Russian barriers to re-entry stymie prospects of Western companies' return

Reuters

17-04-2025

MOSCOW, April 17 (Reuters) - Three months after U.S. President Donald Trump returned to the White House promising a swift end to the conflict in Ukraine and sparking an early flurry of excitement that Western companies could come flooding back to Russia, realism has set in.
Moscow is putting up barriers to re-entry for the thousands of companies that halted operations or sold assets in the country after Russia launched its military offensive, according to government officials and four Russian lawyers.
Western companies looking to regain market share face tough negotiations, mountains of paperwork and reputational risks, according to conversations with 12 people in Russia's retail, auto and financial markets.
Companies including McDonald's (MCD.N), opens new tab, Germany's Henkel (HNKG.DE), opens new tab and Hyundai Motor (005380.KS), opens new tab secured buyback agreements when exiting, but returning will not be simple as the government moves to keep a grip on strategic sectors and promote domestic production and businesses.
"The Russian authorities will not cancel options that outgoing foreigners concluded with Russian companies, but they will put forward additional demands for their implementation," Alexei Yakovlev, head of the finance ministry's financial policy department, said on the sidelines of a Moscow financial forum in early April.
Unilaterally abolishing buyback agreements could spawn waves of litigation, lawyer Ekaterina Drozdova of FTL Advisers told Reuters, suggesting that Russia may introduce an 'entrance fee' to raise budgetary funds.
A handful of firms are making discreet enquiries, said four people working with foreign companies in Russia, but there are no serious plans while widespread Western sanctions remain in place.
Local companies that have filled niches vacated by departed competitors are also lobbying the government to put up obstacles to any return, said another lawyer who asked not to be named.
President Vladimir Putin warned in March that companies that "slammed the door defiantly" when leaving would not be allowed to buy back businesses for small amounts of money or displace local operators.
The finance ministry has said foreign businesses would be required to invest in local production, research and development, and share technology.
People are definitely talking, said a private equity source who works on Russia, but there are no term sheets, let alone deals. Companies that left in 2022 are not coming back any time soon, the person added.
The finance ministry and central bank say no foreign companies have applied to return so far.
PRICE COMPETITION
Russia's top carmaker Avtovaz said Renault (RENA.PA), opens new tab faces a bill of at least 112.5 billion roubles ($1.37 billion) to cover investments made since the French carmaker sold its majority stake for just one rouble in 2022.
Like many others, Renault has said it has no plans to return in the short term. Even if it did, the hefty cost would be just one consideration.
Chinese firms now dominate the sector with a market share of more than 50%, up from below 10% before 2022, all but closing the door to Western rivals, four car market sources told Reuters. Without local production and access to government subsidies, the likes of Mercedes-Benz (MBGn.DE), opens new tab, Nissan (7201.T), opens new tab and Volkswagen (VOWG.DE), opens new tab would be unable to compete on price, they added.
"The market has changed," said Alexei Podshchekoldin, president of the Association of Russian Automobile Dealers. "I don't know if the Europeans will succeed," he added, saying they would need to offer cars of the same quality without a higher price tag.
Western automakers are very pessimistic, said one car market source, with the paperwork alone making a return before 2027 unlikely.
REPUTATIONAL RISK
For well-known consumer brands, there is also the reputational risk of resuming operations in Putin's Russia, said four people working in the luxury retail market.
Unlike in the auto sector, Russia has not managed to replace luxury brands and many stores in central Moscow are unoccupied as few local players can afford the high rents, said three of the people, all of whom have worked with European luxury giant LVMH (LVMH.PA), opens new tab in the past.
While some fashion brands remain, major players from Zara-owner Inditex (ITX.MC), opens new tab and H&M (HMb.ST), opens new tab to LVMH and Chanel have either sold assets or halted operations.
If brands return, two of the sources said, they will likely seek a smaller footprint, with less retail space and more direct supplies.
Moscow will want to limit foreign ownership through mandatory joint ventures, a model already employed with Chinese firms, two Russian lawyers said.
Localising IT systems is particularly important, a third added, as companies running foreign servers can completely shut down their businesses with the "push of a button".
Local businesses have meanwhile found local IT solutions, said Anton Nemkin, a member of the State Duma's information policy committee.
Even in cases where highly specialised software is needed, companies will face logistical, financial and regulatory challenges, Nemkin said, particularly as new laws around information storage have been introduced.
"Are they ready to play by the new rules?"
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