Analysis of foreign business exits from Russia

42 Pages Posted: 4 Jan 2024

See all articles by Andrii Onopriienko

Andrii Onopriienko

Kyiv School of Economics

Nataliia Shapoval

Kyiv School of Economics

Elina Ribakova

Peterson Institute for International Economics; Bruegel; Kyiv School of Economics

Oleksii Hrybanovskyi

Kyiv School of Economics

Nataliia Rybalko

Kyiv School of Economics

Benjamin Hilgenstock

Kyiv School of Economics

Yuliia Pavytska

Kyiv School of Economics - Kyiv Economics Institute (KEI)

Olena Bilousova

Kyiv School of Economics - Kyiv Economics Institute (KEI)

Date Written: November 29, 2023

Abstract

In this research we investigate in detail the exits of foreign companies from the Russian Federation in 2022-2023.

Starting from February 24, 2022, once Russia started a full-scale military invasion to Ukrainian territory, many multinational companies operating in the Russian Federation, in response to the armed aggression against Ukraine, began to declare their intention to withdraw from the Russian market, cut off business ties, and stop trade operations. At the same time, some companies ignored the call to stop doing business with the Russian Federation as usual.

At the beginning of the full-scale invasion, the "SelfSanctions / LeaveRussia" project from the KSE Institute began to create a database of foreign firms that have their own legal entities (LLCs and JSCs) in the Russian Federation and collected key financial indicators (in particular, headcount, revenue, assets, capital, taxes paid and profit). As of now, this database is the biggest in terms of total number of companies (~3600), number of local companies identified in Russia (~2050), amount of revenue generated in Russia before the invasion (~USD 314 billion for 1520 local companies) and in 2022 (~USD 234 billion for 1435 local companies). Also, as of November 19, 2023 we identified 300 companies that have completed the sale/liquidation of their business in Russia based on the information collected from the official registers.

Russia based on the information collected from the official registers.In this work, we have reviewed exits of ~300 companies based on trade data in order to look objectively at how some companies have fulfilled (and are fulfilling) their promises to exit in full. Also, we tried to systematize data on the main beneficiaries/buyers of the exited foreign firms and will review in the future an impact on the financial performance of Russian subsidiaries.

As of November 19, 2023, the "SelfSanctions / LeaveRussia" project from KSE counted 2050 legal entities in the Russian Federation, which respectively belonged to ~1500 foreign owners (each owner may own several local legal entities).

Key findings: Departures from the Russian Federation
1. Limited Transaction Data Availability:
o Information on deal amounts is available for less than one-third (~30%) of the 87 companies analyzed.
o Considering total revenue size, data is available for approximately 60% of the companies.
2. Total Value of Transactions:
o Calculations suggest a total transaction value of $16.7 billion USD, factoring in exchange rates during the transactions.
o An alternative estimate from Bloomberg, citing AK&M, suggests a figure around $21 billion USD.
3. Top 10 Largest Deals:
o Prosus sells Avito to Ivan Tavrin's investment group for $2.4 billion USD.
o Eni's 40% stake sale in the Arctic gas project to Rosneft tops the list with a deal amount of $1.8 billion USD.
o Total value of the top 10 deals reaches $9.3 billion USD.
4. Transaction Information Gap:
o Due to undisclosed transaction details for many companies, the total transaction amount could be approximately 1.5 times higher, reaching around $25 billion USD.
5. Challenges in Valuation:
o Despite estimates, challenges in valuation arise, especially for companies sold for symbolic amounts (e.g., 1 euro) or facing expropriation by Russian authorities.
o Current estimates of $17-25 billion indicate a significant divergence from market conditions.
6. Impact on Companies and Russian Elite:
o Total transaction amounts for companies with disclosed information are two times less than their annual revenue in Russia.
o European companies have declared nearly 100 billion euros in write-offs from operations in Russia, though not critical to their global investments.
o The Russian pro-government business elite emerges as the beneficiary of Western corporations' departure.
7. Buyer Profiles and Ownership:
o Of the 386 legal entities sold by Western companies, 25% were sold to individuals, with almost half going to representatives of local top management.
o In 94% of cases, buyers are from Russia, with only a few representing friendly countries such as China, Turkey, or the United Arab Emirates.
8. New Russian Business Elite:
o Media highlights individuals like Ivan Tavrin, former head of a Russian mobile communications company, and Alexey Sagal's Arnest Group, as key players in acquiring abandoned assets.
o Notable acquisitions include Tavrin's purchase of Prosus NV Avito and Sagal's acquisition of Ball's drinks packaging assets and Heineken NV's Russian units.

In summary, the analysis uncovers a varied landscape of departures from the Russian market, showcasing diverse deal structures, challenges in valuation, and the emergence of a new Russian business elite capitalizing on the exit of Western corporations. The foreign business exit landscape from the Russian market reveals a complex interplay of economic, ethical, and bureaucratic factors. The analysis suggests that, despite facing challenges, larger companies are strategically navigating the exit process, impacting the overall dynamics of foreign business presence in Russia.

Keywords: Russian invasion, international business in Russia, sever business ties, sanctions, Russian economy, KSE, foreign business, 2023, exit, behavior, international companies, direct business, trade ties, economy, geopolitics, decoupling, divestment strategy, Russia, globalization, financials, revenue

Suggested Citation

Onopriienko, Andrii and Shapoval, Nataliia and Ribakova, Elina and Hrybanovskyi, Oleksii and Rybalko, Nataliia and Hilgenstock, Benjamin and Pavytska, Yuliia and Bilousova, Olena, Analysis of foreign business exits from Russia (November 29, 2023). Available at SSRN: https://ssrn.com/abstract=4648135 or http://dx.doi.org/10.2139/ssrn.4648135

Andrii Onopriienko (Contact Author)

Kyiv School of Economics ( email )

3 Shpaka Str.
Kyiv, 03113
Ukraine

HOME PAGE: http://kse.ua/

Nataliia Shapoval

Kyiv School of Economics

Elina Ribakova

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium, 1210
Belgium

Kyiv School of Economics ( email )

vul. Yakira, 13, 3d floor, suite 334
Kyiv, 04119
Ukraine

Oleksii Hrybanovskyi

Kyiv School of Economics ( email )

vul. Yakira, 13, 3d floor, suite 334
Kyiv, 04119
Ukraine

HOME PAGE: http://kse.org.ua

Nataliia Rybalko

Kyiv School of Economics ( email )

vul. Yakira, 13, 3d floor, suite 334
Kyiv, 04119
Ukraine

Benjamin Hilgenstock

Kyiv School of Economics ( email )

vul. Yakira, 13, 3d floor, suite 334
Kyiv, 04119
Ukraine

Yuliia Pavytska

Kyiv School of Economics - Kyiv Economics Institute (KEI) ( email )

Kyiv, 04119
Ukraine

Olena Bilousova

Kyiv School of Economics - Kyiv Economics Institute (KEI) ( email )

Kyiv, 04119
Ukraine

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