Sales, nationalization … what can happen if French companies decide to leave Russia?

TotalEnergies, Leroy Merlin and Auchan reiterated their desire to stay in Russia, waving the threat of Russian expropriation if they left the territory. If it is genuine, it is not necessarily desirable for Moscow.

To be or not to be in Russia, that is the question that French companies ask themselves every day. Under political pressure, the tricolor groups are in a hurry to leave the country in order not to feed the coffers of the Russian state and thus indirectly the war raging in Ukraine.

At present, no company has really left the country. Most people have simply stopped their activities while waiting for better days. Others, such as companies in the Mulliez Galaxy (Auchan, Leroy Merlin, Decathlon, etc.), do not intend to give in to pressure from the Ukrainian president.

TotalEnergies also refused to stop its gas activities, while Renault finally suspended its industrial activities on Thursday.

So what are the opportunities for companies? Most are hoping for a speedy return to the pre-war world. For example, LVMH maintains the salaries of its employees in Russia during the temporary closure of stores. But the development of the conflict and the growing diplomatic tensions do not call for a speedy reopening.

Sell ​​or be sold

Shall we sell then? This may be Renault’s idea for its local subsidiary. “The group is assessing possible opportunities regarding its stake in Avtovaz while acting responsibly towards its 45,000 employees in Russia,” the manufacturer said in a statement.

But nothing is easy. The sanctions against the Russian financial system make divestments complex, especially as Russian investors (many of whom are also affected by the sanctions) do not necessarily have an interest in risking massive purchases in this context of uncertainty.

Nor sure that the Russian government will let it go. For foreign companies, therefore, the biggest threat is sheer expropriation.

“To close the company from one day to the next, to close our stores, would simply be a abandonment that is considered a premeditated bankruptcy, therefore illegal, which paved the way for an expropriation that would strengthen Russia’s financial resources”, confirmed in this week Adeo, housewife of Leroy Merlin.

“To withdraw is to give these 13 billion to the Russians, for zero, because no one can buy them,” explained Patrick Pouyanné, head of TotalEnergies. “You want me to give up assets in Russia to enrich Russians who have been sanctioned?”

An erroneous argument? “The threat must be taken seriously. Expropriation is very classic,” says Arnaud de Nanteuil, professor at the University of Paris Est Créteil and specialist in the issue. It has always been the weapon of state against foreign companies. There is no rule that forbids it. It is even legally framed “.

The Yukos example

Vladimir Putin would not be at his first attempt. In 2003, the new Kremlin champion set out to recapture oil giant Yukos. The road to it is more of a hassle: Yukos’ CEO is arrested for fraud and the group is forced into bankruptcy before being bought by Rosneft, a public company, during auction parodies. Yukos was certainly Russian, but it was partly owned by foreign investors, who have since sought to be compensated.

In the 1970s, Libyan President Muammar Gaddafi made it easier by directly nationalizing the oil company British Petroleum (BP). An expropriation that today is feared by TotalEnergies, especially for its installations on the Yamal Peninsula or its Arctic 2 project.

In theory, such a decision should be decided in international arbitration, but the procedures are long (more than 20 years for Yukos) and expensive. Especially since Vladimir Putin rarely messes with international law. “There are no legal solutions to such a regime,” acknowledges Arnaud de Nanteuil, who assumes that Russia “will not compensate”.

In this case, it is possible to seize Russian assets in the world. But for that, it will probably be necessary to go back to the “Putin amendment” that slipped into the Sapin law passed in 2016 and which severely limits the possibilities of seizing foreign property in France. French case law was in fact much more lenient, and the former shareholders of Yukos hoped to take advantage of it by attacking Russian assets in France. The Quai d’Orsay then chose to ease tensions with Moscow with this amendment.

Only one group is missing …

One last question remains: does Russia really have an interest in expropriating French companies? In Libya, the nationalization of BP proved to be more complex than expected due to lack of skills to operate the machinery.

Similarly, TotalEnergies does not happen to be a stakeholder in the Siberian gas installations. The French company has provided its financing but also its know-how to exploit very complex deposits to be reached through the permafrost in the far north. Will Russia be able to operate the facilities without TotalEnergie’s expertise?

The same applies to Renault’s facilities in Russia, which will have difficulty operating without the help of the French manufacturer.

“Avtovaz without Renault will have difficulty operating the factories, with a fairly extensive integration into the French group’s supply chain. However, the Avtovaz plants, which bring together the Lada’s, have more industrial autonomy with 20% of imported parts, whereas the ‘Avtovaz’ “the factory in Moscow, we are at 40%,” explains Jean-Pierre Corniou, former CIO of Renault and partner in the company SiaPartners.

Finally, the expropriation of Leroy Merlin or Auchan will be an economic blow to French companies, but due to lack of suppliers and supplies, stores in Russia could quickly become large empty stocks.

Finally, between Europe and Russia, the breach would make no winner.

Thomas Le Roy Journalist BFM Business

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