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bne December 2022 Companies & Markets I 23
and Emirati, in order to allow European refining operations to continue after the European oil embargo begins on December 5. While the state-owned oil majors simply follow Kremlin orders, Lukoil has always endeavoured to maintain a tricky balance of retaining its independence and serving the interests of its shareholders, without stepping on the Kremlin’s toes. While the changes in Lukoil’s trading arm are not strictly speaking M&A, they are indicative of the corporate restructuring forced on everyone due to the extreme sanctions regime.
“Lukoil will face a more significant challenge in marketing Urals crude after the embargo begins in a few weeks. So
far, its exports of Russian crude have been relatively lightly touched by Western sanctions thanks to the company being able to load its Sicilian refinery completely with its own Urals crude, and thus largely fully realising the value for that crude in the form of refined products sold on the Italian market rather than having to accept a significant discount to Brent crude,” BCS GM said in a note. “From December 5, however, the company will have to source non-Russian crude for the plant and find alternative outlets for perhaps 20% of its Urals exports that have been going to Sicily... The Swiss successor to Litasco will handle the sourcing of non-Russian crude for European refining, while the new Middle East trading arm will market Urals to that region and elsewhere.” One option is to export more Lukoil crude to the Middle East, where the Saudis have been refining it to increase the amount of their own crude exports, which in turn could be sent to Sicily.
There have also been big changes in the utilities sector. The Italian company Enel has pulled out of Russia after years of pioneering work that created the country’s greenest energy company.
Italian utility and gas major Enel has finalised the sale of
its 56.43% stake in Enel Russia utility major to Russia’s second-largest oil producer Lukoil and investment fund Gazprombank-Frezia for €137mn, the company announced on October 14.
Another leading Russian utilities company Inter RAO was also opportunistically picking up attractive assets from departing foreigners, acquiring two Russia-based Siemens Energy
assets – Siemens Energy share in the JV with Power Machines and power transformer producer – in deals worth €25mn, according to Interfax.
And the few big foreign players in Russia’s agricultural sector are headed for the door. French dairy products producer Danone is looking to sell its dairy and yoghurt business in Russia that it has built up over almost three decades, in a transaction that could result in a write-off of up to €1bn for one of the world’s biggest makers of consumer goods.
The FMCG companies were very early entrants to the Russian market, attracted by its very large population and the fact their products, like soap power and chocolate bars, were
affordable to Russians even during the chaos of the early 90s. Mars, for example, is responsible for training an entire generation of Russian retail business managers. The FMCG products are the least likely to disappear from the Russian markets, as the traders will simply take over the business again, and buy out the local production that has been developed in the meantime. For example, Coca-Cola has five Russian factories that will all almost certainly go under the gavel now.
The French group said at the end of October that it would “initiate a process to transfer the effective control” of the business, which includes 13 factories, 7,200 employees and accounts for 5% of its annual sales of about €24bn.
“It remains unclear who will take over the business whose most popular brand is a local one called Prostokvashino, or if there would be proceeds from a sale. The move would not represent a complete exit from Russia, though, since Danone will continue to sell baby formula in the country,” BCS GM said in a note.
Car crash
Other than the energy and FMCG companies, Russia has attracted very little foreign direct investment (FDI), but the one other exception is in the automotive sector. With by
far the largest population in Europe and a long engineering tradition – Lenin opened the GAZ plant that was a joint venture with Ford and the Soviets did another deal with Fiat to found the Avtovaz plant – the top six major carmakers are in the Russian market, and they are all leaving now.
The biggest departure is that the Renault-Nissan joint venture that took control of Russia’s biggest car maker Avtovaz, the maker of the Lada, and after years of work and investment had finally got it back into profit in 2021. This summer the JV was sold to the Kremlin for one ruble – but with an option to re-enter Russia if relations improve.
For the government the departure of carmakers is very political, as they are such large employers. The cities of Kaluga, Nizhny Novgorod and especially Tolyatti are almost entirely dependent on their local car plants. Consequently the Russian government has been heavily involved in many of the automotive car plant deals.
Car producer Nissan will sell its Russian assets to Central Scientific Research Automobile and Automotive Engines Institute (NAMI) of the Industry and Trade Ministry, with a buyback option within six years, the ministry said in
a statement on Tuesday. “Nissan's executive committee has approved the sale of its Russian assets of Nissan Manufacturing Rus to Russia represented by NAMI subordinate to the Industry and Trade Ministry.”
Germany’s automotive manufacturing giant Mercedes-Benz has gone down a different route, planning to sell its shares in its Russian subsidiaries to one of its distributors, the
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