an ethical discussion … consider selling to an aristocrat or basically donating. “

But other companies, including many from Japan and China, are still present in the Russian market. Resource-poor Japan, which has condemned Putin’s war on Ukraine, has maintained an oil and gas partnership with the country. Japanese Prime Minister Fumio Kishida said, “Our policy is not to retreat said earlier this year.

China’s state-owned railways and telecommunications companies, along with private tech and heavy industry firms, are still operating as usual in the country – albeit cautiously. Triggering a secondary sanction from the west. Including the stopped American companies Match the groupTinder owner, video game developer, Riot Games luxury brand Tom Ford, among others, according to Yale research.

But recent moves by the Kremlin could change that calculus and suggest the Russian government is willing to take tougher measures against businesses to tighten control over the economy.

‘Hapti Blackmail’

If it was once a difficult decision for companies to stay or leave Russia, it may become much easier if Putin makes the decision for them.

On July 1, he signed a decree allowing the Govt confiscation Sakhalin-2 oil and natural gas project. The Kremlin order gave control of Sakhalin-2 to a new, state-created firm that could strip foreign investors of their rights, one of the government’s most forceful moves in response to the corporate exodus. The UK energy giant Shell and Japanese trading companies Mitsui And Mitsubishi Double-digit stake in Russian energy projects.

This month two Japanese investors A $1 billion-plus hit On his Sakhalin-2 property after Putin’s decree was written down the assessment. Mitsui and Mitsubishi have expressed their desire to stay on the project, but where their future lies is uncertain.

The decree shows that Russia is not only willing to seize foreign assets, but is positioning itself to engage in “seizure blackmail,” wrote Mark Dixon, founder of the Ethics Rating Agency, a research firm that focuses on foreign companies in Russia, in a July report.

Dixon said the Sakhalin-2 case showed that foreign investors had already been forced out, and that Russian officials were offering them a chance to either agree to new terms for a new entity that would control the power plant—or lose everything, Dixon said. . fortune this week.

“We expect a tsunami of extortion or blackmailed concessions in the coming months,” Dixon wrote earlier this year.

Other experts agree. The Russian government will nationalize — which amounts to expropriation or expropriation by the state — “one foreign company after another” because of a lack of available options, says Anders Åslund, economist, former senior fellow at the Atlantic Council, and author Russia’s Crony Capitalism, said fortune. Russian assets cannot be sold easily due to a lack of foreign buyers, and companies that have pulled out cannot leave them without owners, he says.

Russia has denied that it will confiscate or nationalize the assets of foreign companies.

Denis Manturov, the country’s trade and industry minister, recently said, “We are not interested in nationalizing or eliminating industries. said In addition, A Draft Law This would allow the government to formally nationalize the assets of international companies that have exited Russia Paused now. The bill did not pass the Russian parliament before the summer recess. But there is significant pressure on Western companies to make a clean deal with Russia or bow to the Kremlin’s whims, experts say.

Åslund says that even if nationalization is delayed because the Kremlin has little choice, the risk of expropriation remains high. Now many foreign investors have left and “the only natural option for the Russian government is to either expropriate [the companies] Or allow them to be seized by Russian businessmen close to the Kremlin – such as [lenders] Rosbank and Tinkoff Bank,” he says.

The pause on the draft law on nationalization “does not detract from the long-term direction of the Russian economy — one toward greater state control and an increase in Kremlin interventions to mask the structural challenges posed by Russia’s cutoff from international markets. The pariah country,” Steven Tian, ​​director of research at the Yale Chief Executive Leadership Institute, said. , the team responsible for corporate exit research from Russia.

The hiatus on the law has led to infighting among government officials. Some, such as Igor Sechin, an oligarch who runs Russia’s oil giant Rosneft, are staunchly advocating nationalist Russian policies, while others are ready for free market solutions. “But clearly, the latter groups aren’t winning right now — even if they come out on top in some occasional encounters,” says Tian.

According to the Ethical Rating Agency, approximately 47 of the world’s 200 largest global companies currently operating in Russia are at high risk of expropriation or nationalization of their Russian holdings, due to the scale of their investments in the country or current stakes in Russian businesses. Report

European, Japanese and Chinese investors in Russian energy projects make up the bulk of the list, highlighting BP’s $11.2 billion 19.75% stake in Russian state oil company Rosneft and TotalEnergies’ $13.7 billion Russian energy investment. Western consumer goods companies also made the list, including food and beverage companies Nestléwhich derives 2% of its revenue from Russia and the home goods maker UnileverWhere Russia accounts for nearly 2% of its total sales.

Jeffrey Sonnenfeld is a professor of management and senior associate dean of leadership studies who is leading Yale’s research on companies leaving Russia. He said fortune Putin’s recent nationalization underscores the Kremlin’s frustration that Russia has become an “uninvestable nation.” In a recent paper, Sonnenfeld’s team highlighted the financial incentives for companies to quit.

“There is no incentive to stay,” he says. Companies will lose “operational control, staffing control, brand control and reputational control”.

This story was originally featured above Fortune.com

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