Foreigners concluded 200 asset sales transactions in the Russian Federation, only 5 of them were for payments of USD 400 million – CBR

MOSCOW, May 26 (Reuters) – From March 2022 to March 2023, outgoing foreign firms sold about 200 Russian assets, a fifth of which involved large assets worth more than $100 million each, with little impact on the country’s economies, reported by CBR in the Financial Stability Review.

The Central Bank said that of the transactions approved by the government since October 2022, only five involved actual payments to non-residents in excess of $400 million.

Russia introduced capital controls last year and restricted capital withdrawals from the country. Now foreign companies from jurisdictions “unfriendly” to the country must obtain the approval of the government commission or the consent of the President of the Russian Federation to close their operations.

Transactions of departing foreigners are considered by the subcommittee of the government commission for the control of foreign investments in the Russian Federation with the participation of the Bank of Russia, such transactions involve a significant discount to the market value and tax payment to the budget .

The government subcommittee considers hundreds of applications from non-residents. Last year, when there was a period of mass exodus of foreigners, there were 3-4 meetings a week, lasting 2-3 hours, said Ilya Torosov, First Deputy Minister of Development of the Republic of Poland of the Russian Federation.

The CBR said in a review that such transactions could carry risks

“The large volume of foreign currency purchases needed for transaction settlements, in the context of reducing the current account surplus of the Russian balance of payments, may have a negative impact on the foreign exchange market, so buyers are advised to evenly distribute the purchase of foreign currency,” the Central Bank said.

The subcommittee will limit the monthly volume of exits of non-residents from the Russian market, the Central Bank announced.

Russian President Vladimir Putin on Monday ordered a $1 billion monthly cap on the purchase of foreign currency by Russian residents to settle transactions with foreign companies selling assets in the Russian Federation.

The central bank said that on a national scale, the impact of the sale of Russian assets by foreign investors on the Russian market is limited for a number of reasons. Firstly, a significant part of such transactions consists in maintaining the necessary licenses for production and patents, rights to trademarks, providing companies with further supplies of raw materials, materials and components, as well as providing technical and material support.

In addition, many foreign companies, leaving Russian assets, leave themselves the opportunity to return. Such transactions include contracts (options) that give you the right to repurchase an asset within a certain period of time.

“At the same time, business, as a rule, continues to run smoothly,” the Central Bank said.

A significant part of the acquired Russian companies, according to the Central Bank, is characterized by a business model that is slightly dependent on foreign raw materials, equipment and components – for example, assets in the field of commercial real estate.

“Nevertheless, in some cases, the risk of foreign investors exiting Russian assets remains and is associated with those assets that are most dependent on foreign supplies. To mitigate such risks, relevant transactions are carefully scrutinized by the subcommittee.

To mitigate this risk, the subcommittee prioritizes buyers with relevant industry experience and companies from related industries to achieve synergies and improve the operational and financial stability of the acquired company.

In the work of the subcommittee, NBP writes, special attention is paid to the new owner’s plans for further business development, including plans to restructure technological, production and logistics chains, which may suffer as a result of the exit of a foreign investor.

To this end, KPIs are established for new owners of the acquired asset, and the relevant federal enforcement agencies monitor their achievement.

As part of the work in the subcommittee, the Central Bank pays particular attention to the financing of current transactions, including control of the increase in corporate sector debt and the related bank risk. (Elena Fabrichnaya. Edited by Oksana Kobzeva)