The list of brands pulling out of Russia is growing by the day as some of the world’s largest corporations, from energy to consumer goods and electronics, suspend operations in the country. McDonald’s, Pepsi, Nike, Ikea, Netflix and countless more. While sanctions and capital controls make it difficult to do business, companies are also concerned about a possible backlash for being seen as supporting Russia’s invasion of Ukraine.
In response, Vladimir Putin’s government plans to seize the assets of withdrawing Western companies while planning measures to persuade others to stay.
Seizure. Russia has drawn up plans to seize and even nationalize foreign-owned companies that are fleeing the market due to the invasion of Ukraine. A way to seize the assets of those big corporations that are going to cause a big hole in their economy. In the first explicit response to the exodus of foreign companies from Ikea to McDonald’s, the Economy Ministry has outlined new policies to take temporary control of companies that leave when foreign ownership exceeds 25%.
How? Putin explained that the Kremlin could find legally viable ways to seize international companies. The government would push to “introduce external management and then transfer these companies to those who really want to work.” Under the proposals, a Moscow court would consider requests by board members and others to bring in outside managers. The court could then freeze the shares of foreign-owned companies as part of an effort to preserve ownership and employees.
Why? The move comes as Western governments seek to impose maximum pressure on Putin by announcing drastic restrictions on imports of Russian oil and gas as well as financial sanctions and asset freezes for prominent oligarchs.
In addition to formal sanctions, major Western companies and high-profile brands have taken steps to leave the country altogether or suspend operations in response to the invasion. Shell has announced plans to withdraw from Russian oil and gas, BP has said it will stop participating in large projects, while Unilever has said it will stop imports and exports to the country.
Eye for an eye. The tit-for-tat measures that may include the possible arrest of Russian assets abroad would have “mutually negative consequences,” said Kremlin spokesman Dmitry Peskov. “Russia should remain an attractive destination for investors from countries that are not waging an ‘economic war’ against it. The market abhors a vacuum,” he noted. And China is already in talks with its state-owned companies about any opportunities for potential investments in Russian companies or assets.
Other retaliation. In addition, the Putin government has announced plans to put pressure on the West through economic sanctions, including a ban on the export of wood, electronic and telecommunications equipment. And it also passed laws to seize 8 billion euros of aircraft leased from Aeroflot and other Russian airlines by Western organizations.
Default on debt payments. All of this comes as Russia nears default on government debt payments, with ratings agencies warning of an “imminent” failure in a move that could lead to financial losses for holders of Russian sovereign bonds.
The chief economist of the World Bank, Carmen Reinhart, explained that both Russia and Belarus were “framed in predetermined territory”. Others further downgraded Russia’s sovereign rating to “junk” status this week, warning that the government was increasingly likely to default on its payment commitments.