Alistair MacDonald,
The Wall Street Journal
LONDON (Agefi-Dow Jones)–Western companies operating in Russia and Ukraine are preparing for the potential impact of economic sanctions announced against Moscow on their operations in those countries and are developing contingency plans in the event of an armed conflict after the announcement by the Russian President, Vladimir Putin, of the deployment of troops in two separatist regions of Ukraine.
The United States, the European Union and the United Kingdom announced a series of sanctions against Russia on Tuesday, which they promised to intensify if troops advanced further into Ukraine. These new measures could include sanctions against large Russian companies and the country’s economic elite.
However, such initiatives could also complicate the activities of many multinationals with operations in Russia, which often ally themselves with Russian companies and businessmen. Major oil companies such as BP, Exxon Mobil, TotalEnergies and Shell all have substantial investments in Russia, as do Danish brewer Carlsberg and French automaker Renault.
The relatively small size of the Russian and Ukrainian economies and the perceived difficulties of doing business in these countries means that the exposure of multinationals outside the commodities sector is low. Some Western multinationals have nevertheless developed activities in these two countries.
Banks on the front line
Several major Western banks, including Citigroup and JPMorgan, are present in Russia. If Western sanctions target Russian financial institutions or individuals, these banks will have to quickly cut ties with them. So far, the sanctions adopted by the United States, the European Union and the United Kingdom have been limited, targeting a handful of small banks and individuals. Cross-border payments, including debt servicing, could be frozen, which could lead to the unwinding of sometimes complex transactions and possible losses if, for example, banks find themselves with unpaid debts. Spokespersons for Citigroup and JPMorgan declined to comment.
Major European banks, including Societe Generale and UniCredit, which have local facilities in Russia, could also see default rates rise if the Russian ruble depreciates significantly and the economy weakens sharply. A Societe Generale spokeswoman said the bank’s business in Russia accounted for around 2% of the group’s revenue and net profit last year. UniCredit did not respond to a request for comment.
ArcelorMittal, Danone and Carlsberg exhibited in Ukraine
In Ukraine, ArcelorMittal operates one of the largest steelworks in the country and has some 29,000 local employees and subcontractors. The company has committed 300 million dollars of investments to improve this factory. Earlier this month, ArcelorMittal said it had contingency plans in place should the Russia-Ukraine crisis escalate.
Carlsberg has three breweries in Ukraine and is the country’s top beer seller, with a 32% market share, according to the group. The world’s third-largest brewer recently announced that it has been working on contingency plans for several weeks, but declined to provide further details amid high uncertainty. Carlsberg also has a strong presence in Russia, where it owns eight breweries. Sales in this country represent about 10% of total turnover, according to the company.
The French food group Danone has two production plants in Ukraine, in the north and east of the country. The tobacco company British American Tobacco, owner of the Pall Mall and Lucky Strike brands, among others, has a plant in Ukraine which employs around 1,000 people, while the Irish building materials manufacturer CRH has five production plants in this country, where it has been around since 1999. These three companies declined to comment for this article.
Meanwhile, a company owned by US private equity firm NCH Capital cultivates about 300,000 hectares of land in Ukraine and exports about 3 million tons of crops through a Ukrainian company, according to its website. NCH, which also owns land in Russia, declined to comment.
BP, the most exposed of the oil and gas majors
Western companies had been relatively unaffected by Russia’s annexation of Crimea in 2014 and the ensuing Russian-backed insurgency in eastern Ukraine. US and European officials, however, have indicated that the sanctions this time will be more severe than those that followed these events.
According to analysts, the British BP is the most exposed of the oil and gas majors. The company has a 19.75% stake in Rosneft Oil, and its managing director, along with his predecessor, sit on the Russian company’s board of directors. JPMorgan estimates that around 9% of BP’s net asset value is exposed to Russia, compared to an average of 5% in the oil and gas sector in Europe.
Its competitor Shell holds a 27.5% interest in a major offshore gas project in the far east of Russia. This project, which is 50% controlled by the Russian company Gazprom, provides around 4% of the world market for liquefied natural gas (LNG).
BP and Shell declined to comment. In recent weeks, their leaders have indicated that they will comply with any new sanctions that may be applied. Exxon Mobil and TotalEnergies also have significant stakes in energy projects in Russia. TotalEnergies declined to comment and Exxon was not immediately available.
The Anglo-Swiss commodity specialist Glencore has a 10.55% stake in EN+ Group, the controlling shareholder of aluminum maker Rusal. Glencore also has a less than 1% stake in Rosneft.
Last week, Glencore chief executive Gary Nagle said the stakes were “very insignificant in the global context” and that the group’s trading division, called the marketing division, could benefit from a Russian invasion. Such an event “would cause severe disruption in some commodity markets, severe disruption and that’s where our marketing really thrives,” Gary Nagle said.
AvtoVAZ, Renault’s bet on Russia
Apart from raw materials, the car manufacturer Renault is one of the companies most exposed to the Russian market, via its subsidiary AvtoVAZ. Russia accounts for around 8% of the French group’s operating profit, according to Citi calculations. If the Ukrainian crisis worsens, the main problem for the group would be to manage to supply Avtovaz with parts from abroad, Renault chief executive Luca de Meo told analysts on Friday.
Renault has two factories in Russia, in the cities of Togliatti and Izhevsk. According to Luca de Meo, Avtovaz’s operations are “90%” intended for the Russian market and are autonomous in terms of financing.
Nevertheless, Russia is one of Renault’s main markets. With its Japanese partner Nissan, the French manufacturer bet big on the Russian car market in 2014 by taking a controlling stake in AvtoVAZ, owner of the Lada brand.
-Alistair MacDonald, The Wall Street Journal
(Jenny Strasburg and Nick Kostov contributed to this article)
(French version Valérie Venck) ed: ECH
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February 23, 2022 10:00 ET (15:00 GMT)