According to three sources with knowledge of the situation, some international businesses intending to leave Russia are seeing a significant increase in costs as a result of Moscow’s increased demands for price reductions on the assets they wish to sell.

Since Western businesses started departing shortly after Moscow launched what it refers to as a “special military operation” in Ukraine in February 2022, the country has gradually tightened its exit regulations. Executives claim that following the rules is getting more difficult.

According to a Reuters study of business filings and remarks, foreign corporations have already suffered losses of more than $80 billion from their Russian operations as a result of writedowns and missed income.

The Russian operations of the Dutch brewer Heineken were sold to the Russian Arnest Group for a symbolic sum of one euro, the company announced on Friday, completing its exit from the country.

Additionally, Moscow has steadily added new exit barriers. Nationalisation is also a possibility, especially in light of the July asset seizures of French yoghurt producer Danone and Danish yoghurt maker Carlsberg in Russia.

Veon, a telecoms company, is still in the midst of negotiating its exit, as is Yandex, a software company that is listed on the Nasdaq, and Intesa, an Italian lender.

Moscow already requires a 50% discount on all foreign transactions after the business has been appraised by experts chosen by the Russian government.

Additionally, Russia demands that at least 10% of the purchase price go towards funding the national budget.

However, according to three persons who are acquainted with the procedure for letting go of foreign firms, some deals are being met with demands for further cuts before the government gets the go-ahead.

The sources asked to remain anonymous because the information is private.

According to the Russian Finance Ministry, appraisals may be changed throughout the sales process, but final sales prices are not required to be reduced.

“The price may change only in a case when the commission points out the incorrect valuation of a foreign business’ market value,” it said in a written response to Reuters’ questions.

A “correction” to a pricing may be made by the central bank and economic ministry after they analyse enterprises, it stated.

Deals involving corporations from so-called “unfriendly” nations, those that have implemented sanctions against Russia due to its actions in Ukraine, must be approved by a government body that supervises foreign investment. Additionally, President Vladimir Putin must personally approve any sales by banks and energy companies.

The commission was turning some deals back, according to a financial market source who works with businesses looking to exit Russia, since the valuation should have been 20–30% lower.

This person described it as a “unpredictable black box”.

Deals surpassing $100 million are particularly vulnerable to rejection, according to a different individual who works on M&A transactions and with foreign corporations.

According to this source, the most recent price change is hindering sales and causing businesses to look at other options.

The Russian central bank said that 200 Russian asset transactions were completed by foreign corporations between March 2022 and March 2023, with around 20% of those assets valued at more than $100 million.

The central bank claimed that foreign firms under pressure to leave Russia were doing so on “unfavourable” terms in its biannual review of financial stability.

“Last year’s exodus of foreigners is continuing, although there are slightly fewer deals,” said Suren Gortsunyan, a partner and co-founder of law firm Rybalkin, Gortsunyan, Dyakin and Partners (RGD), which has advised on eight successful deals and plans to file for approvals in another five to six.

“Regulatory constraints that have been building steadily make it harder to exit,” Gortsunyan said.

According to Alexey Kupriyanov, director of Aspring Capital, which has advised on dozens of deals, including the anticipated sale of Veon’s Vimpelcom to local management for $2.1 billion, the corporate exodus is a huge windfall for Russian entrepreneurs as well as Western companies’ rivals and former business partners.

According to the Russian finance ministry, the government panel often meets twice a week to assess the most recent proposals and authorises around 90% of transactions.

“It can take up to six months for the deal to be prepared by the relevant agency,” the ministry said.

Potential red signals, according to the report, would be deals involving intermediary buyers, doubts regarding asset valuation, and a potential buyer’s lack of competence in the desired industry.

According to Nato Tskhakaya, head of regulatory practise at RGD, after the appraisal, the finance ministry forwards the contract to the commission, which is made up by officials from the central bank and a number of government departments.

However, the choice is eventually made without the sellers’ input. According to the finance ministry, neither the buyer nor the seller are present to hear the commission’s decisions.

(Adapted from Reuters.com)

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