Multinationals discover that getting out of Russia quickly is not so easy

Hundreds of multinational companies are fleeing Russia following the nation’s violent invasion of Ukraine, but for some, leaving the country entirely will be a long and complicated process.

Restaurant brands have to work out contracts with local franchisees before they can cut ties with Russia.

Banks must first find other financial institutions to take over their loans and bank accounts.

Manufacturers, oil producers and others are unable to find buyers for their Russian facilities due to harsh Western sanctions.

Some executives distrust the Russian president Vladimir PutinVladimir Vladimirovich PutinDefense and national security: US says Russia committed war crimes in Ukraine Gasoline prices in Europe rise after Putin says ‘enemy’ countries must pay in rubles Zelensky calls for global rallies to back Russia Ukraine MOREThe threat to seize the assets of companies fleeing the country, widely seen as a desperate ploy to get foreign companies to stay.

Several leading American brands have said they are beginning the process of cutting ties with Russia, but have warned that doing so will take time.

Burger King says it cannot legally close its 800 restaurants in Russia because its Russian business partner refuses to do so. Restaurant Brands International, the fast-food chain’s parent company, said last week it is working to divest its 15 percent stake in Russian franchise Burger King but warned it cannot terminate its contract.

“No serious investor in any industry in the world would accept a long-term business relationship with flimsy termination clauses,” David Shear, the company’s president, wrote in a letter to employees. “This is exactly why we say it’s a complicated legal process when they ask why we can’t just unilaterally shut down the deal.”

Yum Brands, the company behind KFC and Pizza Hut, is in a similar situation, where most of its Russian stores are run by Russian franchisees. Subway also said it can’t stop its 450 franchisees from staying open. McDonald’s successfully closed most of its stores in Russia because, unlike other chains, it directly owns and operates most of them.

“The only franchisor that matters right now in Russia is Vladimir Putin,” said Michael Seid, founder of international franchise advisory firm MSA Worldwide. “If he says to close, you will close, if he says to stay open, you will stay open.”

Roughly 400 corporations have fully or partially withdrawn from Russia, according to a list compiled by researchers at Yale University’s Institute for Executive Leadership.

The corporate exodus is fueled by widespread outrage over Putin’s violent invasion of Ukraine, coupled with Western sanctions making it difficult to do business in Russia and supply chain problems stemming from shipping giants shutting down shipping to the country. .

American financial institutions have largely agreed to shut down their operations, including Citigroup, which has the largest Russian footprint with nearly $10 billion invested in the country. But leaving won’t be easy, as Russia has prevented companies from withdrawing their funds and Citigroup has struggled to find buyers for its retail banking business.

The bank cannot sell the business to Russian buyers under Western sanctions without a government waiver, and it cannot wind up its operations without finding a new home for its existing clients, a complicated process that could take months, if not years.

Under normal circumstances, companies like Citigroup could use legal means to recover some of their assets, but experts do not see Russia complying with international courts amid its invasion of Ukraine that has drawn worldwide condemnation.

“If a country has become a true pariah, it’s not clear what their incentive would be to comply with international law,” said Michael Klein, a professor of international economic affairs at the Fletcher School at Tufts University.

Putin has vowed to seize the assets of companies leaving Russia and allow Russian companies to steal the intellectual property of companies hosting “enemy” nations, moves that have seen companies scramble to recover assets they may leave. Russia.

Danish shipping giant Maersk, which has announced it will cease operations in Russia, said it is still making trips to Russian ports to pick up some 50,000 empty shipping containers currently stranded in the country.

ExxonMobil and BP hope to sell their multibillion-dollar projects in Russia, but experts say they will likely bear a big loss on those investments. Western airline leasing companies are expected to lose $10 billion on planes that Russia refuses to return.

“If Mr. Putin says he’s going to expropriate those assets, he might as well act like it’s going to happen,” said James O’Rourke, a professor at Notre Dame’s Mendoza College of Business. “Executives may find that they will simply have to write off those assets.”

Some of the companies that stayed in Russia have cited Putin’s threat. The Yale list found that fifty-four companies are freezing new investments in Russia while continuing operations, while 38 companies refuse to scale back or end operations in Russia.

Koch Industries, a US company that operates two glass manufacturing plants in Russia, said in a statement last week that it would not “hand over these manufacturing facilities to the Russian government so that it can operate and profit from them.”

French automaker Renault, one of the few Western companies to maintain its Russian operations, has also reportedly heeded the Kremlin threat. Renault owns a majority stake in AvtoVAZ, the largest Russian carmaker, and employs some 40,000 Russian workers.

Ukrainian President Volodymyr Zelensky told French lawmakers Wednesday that the automaker and other French brands “must stop sponsoring the Russian war machine.”

Some of the other companies refusing to leave Russia are pharmaceutical and food processing companies, which say they cannot shut down their operations without harming the broader Russian population that depends on their products.

Nestlé said on Wednesday that it would suspend production of its KitKat and Nesquik brands, but would continue to produce essential items such as baby food and medical nutrition. The company said it would donate Russian profits to humanitarian aid organizations.

“This approach is in line with our purpose and values,” Nestlé said in a statement. “It defends the principle of guaranteeing the basic right to food.”

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