© Reuters. FILE PHOTO: Formula 1 – F1 – Russian Grand Prix – Sochi, Russia – 29/04/17 – Pirelli tires on display in the paddock area.REUTERS/Maxim Shemetov
MOSCOW (Reuters) – Companies and investors around the world faced a Russia dilemma on Friday as they weighed Moscow’s proposal to speed up its exit from the country and allow them to hand over their stakes to local managers, until they return.
The option offered by First Deputy Prime Minister Andrei Belousov comes a week after Russia’s invasion of Ukraine and a day after Societe Generale (OTC: ) warned that it could divest its Russian operations , which sent chills to companies seeking to stay. placed in the country.
Belousov outlined three options for foreign companies.
“The company continues to operate fully in Russia,” he said in a statement. “Foreign shareholders transfer their shares to the management of Russian partners and can return to the market at a later date,” he added, adding that “the company permanently terminates operations in Russia, shuts down production and lays off employees.”
No route no risk. Those who stay may face backlash in Western markets, the public has united in support of the Ukrainian cause, those who transfer shares may hand over the keys with few guarantees, and those who quit may face at best Huge losses, or may have to be in nominal amounts.
The Russian incursion has prompted sweeping U.S. and European sanctions that affect everything from global payment systems to a range of high-tech products, making doing business in Russia increasingly complex and precarious.
For ordinary Russians, that means deep economic pain.
Some multinationals, such as energy giants BP (NYSE: ) and Shell (LON: ), have already said they will pull out, while others have held off on exiting Russia. TotalEnergies has said it will stay, but not increase investment.
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 formed “crisis committee”, adding that it did not expect to stop either of its two plants in Russia.
Rival Nokian Tyres of Finland said last week that it was moving production of some product lines outside Russia.
But when there are limited counterparties, there is no easy fix, even for those looking to exit.
British insurer and asset manager Royal London said it plans to sell its Russian assets, which it said make up only about 0.1% of its portfolio.
“We can’t trade these things anyway, but we obviously intend to divest as soon as possible,” Chief Executive Barry O’Dwyer said.
For those seeking to open the door, Russia’s first deputy prime minister said a fast-track bankruptcy scheme “will support the employment and social well-being of citizens so that real entrepreneurs can ensure the efficient functioning of businesses”.
Many companies are still struggling to calculate the cost of their exposure to Russia, a figure that, for many, keeps changing with each new round of sanctions announced by the US, EU and UK.
To date, global companies, banks and investors have announced that they have more than $110 billion in exposure to Russia in some form. That number is likely to rise. Meanwhile, international funds have as much as $60 billion in exposure to stocks and bonds, according to research firm Morningstar.
Norway’s sovereign wealth fund, the world’s largest, said on Thursday it had written off the value of about $3 billion in assets it held in Russia.
Meanwhile, Societe Generale, which has $20 billion of exposure to Russia, said on Thursday that it had sufficient buffers to deal with “extreme scenarios where the group would be stripped of its title to Russian banking assets”.
Dutch bank ING provided an update on its exposure to Russia and Ukraine on Friday, saying about 700 million euros ($770 million) of outstanding loans were affected by “new sanctions on certain (Russian) entities and individuals” .
BASF, the world’s largest chemicals group, said it would halt new operations in Russia and Belarus, except those related to food production as part of humanitarian measures.
But BASF also pointed to the challenges companies face in navigating the sanctions minefield.
“With immediate effect, BASF will only operate in Russia and Belarus, fulfilling its existing obligations in accordance with applicable laws, regulations and international rules,” the German chemicals maker said.
Swiss watchmaker Swatch Group (SIX: ) said it would continue to do business in Russia but suspended exports “due to the overall difficult situation”.
Deutsche Bank (DE:) said it had been stress-testing its operations given that it had a large technology center in Russia, but expressed confidence it had the ability to conduct day-to-day business on a global scale.
The German bank opened a new office in Moscow in December, saying at the time the move represented a “significant investment and commitment to the Russian market.”