Due diligence according to the circumstances – Newspaper Kommersant No. 152 (7353) dated 08/22/2022

A few months since the announcement of a de facto ban on the sale of Russian assets of foreign companies in Russia have not yet led to clarity regarding the regime that determines who, under what conditions and with what discount on the price of assets can leave the Russian market. In general, since March, control over the movement of capital from the Russian Federation has been in the hands of the government commission on foreign investment, it can approve or not approve a “white” deal to sell the assets of foreign groups to a Russian company, which, after the start of the military operation of the Russian Federation in Ukraine, do not see the point or do not consider for political reasons, it is possible to work in this jurisdiction. Since July 2022, both “white” and “gray” (in other jurisdictions) transactions with the assets of the military-industrial complex, raw materials, energy companies and banks are prohibited by presidential decree. In other cases, the sale of such assets is an extremely complicated, risky business (by default, they cost nothing in the hands of a non-resident), delicate and slow.

Because of this, the picture of single “buy-outs” of Russian assets of foreign business in the descriptions is rather anecdotal. It is clear that in the message “Singer Timati bought the Russian Starbucks for n rubles.” you need to clarify everything, from the singer to the number of rubles. It is not surprising that we are mainly talking about retail – there are almost no “assets” that could be “sold” in the full sense of the word, the remnants of organizational processes are “sold”, which can be saved and redone, with luck creating a new business. It is less clear why such transactions are “fronted” in public almost certainly by individuals. But it is clear that there is no “price” in such transactions – there are only agreements.

Under these conditions, the announcement of the British group Mondi about the sale of the Syktyvkar division, which is being discussed by the entire forest industry, is also surprising – but vice versa. Mondi has officially announced that it is selling (after obtaining consent from the foreign investment commission) the Syktyvkar Pulp and Paper Mill to the co-owner of the Pharmstandard group, State Duma deputy Viktor Kharitonin, known since 2021 as a major manufacturer of the Sputnik V vaccine. Mondi declares the price of the asset – 95 billion rubles. (€1.6 billion) – and is ready to close the deal in the second half of the year. If a similar asset were sold in Slovakia, probably no one would be very surprised. In the end, Mr. Kharitonin (he had not previously invested in the forest industry) knows better what to invest in an amount comparable to his fortune. For Mondi, everything would look normal in general – in a normal jurisdiction. But no one in the industry believes that the price, subject and meaning of the transaction are as announced – in Russia in recent months, due diligence is not exactly a meaningful thing, and the conditions for the transfer of assets, especially foreign ones, into Russian hands are difficult to describe ” as is” – the reasons for this are well known. If there are many deals like Mondi, it will be surprising, incomprehensible and even, perhaps, good. But while it is clear why few people believe in it.