Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Russia has restricted western companies selling their Russian assets from withdrawing the proceeds in dollars and euros, imposing additional de facto currency controls in an effort to shore up the weakening rouble.
Western companies exiting Russia must agree on a sale price in roubles or, if sellers insist on receiving foreign currency, face delays and even losses on the amounts that can be transferred abroad, according to people familiar with the matter.
The fresh restrictions underscore Moscow’s concerns about the rouble continuing to depreciate as its economy grapples with western sanctions imposed in response to Russia’s full-scale invasion of Ukraine last year.
The rouble has depreciated more than 20 per cent against the dollar this year, passing Rbs100 to the dollar in August. That marked a “psychological threshold” for President Vladimir Putin, forcing authorities to take “palliative measures”, said one of the bankers involved in recent exits by western companies. “It’s like applying a Band-Aid to gangrene.”
Kremlin spokesperson Dmitry Peskov told the Financial Times it was the duty of every government to create “the most favourable conditions for its currency, so we create the most favourable conditions for the rouble”.
“The rouble has absolute priority,” Peskov said. He added that when it came to the exit of foreign companies, Russia was being guided by “its own interests and benefits”.
When the rouble began to weaken in July, Russian authorities first imposed limits on the ways companies exiting the country could take the sale proceeds with them, according to a document published by the government subcommittee on foreign investments whose approval is required for transactions involving western-owned assets.
Western companies were presented with two options when selling their assets in foreign currencies: having the money transferred to a highly restricted type “C” account at a Russian bank, or having the proceeds wired to an account abroad — in which case the sum was to be to be paid in several instalments. Alternatively, the seller could cash out in roubles and receive the entire sum immediately into a regular Russian bank account.
But the first two options were in practice further restricted in terms of volume and frequency of payments abroad, as authorities sought to strong-arm companies into doing business in roubles.
As the rouble continued to drop, Russia’s central bank has raised its interest rate four times since August, bringing it to 15 per cent on Friday. Another move came earlier this month, when Putin signed a decree forcing 43 companies to sell some of their foreign currency revenue on the domestic market.
The central bank did not support that decision, its governor Elvira Nabiullina said on Friday in a rare public display of disagreement with the Kremlin. She called the impact of the measure “insignificant” and “felt only in a short period of time”.
The rouble has stabilised at about Rbs95 to the dollar but it remains well above prewar levels and higher than Putin’s target rate for a ballooning war budget.
The restrictions on currency repatriation have added to the growing list of criteria deals must meet before they can be approved. These include a “voluntary” contribution to the Russian budget, recently raised from 10 to 15 per cent of the transaction amount, and sale at a discount of at least 50 per cent to the fair value of the assets.
An investment banker who recently helped close a deal worth about $300mn said the commission had set a seven-day deadline on the completion of the sale into a foreign account, but that the buyer was unable to transfer more than $20mn per day. “Simple math shows that it was impossible for the seller to receive all the proceeds from the deal,” he added.
Another person working on a number of exits said the commission told them there was an informal cap of $500mn that could be transferred overseas.
“The state has imposed capital controls without saying so. The state says, ‘It’s not forbidden to be paid in euros or dollars, it’s just complicated.’ It’s up to you whether you cash out in foreign currency or in roubles, or whether you do not cash out at all,” the person said.
Russia’s finance ministry did not respond to a request for comment.
A western seller experienced Russia’s successive rule changes within one deal.
First, they applied and obtained a sale permit nominated in euros, but the buyer backed off at the last minute. When they applied with the same deal and a new buyer in July, they were told only 50 per cent of the euro proceeds could be received immediately and the rest would be deferred. However, if the seller agreed to a rouble-denominated deal, they were told they could receive the entire sum right away.
After being paid in roubles, the seller can either exchange the amount in Russia or try to buy foreign currency abroad.
“Both options are bad,” the person said. “In the first case, the exchange rate is terrible and it is difficult to exchange large quantities. In the second case, it is difficult to find a bank that will accept the money.”