Tightening conditions for foreign investors exiting Russian assets will help avoid speculative transactions - deputy minister

MOSCOW. Nov 19 (Interfax) - The initial conditions for non-residents leaving the Russian market to sell their assets made it possible to carry out speculative transactions involving non-core players, while the current, more stringent conditions for approving sales essentially rule out such situations, First Deputy Industry and Trade Minister Vasily Osmakov said at a meeting of the Federation Council Committee on Economic Policy.

"The criteria by which the subcommittee [on foreign investments, which approves exit transactions by foreign investors] works have been gradually tightened in order to avoid speculative activity with assets. As is known, the current conditions include a 60% discount and 35% payments to the budget. These conditions practically eliminate the possibility of non-professional investors buying these assets," he said when commenting at senators' request on the resale of Severstal and tire manufacturer Cordiant. Last year, Cordiant's tire assets as well as those of Bridgestone and Continental were bought by S8 Capital, a company that had not previously been active on this market.

During the committee meeting, Industry and Trade Minister Anton Alikhanov was asked to clarify whether investors' long-term plans regarding acquired assets were taken into account when the government subcommittee approves sales.

"Of course, plans and business models are presented when such transactions are submitted to the commission. But I can honestly say that not all buyers have sufficient experience in managing specific factories or industries. The asset at the time of purchase may be quite efficient and it might be managed normally, but the new management isn't always able to handle it. This sometimes leads to such transactions being followed by further resale," he said.

Such cases of resale led to the decision to tighten the conditions for selling assets, Osmakov said. "Together with colleagues from the Finance Ministry and the Central Bank, we have tightened the criteria [for approving deals], and those which are currently in place are well balanced. Plus, when a transaction is submitted to the subcommittee, it is always accompanied by commitments regarding KPIs, investment programs and so on. Because for us, the most important thing is to preserve capacities, technologies, and competencies on Russian territory and at these plants. Even in the case of resale, these KPIs are carried forward, because if they are fulfilled by subsequent buyers, the initial transaction will be considered void. This is a legally significant obligation imposed by the subcommittee," he said.

Presidential decree no. 81 introduced a special procedure for transactions with residents of unfriendly countries in March 2022, stipulating that approvals for such transactions are issued by the government commission on foreign investments. A subcommittee was created for considering and making such decisions. The decree will remain in force until December 31, 2025. It applies to strategic enterprises, energy companies, banks with foreign participation, service and equipment production in the energy sector and mineral rights holders, including as part of production-sharing agreements, relating to gold, nickel, diamonds and LNG, among others.

Several conditions are imposed as part of the approval of exit transactions. One of the basic requirements is the payment of a certain sum to the Russian federal budget. Initially, this was set at no less than 10% of the transaction amount, or the market value of the asset if sold at a higher discount.

Subsequently, in October 2023, the commission established a mandatory payment of 15% of the market value of the assets to the federal budget.

In October 2024, the government commission on foreign investments again changed the conditions for approving transactions with residents of unfriendly countries, increasing the payment to the budget to 35% of the transaction amount and the mandatory discount on the independent market valuation to 60%.