Page 22 - bneMag Dec22

22 I Companies & Markets bne December 2022
Russia Inc. is going through a massive corporate restructuring as business responds to the sanctions earthquake that has toppled structures that have taken three decades to create.
The deals can be broken into three main types: super-large multinational players trying to exit or being forced out
of the market; FMCG (fast moving consumer goods) and discretionary consumer goods purveyors that rely on large retail networks selling to partners or management; and opportunistic bargain hunting by big Russian companies or businesspeople.
Mega deals
The biggest companies have had the most problems, as they are simply too big to sell easily. At the same time, the Kremlin has banned some really big oil companies in strategic industries from leaving or has forced them into restructuring deals where they must decide to commit to Russia or exit completely.
In June Putin issued a decree that sets up a new holding company to control Russia’s LNG production on the Far East island of Sakhalin. Foreign stake holders – including Shell (27.5% minus one share), Japan's Mitsubishi (10%) and Mitsui (12.5%), Gazprom (50%) – were told to apply for shares in the new company or lose their stakes. Japan has sided with the West in sanctions on Russia, but it is also heavily reliant on Russian LNG for energy.
The Japanese companies have decide whether to remain shareholders but Shell expects the sale of its 27.5% in the
new operator of the Sakhalin-2 project, the Sakhalinskaya Energiya company, to be completed in the first quarter of next year, the oil and gas company said in its quarterly financial report at the end of October, without saying who will buy it.
"On September 1, 2022, Shell formally advised the Russian Federation (RFG) that it would not apply for shares in the [newly-created Russian company] LLC, that it objected to the purported transfers from SEIC [Sakhalin Energy Investment Company] to the LLC and that it reserved all rights and remedies. The RFG is now expected to begin the process to sell Shell’s 27.5% (minus one share) share. This process is expected to be completed in the first quarter 2023," the report said.
Russian Deputy Prime Minister Alexander Novak said earlier the new shareholder of the Sakhalin-2 project replacing Shell would be defined by the end of the year, without giving more details. Novatek showed interest in the project earlier, reports BCS GM.
Much more tricky will be British multinational BP's 19.75% stake in Russian oil major Rosneft. BP has also said it will pull out of Russia, but it has not commented on how or who could buy its stake.
At the end of October Rosneft's Igor Sechin emphasised at the 15th Verona Eurasian Economic Forum in Baku that BP
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remains Rosneft’s shareholder and had collected $700mn worth of dividends from the second half of last year, which had been transferred to the company’s account.
"Despite the high-profile declarations made on February 27 by BP’s board of directors about the decision to divest from Rosneft, the company has not complied with that resolution. And despite all the rhetoric, it still remains a ‘shadow’ shareholder, not participating in the work of the company’s management bodies, maintaining all rights and corresponding dividends. I would like to take the opportunity to notify our friends from BP that their dividends for [the] second half
of 2021 [amounting to] $700mn have been transferred to accounts that have been opened for them," Sechin said.
"Let me mention that BP’s revenues from participating in the share capital and joint ventures with Rosneft have already reached $37bn, with the total investment of around $10bn.
I believe this is excellent compensation for the capital invested," Sechin added.
“Let me mention that BP’s revenues from participating in the share capital and joint ventures with Rosneft have already reached $37bn, with the total investment
of around $10bn”
Other US oil firms have been pushed out and have taken large losses in the process. American oil giant ExxonMobil completed its exit from the Russian market after Putin ordered the expropriation of its assets, the company said on October 18.
ExxonMobil had been in negotiations with the Russian authorities to sell its more than $4bn in assets – including
its largest Russian investment, a 30% stake in the Sakhalin-1 oilfield in the Russian Far East – since March. Sakhalin-1’s foreign investors were given one month to apply for shares in the new entity operated by state-run oil giant Rosneft.
The Exxon spokesperson did not say whether the company had received compensation for its assets, nor did he comment on whether the company would seek to challenge the seizure through the international courts. ExxonMobil had reduced its output on Sakhalin-1 by July, limiting volumes to the amount needed to sustain Khabarovsk and Vladivostok, the two largest cities in Russia’s Far East.
The sanctions regime has also thrown up problems for Russia’s leading privately owned oil company Lukoil, which is considering dividing itself into two companies, Swiss