Russia may veto foreign firms' return of assets

Russia's lower house of parliament, the Duma, has approved a new law that could significantly complicate the ability of foreign companies, which exited the country following the 2022 invasion of Ukraine, to recover their assets. The legislation, awaiting final approval from the president, aims to regulate the process of asset buybacks by Russian entities.

The law shifts the authority for approving these buyback procedures to Russian courts. These courts will be tasked with ensuring that specific conditions are met. Crucially, companies seeking to repurchase their former assets must demonstrate they have not publicly supported sanctions imposed on Russia. Other requirements include ensuring the transaction price is not more than 25% below market value and accounting for investments made by the current Russian owner that kept the business operational.

According to experts cited by the Kommersant newspaper, the buyback process could be protracted, potentially extending up to 15 years. This lengthy timeframe may make it more financially prudent for current Russian owners to wait out the period rather than engaging in immediate buyback deals. The extended uncertainty and risk associated with these conditions are expected to further deter foreign investors from the Russian market, rendering potential exit agreements less binding and diminishing the protection of foreign rights.

This legislative move comes amid a broader trend of asset nationalization in Russia. The Duma also approved amendments allowing the state to forgo making offers to minority shareholders for 18 months when an asset has been nationalized. While the Central Bank of Russia initially opposed these measures, it later softened its stance, requesting a time limit after which the state would be obligated to reduce its stake below the threshold requiring such an offer. The government views these actions as opportunities for domestic production growth, though analysts suggest it has led to increased dependence on the Chinese market.