FEATURE
A complete exit from Russia is likely to cost companies dearly Provisions for write-downs have only just begun in many cases
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ust when it seemed as if Russia’s standing in the international community couldn’t sink any lower, evidence of war crimes in Ukraine has seen the US and its allies take an even tougher line. As well as imposing harsher sanctions on Russian banks and state-owned enterprises, the US has proposed a blanket ban on all new investment in the country. The UK has done the same. ‘The goal is to force them to make a choice,’ said the White House press secretary. ‘The biggest part of our objective is to deplete the resources that Putin has to continue his war against Ukraine.’ For companies who moved to disassociate themselves from Russia, the issue now isn’t just the revenues they have lost from no longer doing business in that country. They need to face the fact they may never do business there again and therefore have to write off their assets. One of the first companies to announce its withdrawal from Russia was oil major Shell (SHEL). The company stopped all spot purchases of Russian crude oil and shut its local service stations, aviation fuels and lubricants operations. It also pledged to cease all involvement in Russian hydrocarbons including crude oil, petroleum products, gas and liquefied natural gas. That means pulling out of the Nord Stream 2 pipeline project, exiting its equity partnerships with Gazprom and its 27.5% stake in the Sakhalin LNG facility together with 50% stakes in two further
energy projects. In its first quarter update, the company said the post-tax impact from the impairment of non-current assets and charges for writedowns of receivables, credit losses and onerous contracts from its Russian activities would be between $4 billion and $5 billion, which even for a firm like Shell is still a material hit to its balance sheet. Rival BP (BP.) said it would sell its 19.75% shareholding in Russian energy firm Rosneft, which was valued at $14 billion at the end of last year, as its involvement with the firm ‘simply cannot continue’. As well as presenting the firm with a major strategic challenge given Rosneft accounts for half of BP’s oil and gas reserves and a third of its production, exiting Russia is going to be extremely costly. BP will no longer recognise its share of Rosneft’s 21 April 2022 | SHARES |
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