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1 Jun 2023

Alexander Marrow, Reuters

Russia: Remaining Western firms face tricky exits due to changing govt. rules, Nokian Tyres' example shows

Remaining Western firms face tricky Russian exits, 1 June 2023

After months of negotiations, Finland's Nokian Tyres was on the cusp late last year of finalising a 400-million-euro...sale of its Russian business. Then Moscow changed the rules again.

The government in December demanded that companies leaving Russia sell their operations for at least half price and claimed 10% of the sale for the federal budget, termed an "exit tax" by the U.S. Treasury.

Nokian Tyres dropped the agreed sale price to Russian oil major Tatneft to 286 million euros, finally securing the approval of the government commission that monitors foreign investment in March, nine months after initiating its "controlled exit".

Nokian Tyres' protracted departure illustrates the growing headwinds faced by Western companies that have yet to fully depart the country. Fifteen months after Moscow's invasion of Ukraine prompted a mass exodus, firms still there face growing uncertainty.

"The war changed the operating environment in a rapid and unpredictable way," Nokian Tyres' Chief Transformation Officer Johanna Horsma told Reuters. "The new changes in the regulations in Russia in September and December had a major impact"...

Gaining government commission approval is very demanding, time-consuming and difficult, said Dr Peter Wand, a partner at Baker McKenzie in Frankfurt, who worked on Nokian Tyres' exit.

The appraisal process, which requires a Russian evaluation of the business, was particularly lengthy, he said, with the ever-tightening sanctions regime demanding constant compliance checks.

"From a Western perspective, you would expect more flesh to the bone describing the process and deadlines," said Wand. Additional valuation requirements published in mid-December came in the middle of Nokian Tyres' transaction, he added...

Deputy Finance Minister Alexei Moiseev last month said the one-off nature of each decision explains why the process is not quick, saying the commission meets three to four times a week and considers 20 issues each time...

Baker McKenzie's Wand warned that time was running out for those remaining.

"If you cannot sell in time there comes a point where you may not have the cash to continue operations," he said. "The clock ticks fast for those still in Russia."