Premium
5 min read . Updated: 24 Feb 2022, 08:29 PM IST Carlsberg, BP, Exxon Mobil, ArcelorMittal and others with operations in Russia and Ukraine weigh contingencies and impact of sanctions
Western companies with operations in Russia and Ukraine are girding for the potential impact of fresh sanctions after Russian President Vladimir Putin announced a military operation in Ukraine’s eastern Donbas region.
Big oil companies—including BP PLC, Exxon Mobil Corp. and Shell PLC—all have substantial investments in Russia, as do brewing giant Carlsberg A/S and auto maker Renault SA.
On Wednesday, the chief executive of Stellantis NV, the car maker behind the Jeep, Dodge and Peugeot brands, said it is prepared to shift or limit production of its vehicles in Russia if Western sanctions disrupt those operations.
The relatively small size of the Russian and Ukrainian economies and the perceived difficulty of doing business there means the exposure to these countries of multinationals outside of the commodities industry is small. But some large Western conglomerates have built up businesses in both.
Several major Western banks, including Citigroup Inc. and JPMorgan Chase & Co., do business in Russia. If local lenders or individuals are sanctioned, these banks would have to quickly cut ties with them. So far, sanctions by the U.S., the European Union and the U.K. have been more limited—targeting a handful of smaller Russian banks and individuals. Cross-border payments, including debt servicing, could be frozen. That could mean unwinding sometimes complex dealings and possibly losing money if, for instance, banks get stuck with unpaid debt. Spokesmen for Citigroup and JPMorgan declined to comment.
Large European banks such as France’s Société Générale SA and Italy’s UniCredit SpA, which are local lenders in Russia, could also see default rates rise if the Russian currency devalues significantly and the economy weakens significantly. A spokeswoman for Société Générale said the bank’s Russian operations accounted for about 2% of the group’s total revenue and net profit last year. UniCredit didn’t respond to a request for comment.
In Ukraine, ArcelorMittal SA runs one of the country’s biggest steel plants and has some 29,000 local employees and contractors. The company is currently making a $300 million investment to improve the plant. Earlier this month, ArcelorMittal said it had contingency plans in place should the situation in Ukraine escalate.
Danish brewer Carlsberg has three breweries in Ukraine and is the biggest seller of beer in the country, with a 32% share of the market, the company said. The third-largest global brewer recently said it has been working on contingency plans for several weeks, though declined to offer details given the uncertainty. Carlsberg also has a large business in Russia, where it has eight breweries. Sales in the country generate around 10% of the company’s overall revenues, according to the company.
French food and drink giant Danone SA has two manufacturing plants in Ukraine, in the north and east of the country. Pall Mall maker British American Tobacco PLC has a factory in Ukraine that employs around 1,000 people. Construction materials company CRH PLC, a blue-chip Irish company, has five manufacturing plants in the country and has operated there since 1999. Those three companies declined to comment.
Most exposed among oil-and-gas majors, analysts say, is BP. The company has a 19.75% stake in Rosneft Oil Co., and both its current and former chief executives sit on the Russian company’s board of directors. JPMorgan estimates that around 9% of BP’s net asset value is exposed to Russia, compared with an average among the sector in Europe of 5%.
Shell owns a 27.5% stake in a major offshore gas project in Russia’s far east that is 50% owned by Russia’s Gazprom PJSC and supplies around 4% of the world’s liquefied-natural gas market.
BP and Shell declined to comment. Executives in recent weeks have said they would comply with any new sanctions that might be implemented. Exxon and France’s TotalEnergies SE also have sizable stakes in energy projects in Russia. TotalEnergies declined to comment and Exxon couldn’t immediately be reached for comment.
Commodities group Glencore PLC owns a 10.55% stake in EN+ Group PLC, the controlling shareholder of aluminum company United Co. Rusal PLC. Glencore also has a small, less than 1%, interest in Rosneft.
Last week, Glencore Chief Executive, Gary Nagle, said the stakes were “very immaterial in the grand scheme of things" and that the company’s trading division, which it calls marketing, could benefit from any Russian incursion. Such an event would “cause severe disruptions in some commodity markets, severe dislocations and that is where our marketing really thrives," Mr. Nagle said.
Away from commodities, French car maker Renault SA is among the most exposed to the Russian market, with around 8% of the company’s earnings before interest and taxes generated in the country, according to research by Citi.
Renault CEO Luca de Meo told analysts Friday that a worsening of the tensions between Russia and Ukraine could lead “to another supply chain crisis linked to parts that would have to come from abroad."
Renault has two plants in Russia, one in the city of Togliatti and another in Izhevsk, 700 miles to the east of Moscow. Renault executives said that 90% of the vehicles it produces in Russia were for the local market, and that the company was largely financed locally.
Still, Russia is one of Renault’s largest markets. Along with its partner Nissan Motor Co., the French car maker placed a large bet on Russia’s auto market when they took a controlling stake in AvtoVAZ, the former state-owned Lada-manufacturer, in 2014.
Stellantis CEO Carlos Tavares said he was unsure at present how Western sanctions would affect his company’s car plant in Kaluga, 115 miles southeast of Moscow. Since December the facility has been ramping up production for exports to Western Europe amid rising demand.
“If we cannot supply the plant, if that is the reality, we have either to transfer that production to other plants, or just limit ourselves," Mr. Tavares said
Never miss a story! Stay connected and informed with Mint. Download our App Now!!