Russia has drawn up plans to seize the assets of western companies leaving the country as the Kremlin pushes back against sweeping sanctions and the exodus of international businesses since its invasion of Ukraine.
Announcing the move after a string of global firms said they would suspend operations in Russia this week, including McDonald’s, Coca-Cola and Pepsi, the country’s economic ministry said it could take temporary control of departing businesses where foreign ownership exceeds 25 per cent.
Speaking in a video link with members of his government on Thursday, Russian president Vladimir Putin said the Kremlin could find legally viable ways to seize international firms. The government would push to “introduce external management and then transfer these enterprises to those who actually want to work”, said Mr Putin. “There are enough legal and market instruments for this.”
Russian prime minister Mikhail Mishustin said that while most businesses had temporarily suspended operations, the situation would be closely monitored and that steps to “introduce an external administration” could be used.
The move comes as western governments seek to impose maximum pressure by announcing drastic restrictions on imports of Russian oil and gas on top of financial sanctions and asset freezes for prominent oligarchs.
On top of formal sanctions, big western businesses and brands have taken steps to either exit the country altogether or suspend operations in response to the invasion, including Starbucks and McDonald’s. Shell has announced plans to withdraw from Russian oil and gas, BP has said it will exit stakes in major projects, while Unilever has said it will stop imports and exports to the country.
Burger King announced on Thursday that it would suspend all its corporate support for the Russian market, including operations, marketing and supply chain. The company does not directly operate restaurants in the country, the brand being run instead by local franchise partners.
Outlining the Kremlin’s response to its increasing international isolation, former Russian president Dmitry Medvedev said it was using a “symmetrical response” to the sanctions imposed by the west, “including the seizure of foreign assets and their possible nationalisation. The same applies to the refusal of foreign companies to work in our country.”
He said Moscow would respond “fundamentally and harshly” to the departures, adding: “Whatever the reasons for the exodus, foreign companies must understand that it will not be easy to return to our market.”
Leased jets
Russia announced plans on Thursday designed to exert pressure back on the west through economic sanctions, including through an export ban on timber, electronic and telecoms equipment.
Moscow also passed laws to impound €9.1 billion ($10 billion) of jets leased to Aeroflot and other Russian airlines by western organisations.
The move comes as Russia heads closer to defaulting on government debt payments, with ratings agencies warning of “imminent” failure in a move that could lead to financial losses for holders of Russian sovereign bonds.
World Bank chief economist Carmen Reinhart said on Thursday that both Russia and Belarus were “square in default territory” in an interview with Reuters. Fitch downgraded Russia’s sovereign rating further into “junk” status earlier this week, warning that the government was increasingly likely to renege on its payment commitments.
Russia is due to make payments worth about €107 million ($117 million) on government borrowing denominated in US dollars on Wednesday next week. However, doubts have been raised over whether the coupon payments will be made amid western sanctions on the Russian central bank and commercial lenders, as well as retaliatory steps announced by Moscow.
Ms Reinhart said the impact for the global financial system had been limited so far, although she warned that risks could emerge in Europe. About half of Russia’s international bonds are held by foreign investors. And foreign banks have exposure of more than €110 billion in Russia, much of that concentrated among European lenders, according to data from the Bank of International Settlements.
“I worry about what I do not see,” said Ms Reinhart. “Financial institutions are well capitalised, but balance sheets are often opaque. There is the issue of Russian private-sector defaults. One cannot be complacent.” – Guardian
