Kremlin-backed tycoons cash in as Western firms exit Russia
As Western companies withdraw from Russia, a new group of Kremlin-loyal businessmen is emerging, increasing their wealth by acquiring assets sold at reduced prices, writes the British newspaper "Financial Times" on Wednesday.
For example, the newspaper mentions Alexei Sagal, an entrepreneur from the Stavropol region in southern Russia, who has become a significant buyer of Western companies' assets. Recently, his group Arnest, previously a subcontractor for some of the world's largest consumer goods producers, agreed to purchase Unilever's Russian business for $550 million.
Earlier, Arnest acquired the Russian assets of Dutch brewery Heineken, American aluminum packaging producer Ball Corporation, and Swedish cosmetics group Oriflame. As a result, according to company reports, its sales revenue doubled from 7.4 billion rubles (about $77 million) in 2021 to 13.9 billion rubles (over $143 million) last year, and profit grew approximately 24 times, from 40.6 million rubles (around $419,000) to 972.8 million rubles (about $10 million).
The rapid rise of Sagal shows how the Russian invasion of Ukraine has sparked the largest redistribution of assets in the country since the fall of the Soviet Union, leading to a new generation of state-affiliated capitalists, notes the "FT."
"Arnest was relatively unknown until such time as companies were looking to sell assets," said a lawyer assisting Western companies in exiting Russia. At that time, it became a regular and adequate bidder. The lawyer added that the mass exodus of Western companies from the country has created a new class of entrepreneurs.
Ilya Shumanov, head of the Russian branch of Transparency International said that only those favored by the authorities can gain approval to acquire these assets; no one gets them by accident.
Another businessman acquiring Western assets is Ivan Tavrin, who in 2022 bought the Avito classifieds site from the media conglomerate Naspers for about $2.4 billion and, a year later, acquired the Russian assets of the German consumer goods giant Henkel.
"FT" points out that finding buyers acceptable to Western regulators and the Kremlin is becoming increasingly challenging for companies looking to leave Russia. International corporations must conduct thorough analyses of bidders and sometimes seek approval from their own regulatory bodies to ensure they do not violate Western sanctions. A person who advised on several exit transactions said the list of potential Russian buyers who meet these criteria is steadily narrowing.
Arnest, established in 1971 in Sagal's hometown, Nevinnomyssk, as a state chemical plant, has a key advantage—its owner is not subject to Western sanctions. According to sources cited by the newspaper, he is closely connected with Denis Manturov, Russia's deputy prime minister overseeing the defense sector, a protégé of Sergei Chemezov. Chemezov, who served in the KGB alongside Vladimir Putin in the 1980s, now heads the state defense conglomerate Rostec. Both Manturov and Chemezov, unlike Sagal, are subject to sanctions.
Exiting Russia very costly for companies
Foreign companies must also comply with increasingly rigorous Russian regulations, which include agreeing to high discounts. The larger the transaction, the more likely the Kremlin and ministers will be involved.
"FT" adds that exiting Russia may become even more costly for Western firms as Russian authorities seek to retain some Western assets as a safeguard in case the West attempts to confiscate Russian assets abroad.
According to two people familiar with these plans cited by the newspaper, the measures under consideration include increasing the mandatory discount Western companies must agree to from 50% to 60% and raising the sales tax from 15% to 35%. Additionally, approval from Putin would be required for transactions valued over 50 billion rubles (515 million dollars) in all sectors.
