Western businesses backtrack on their Russia exit plans, 28 May 2024

Western companies, including Avon Products, Air Liquide and Reckitt, have remained in Russia despite saying they planned to leave after the invasion of Ukraine, as bureaucratic obstacles increase and consumer activity rebounds.

The Natura-owned cosmetics brand, the French industrial gas producer and the UK consumer group that produces everything from painkillers to condoms are among hundreds of western groups that have stayed in the country since the full-scale invasion in 2022.

“Many European companies have found themselves really between a rock and a hard place,” said one executive working with western companies in the country. “They said they’d leave. They were presented with a choice of buyers that were unacceptable to them.”

Overall, more than 2,100 multinationals have stayed in Russia since 2022, the Kyiv School of Economics has found, compared with about 1,600 international companies that have either quit the market or scaled back operations...

...Moscow has gradually raised the cost of corporate departure, imposing a mandatory 50 per cent discount on assets from “unfriendly” countries sold to Russian buyers and a minimum 15 per cent “exit tax”. It has also been increasingly hard to find local buyers acceptable both to the seller and to Moscow and whose involvement does not fall foul of western sanctions.

Air Liquide announced in September 2022 it had signed a memorandum of understanding to sell its Russia business to the team of local managers who had been running it. However, the deal never received Russian government approval, leaving the company in limbo.

Some companies no longer feel they are compelled to quit the country. Avon began a sales process for its Russian business and received offers but decided not to accept them...

While Reckitt announced in April 2022 that it had “begun a process aimed at transferring ownership of its Russian business”, its new chief executive Kris Licht has taken a more measured approach.

“We continue to look at options but it has become more complex, not less complex,” he told the FT...“The initial conversation was, do you stay or go, and businesses paying taxes . . . I think we’re having a bit more of a nuanced conversation”...

Among the more than 2,000 companies that have said they will stay in Russia - which include consumer groups Mondelez, Unilever, Nestlé and Philip Morris - some have become more open about their plans. Mondelez’s chief executive recently told the FT that investors did not “morally care” whether groups left the country.

But there is a lack of clarity about some companies’ claimed divestments. US short seller Hindenburg Research revealed in March that Polish fashion retailer LPP’s goods were still being sold in Russia despite it announcing it had left the market in June 2022 after selling its business to an unidentified Chinese consortium.

While LPP denied wrongdoing, it acknowledged it had been benefiting from sales to “transfer agents” to help fund the cost of the transition, a practice that would not be phased out until 2025...

While companies that left in the initial weeks after the invasion saw a moral imperative to do so, he said, “the current wave is more about, do you really have to leave? Do you want to leave? Some of these companies have built four, five factories over 30 years. They’re not going to sell that for a 90 per cent discount.”...