Nervous staff and no bankers: Western firms scramble to exit Russia

HELSINKI, July 4 (Reuters) – For foreign companies still considering what to do with their stranded Russian assets, President Vladimir Putin’s seizure of a major oil and gas project is a stark warning: act fast or else.

Companies are grappling with how to exit in ways that limit the financial impact, don’t put employees at risk, and in some cases offer the option of returning in the future.

Finnish coffee boss Rolf Ladau was one of the first movers.

When Western governments began imposing sanctions on Russia following its invasion of Ukraine in late February, Paulig’s CEO realized that the coffee roasting business there was no longer viable.

Coffee was not on the sanctions lists, but it was almost impossible to get the beans into Russia as freight companies stopped shipments to and from the country. Paying in rubles became more and more difficult.

Two weeks after the conflict began, Ladau decided that Paulig would leave, and two months later he did what normally takes about a year – find a suitable buyer and close a deal. In May, Paulig sold its Russian business to private Indian investor Vikas Soi.

More than a thousand Western companies have joined a corporate exodus from Russia – unprecedented in its scale and speed – as they struggle to comply with sanctions and amid threats of retaliation from the Kremlin.

But Paulig is one of a relatively small number who have sold assets or handed over the keys to local managers. Fewer than 40, including McDonald’s ( MCD.N ), Societe Generale ( SOGN.PA ) and Renault ( RENA.PA ), have announced deals, Reuters data showed.

Interviews with a half-dozen executives at companies that have sold assets show the complexity and uncertainty of quick sales and hefty discounts — and why it can take so long.

The hurdles are huge: confusion has swirled about what the Kremlin will allow foreign companies to do; staff nervous after government threats of retaliation; sanctions have limited the range of buyers and there is little time to check them; sales prices are sharply reduced; and negotiations are conducted virtually because fears of reprisals make it too risky to visit Russia in person.

As Moscow prepares a new law expected to take effect soon, allowing it to take control of the local businesses of Western companies that decide to leave, the stakes are getting higher.

“If you haven’t started the process yet, or if you still have doubts about it, then it will become more difficult,” Ladau told Reuters, speaking ahead of Putin’s crackdown on the Sakhalin oil and gas project.

“Russia has no interest in letting foreign companies off the market easily.

NO DRAWING

Many Western firms ran into trouble trying to leave.

Burger King suspended corporate support for its sites in Russia in March, but the fast-food chain’s roughly 800 restaurants are still open. Lawyers say part of the problem is the complexity of the joint venture-style franchise agreement.

UniCredit ( CRDI.MI ) has shed some assets through swaps but had to widen its search for potential buyers in countries such as India, Turkey and China. Read more

Four months later, there is little sign that the companies have found an exit plan.

Renault sold its stake in a lucrative joint venture to the Russian state for a ruble; McDonald’s handed over 800 branches to a Siberian businessman for a nominal sum; both have negotiated buyback clauses.

SocGen sold its Rosbank division to Interros Capital, a firm linked to Russian oligarch Vladimir Potanin.

Many of them have given the keys to local managers. Almost all have recorded large write-downs totaling tens of billions of dollars.

Ladau declined a buyback clause.

The moral and ethical problems are so serious that there is no place for us to return to Russia,” he said.

Experts say it will be difficult for the new owners in an increasingly isolated Russia without access to Western goods. The cost of everything from food to energy is skyrocketing and the economy has fallen into recession.

Still, the exits brought windfalls to firms and entrepreneurs in Russia and countries outside the sanctions as they snapped up valuable assets for a bargain.

NO BANKERS

One aspect of the exodus underscores its unusual nature: the absence of bankers, who typically play a key role in deals.

Sources say the banks have pulled back due to concerns about violating sanctions.

Instead, the companies rely on lawyers in Russia and international consultants with knowledge of the country to find and vet the suitors – making sure they are legitimate, not on sanctions lists and have financial records.

Private Finnish food company Fazer inked a deal back in April, selling its Russian bakery business to Moscow-based rival Kolomenskij Bakery and Confectionery Holding.

Speed ​​belies complications.

Initially, Russia threatened to ban the exit of listed foreign companies. When the company asked for clarification, its local legal advisers said it may have been a mistake.

The rules are subject to change at any time.

“So everyone was in an awful hurry,” said Sebastian Jagerhorn, head of legal affairs and compliance.

Lara Saulo, who runs the bakery business, said even advisers in Russia gave conflicting advice along the way.

Putin’s jab at Sakhalin on Thursday was clearer.

“They will retaliate soon, not just with gas but in other ways,” said a senior executive whose company is struggling to get out.

Reporting by Essi Lehto and Anne Kauranen in Helsinki Additional reporting by Valentina Za in Milan Writing by Josephine Mason Editing by Mark Potter

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