Russia Explores Powers to Seize Western Assets and Restrict Exits - Concerns over Nationalization

Russia is taking steps to adopt powers that would allow it to seize assets of western companies and impose restrictions on their exit from the country.

According to insiders familiar with the matter, the Kremlin has issued a secret order for legislation enabling the appropriation of western assets at discounted prices, with discussions underway for even more stringent measures such as full nationalization of certain groups. The aim is to make nationalization a part of Russia's strategy to punish western countries that seize Russian assets while rewarding those that comply with the Kremlin's rules.

The confidential Kremlin decree, seen by the Financial Times, outlines that the Russian state would have priority rights to purchase western assets for sale at a "significant discount," enabling them to be sold later for a profit. Furthermore, the decree signed by President Vladimir Putin requires all private Russian buyers of western assets to be fully Russian-held or in a process that excludes foreign shareholders, thereby complicating the exit procedure.

Dmitry Peskov, Putin's spokesman, emphasized that while western investors and companies are welcome in Russia, those failing to fulfill their obligations are considered "naughty companies" and will be bid farewell. Peskov stated, "And what we do with their assets after that is our business."

Some individuals involved in western corporate exits from Russia express concerns about the implications of the Kremlin's actions, foreseeing an eventual consolidation of the state's control over the economy through nationalization. A senior businessman in the process of selling his assets in Russia believes that nationalization is inevitable, stating, "The state will need money."

The move to seize assets and impose restrictions comes in response to Russia's growing frustrations with US and European sanctions. In April, Russia took over the local subsidiaries of Finland's Fortum and Germany's Uniper as a response to what it deemed "the illegal expropriation of Russian assets abroad." The Kremlin is monitoring the fate of approximately €300 billion ($324 billion) of Russian central bank assets frozen in the West before deciding whether to expand such powers to a larger number of western companies.

Russia's economic officials are concerned about losing the vital role that western businesses currently play in various sectors of the country's economy. The Kremlin also seeks alternative sources of income for its budget, given declining revenues from energy exports and rising military spending, which has resulted in a budget deficit of $42 billion so far this year.

The criteria set forth by the Kremlin require western companies to offer Russian buyers a discount of at least 50% of the asset's value, along with a "voluntary" contribution of 5% to 10% of the deal price to the budget. Central bank governor Elvira Nabiullina has been a strong advocate for limiting western corporate exits and warning companies with the threat of nationalization, while finance minister Anton Siluanov supports such exits as a means to generate more revenue for the budget.

The potential nationalization of western companies in Russia has raised concerns about the consolidation of state control and the impact on foreign investors. However, the Kremlin's intention is to use the threat of nationalization as a means to incentivize good behavior from western companies operating in the country. The decree also requires new owners of acquired assets to float 20% of the asset on Russia's stock market, providing more investment opportunities for Russian retail investors.

By fLEXI tEAM