Continental stalled in the USA at the exit from the Russian Federation – Kommersant

The Russian authorities allowed Continental to sell the tire plant in Kaluga to S8 Capital. The cost of the transaction may amount to 7-10 billion rubles, which is comparable to €87 million, in which the asset was estimated by Continental itself. However, the deal has not been closed yet, because, according to Kommersant, Continental has requested approval from the US export control regulator.

According to Kommersant, the Russian authorities have approved a deal to sell the Russian assets of Continental to the structure of Armen Sargsyan’s S8 Capital company. Kommersant’s interlocutors in the market say that the deal was approved by both the government commission and the FAS a few weeks ago. At the same time, according to them, the companies are awaiting the approval of the American regulator, the Bureau of Industry and Security (BIS) of the US Department of Commerce, to close the deal, we are talking about a re-export license. The request for a license was submitted by Continental.

Continental did not comment on this information, only saying that the company is considering various strategies in relation to its Russian assets, including a controlled exit from the market. Now the company’s representative offices, in particular Continental Tires Rus LLC and Continental Kaluga LLC, continue to operate as usual, fulfilling their obligations to customers, employees and partners in full. S8 Capital declined to comment. The Russian government and the FAS also declined to comment on the status of the deal. Kommersant sent a request to BIS.

BIS issues licenses for transactions relating to goods subject to export control, as well as those that can be carried out in the interests of the government of the Russian Federation or Belarus or the defense sector. According to Kommersant, Continental could have considered that the production site of the plant in Kaluga contains goods that are subject to US export controls. Therefore, the German company decided to apply to BIS for a license.

As Kommersant wrote on April 21, Continental Global Holding Netherlands BV, which owns a tire plant and distributor in the Russian Federation, signed an agreement in February to sell its stake in the Continental Tires Rus trading company with C8 Industrial Assets JSC. A similar agreement was also reached for the plant in Kaluga (LLC Continental Kaluga).

Delcredere lawyer Artem Kasumyan notes that the company could apply to BIS if equipment or technology is sold: “They are subject to export control. For example, if a certain manufacturing technology or software is transferred as part of a transaction.” “If equipment, technology, software, and so on fall under export control, then US law applies extraterritorially, including in relation to transactions within a third state (the so-called transfer). Then yes, BIS licenses are applicable,” he explains.

Usually, BIS approval is required in the aerospace industry, mechanical engineering, and semiconductors, says Ekaterina Orlova, head of legal practice at Grace Consulting Ltd. “Perhaps submitting a request to the BIS is a banal reinsurance in order to check the parties and affiliates for presence in the BIS lists and OFAC sanctions or for their possible toxicity in terms of secondary sanctions,” she concludes.

Interlocutors of “Kommersant” in the expert community estimate the deal in the range of 7-10 billion rubles. The head of Infoline-Analytics, Mikhail Burmistrov, believes that the fair value of the enterprises is at least $100 million. Continental has already reflected the impairment of assets in the Russian Federation in the latest financial statements by €87 million, which is equivalent to approximately 7.8 billion rubles. The Continental plant produces tires of three brands: Continental, Gislaved and Matador, with a capacity of 4 million tires per year with the prospect of expanding to 16 million units. Earlier, Nokian Tires sold its tire business in the Russian Federation with a plant with a capacity of 17 million tires for €285 million to Tatneft – the government commission limited the price in rubles at the level of 23.05 billion rubles. At the same time, the Continental plant was opened only in 2013, while Nokian – in 2005.

Olga Nikitina, Dmitry Kozlov