As of June 08, 2022

Signals for foreign business

The companies that have opted to pull out of Russia following its unprovoked invasion of

Ukraine are not just benefiting from a reputational boost. They are also being rewarded

by financial markets, while those who remain behind are being punished.

● According to researchers from the Yale School of Management (USA), public

companies that left Russia after its invasion of Ukraine are rewarded with huge profits

from the stock market. And those who remain, on the contrary, have both financial

and reputation risks. It holds true across regions, sectors, and company sizes.

● The shareholder wealth created through equity gains has already far surpassed the

cost of one-time impairments for companies that have written down the value of

their Russian assets and gave up revenue from the Russian market. This is stated in a

report1 by Yale University professor Jeffrey Sonnenfeld and his research team. The

team monitored more than 1,200 companies doing business in Russia.

● For example, 6 large companies (Heineken, Shell, Exxon, Carlsberg, AB InBev, and

Societe Generale) that incurred asset write-downs of over $14 billion in Russia but

have generated nearly $39 billion in subsequent equity gains. Each of these

companies had positive stock performance after the announcements of their exits

from Russia and the values of their asset write-downs.

● The analysis of global capital flows demonstrates the importance investors attribute

to the decision to withdraw from Russia. And that investors believe the global

reputational risk incurred by remaining in Russia at a time when nearly 1,000 major

global corporations have exited far outweigh the costs of leaving.

● Equity markets are not the only asset class where financial markets have clearly been

rewarding companies for leaving Russia while punishing those that remain. The same

trend is evident across credit markets – specifically the pricing of corporate debt –

and related derivative products.

● There’s also the risk to companies that have not exited Russia operations of being

boycotted by younger people, who as both prospective customers and employees are

carefully attuned to corporate values and are quick to take action when they are

disappointed.

International business is leaving the Russian market

● As of June 05, KSE Institute identified2 about 2,213 companies, organizations and

their brands from 75 countries and 55 industries on the Russian market. About half

of them are public ones. The value of capital invested in the country (about $113

billion), local revenue (about $200 billion), as well as staff (almost 0.7 million people).

1 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4112885

2 https://kse.ua/about-the-school/news/impact-of-foreign-companies-self-sanctioning-on-rf-economy-4/

● 1,537 foreign companies have reduced, suspended or ceased operations in Russia.

The number of the companies that have curtailed Russian operations – 1 087. The

number of the companies that have reduced current operations and hold off new

Investments – 450.

● As of June 05, companies that declared a complete withdrawal from Russia had

$26.2bn in revenues and $17.2bn in capital; companies that suspended their

operations on the Russian market had annual revenue of $64.8bn and $35.8bn in

capital.

● TOP-70 companies: the largest taxpayers paid ~ $20,2bn of taxes annually – haven’t

completely withdrawn yet, although suspended or scaled back.

● Half-hearted decisions are not enough. If the world wants the future and freedom to

prevail over the past and tyranny, one cannot fight the evil with one hand and give it

medicine, revenues, and other resources with the other. The most important thing:

stop making any kind of business with Russia. Stop paying taxes that finance the

Russians weapons which are killing us. Join the anti-Putin coalition.

Russia is a toxic jurisdiction and a business partner. Russians are constantly worsening

their own business environment.

● The corporate sector has decided to withdraw from Russia because of the compliance

risks. But also because of toxicity of working with Russia.

● On May, 24 the Parliament of the Russian Federation adopted the Draft Law “On

External Administration for Management of the Organization”. The proposed bill3, in

fact, legitimizes state raiding. This document provides for the possibility of appointing

an external administration for enterprises with at least 25% of foreign capital. If the

document turns into law, all foreign major shareholders are in danger of losing their

investments and property in Russia.

● On March 30, the government of the Russian Federation de facto canceled

responsibility for imports of branded goods without the permission of the trademark

holder. This allows Russian companies to bring in and resell goods manufactured

outside of Russia without the permission of a manufacturer or a brand owner.

Through this decision, Russia stripped global companies of the voice on how their

products and intellectual property are used. In fact, it is an intellectual property theft

authorized by the Russian government.

● Initiatives like these are a grave warning to the companies around the world that still

plan doing business in Russia: you will lose your money and assets in Russia, sooner

or later. Moreover, you will be out of reach of any civilized court to recover. The only

rational decision is to pull out now when direct and indirect damage can still be

mitigated.

3 https://mfa.gov.ua/en/news/dmytro-kuleba-called-foreign-companies-leave-russian-market-immediatelyafter-

adoption-bill-external-administration-first-reading-russian-parliament