Exclusive: Putin, in a Desperate Bid To Finance the War Against Ukraine, Is Stealing American and European Companies — and Awarding Them to Regime Loyalists

Heineken, the Dutch beer company, sold its $300 million Russian business for one euro. Danone, the French dairy giant, saw its $1 billion yogurt business nationalized and given to the nephew of a President Putin crony. Carlsberg, the Danish beer brewer, refused to play along. On Tuesday, it wrote off its $1.4 billion investment in Russia.“There is no way around the fact that they have stolen our business in Russia — and we are not going to help them make that look legitimate,” Carlsberg’s new chief executive, Jacob Aarup-Andersen, told journalists on a call Tuesday.Walking away from eight breweries and 8,400 employees in Russia — the source of 9 percent of Carlsberg’s global revenue — the executive said: “We’re not going to enter into a transaction with the Russian government that somehow justifies them taking over our business illegally.”Reflecting Kremlin hostility toward Western investors, a former president of Russia, Dmitri Medvedev, yesterday used a coarse expression in a Telegram post directed at Aarup-Andersen.“The mongrels have finally realized their role in the circus of freaks and are whining angrily: ‘Our dog dish was given to others!’” wrote Mr. Medvedev, whose title is deputy chairman of Russia’s Security Council.“Thank you,” Mr. Medevev added, “for the investments that are now working for Russia, filling its budget. A strong budget means help for the front. In this regard, the senseless Danes also contribute to modern Russian weapons.”Mr. Putin gave Carlsberg’s Russia operations to Taimuraz Bolloev, a friend since the 1990s when they did deals together in St. Petersburg. So far this year, the Kremlin has nationalized the Russia operations of 17 Western multinationals, according to Ilya Shumanov, former head of Transparency International Russia.Moscow journalist Tatyana Pushkaryova collects contemporary jokes. In a current one, Muscovites note that Russia’s problem is that the people building capitalism grew up under communism. For their job, they use all the tools and assumptions they learned in the Soviet days.For the 1,000 American and European companies seeking to sell their Russia operations since Mr. Putin’s invasion of Ukraine, the exit obstacle course is increasingly impossible. Depending on a company’s country of origin and conduct, Kremlin spokesman Dmitry Peskov divides foreign companies into “naughty” and “nice.”“Naughty” multinationals, like Carlsberg and other blue chips, increasingly throw up their hands and walk away from Russia operations built up over 30 years into billion dollar valuations. Others, like British American Tobacco, KFC, Volvo, and Xerox, sell out to local managers at undisclosed prices. McDonald’s took a $1.28 billion charge in its sale.“Nice” companies face a government mandate that they sell out for 50 percent of “fair value” — and then make a 15 percent “voluntary” contribution of proceeds to the Kremlin. Washington calls this “the exit tax.” This week, foreign investors learned a new hurdle: they can only sell for rubles and take their money out of Russia in rubles, a currency that is not wanted in the West.Many exit barriers were designed by the same government bureaucrats who worked a few years ago to attract foreign investment to Russia. To date, 1,028 Western companies have fully divested from Russia, according to a running tally kept by the Yale School of Management.Since the war started, the government banned repatriation of dividends to “unfriendly” countries. So far, this sum amounts to almost $20 billion, according to calculations by the Kyiv School of Economics. A Financial Times study of the annual reports and statements of 600 of Europe’s largest companies found the companies suffered at least $100 billion in direct Russia losses since February 2022.The French bank Société Générale sold its Russia business Rosbank last year to Russia’s Interros Capital, taking a $3.4 billion hit. French carmaker Renault sold its majority stake in Avtovaz to the Russian state for one ruble, taking a $1.3 billion hit.Currency controls come as the Kremlin fights to keep the ruble from tanking. By controlling dollar and euro outflows and by raising interest rates four times in three months, to 15 percent on Friday, Russia’s Central Bank has limited the ruble’s devaluation to 20 percent since the war started. As in most parts of the world, Russians equate a strong currency with a strong country. The exchange rate is currently 92 rubles to the dollar, down from 77 at the start of the war.“The ruble has absolute priority,” Mr. Peskov told the Financial Times on Tuesday. When it comes to the exit of foreign companies, Russia is guided by “its own interests and benefits.”As seen by the gift of Carlsberg’s Russia operations to an old friend, Mr. Putin’s shoddy treatment of foreign investors has a political component. Last June, after Russia’s Army failed to move against the mercenary mutiny, Mr. Putin started seizing companies and distributing the spoils to loyal allies. Heineken, which was on the verge of being sold to a Russian company, was seized and given to Yuri and Mikhail Kovalchuk, brothers allied with Mr. Putin since the early 1990s.“Putin is forming a new class of proprietors in Russia, doling out the assets of Western companies and Russian entrepreneurs among them,” a Carnegie Russia Eurasia Center scholar, Alexandra Prokopenko, wrote recently. “These people will be indebted to Putinism for their position and their fortune, and it will therefore be in their interests to preserve the regime.”From London, a Russia analyst for Bluebay Asset Management, Timothy Ash, wrote recently: “The reality is that Putin did not think like Western business leaders. Business and the economy were a means to an end — the end was the invasion and subjugation of Ukraine, and the recreation of Russian great power status and empire.” Mr. Ash adds that “Western business operations in Russia were expendable, actually to be stolen and seized as the war has progressed.”Mr. Putin may be winning a short tactical advantage for the survival of his regime. The price, though, is the erosion of rule of law and foreign investor trust — a legacy that will hang over Russia long after he leaves the political stage. As with many phenomena in Russia, there is a historical precedent.In 1918, Russia’s new Bolshevik government repudiated all the Tsarist government’s bonds and started to seize foreign-owned factories. With default, Moscow entered two decades of international financial purgatory. Its first steps out only came in 1941, when Washington decided to arm the Soviet Union against the Nazis.After the Soviet Union collapsed in 1991, Russia’s leaders got a surprise: 300,000 French investors holding yellowed Tsarist-era government bond papers. With face values of 500 gold francs, these notes had been carefully passed down from generation to generation.In 1917, French investors held 80 percent of Russia’s government debt. Eight decades later, post-Soviet Russia wanted to join the Paris Club group for debtor and creditor countries. To get there, Russia settled French government claims, paying $400 million for 4 million Czarist bonds.Today a French Russian Loan Holders Association continues to fight for compensation to individual bondholders. Recently, France’s highest court, the Conseil d’État, ruled that claims by individual bondholders against Russia are not extinct. Some bonds date back 150 years — to the foreign-funded expansion of Russia’s railroads.Mr. Putin’s seizure of American and European assets this year may be taking place in a blip in time. Yet it promises to be a blip that Western investors will remember for decades to come.

Exclusive: Putin, in a Desperate Bid To Finance the War Against Ukraine, Is Stealing American and European Companies — and Awarding Them to Regime Loyalists

Exclusive: Putin, in a Desperate Bid To Finance the War Against Ukraine, Is Stealing American and European Companies — and Awarding Them to Regime Loyalists

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