Despite valiant-sounding verbal commitments, many Western companies still haven’t fully exited Russia. As the war’s consequences cut deeper into Russia’s economy, asset exposure becomes a greater risk for the world’s largest companies and their investors.
Arguing that it’s “useful to investors to know this now, in advance of any expropriations,” the Moral Rating Agency—created to track whether companies are making good on those vows to leave—has released a new report on major global corporations’ risk of expropriation. It argues many of these companies, which haven’t divested yet fully, do face a risk, and that the Kremlin’s recent attempts to tighten its grip on critical sectors like energy may even mean it’s too late for some.
To rank “risk,” the report looked at Russian assets that corporations still own (such as factories) plus any stakes they may have in local Russian businesses or projects. Based on its ranking methodology, 47 of Earth’s 200 largest companies—nearly one quarter—are at risk of Russian expropriation. It assigns exposure risks of 0 to 10; eleven of those at-risk companies received a 10, the worst score. Three of them are China-owned (Sinopec, China National Petroleum, China National Offshore Oil), four are energy companies based in Europe (BP, TotalEnergies, E.ON, Fortum), two are Japanese energy companies (Mitsui, Mitsubishi), and one is PepsiCo.
MRA gives PepsiCo a 10 because its large snack factory in Novosibirsk and its Moscow dairy plant—which PepsiCo continues to operate, citing “a responsibility to continue to offer” milk and baby formula—could both be targets. In response, PepsiCo told Fast Company that “within 96 hours of the invasion,” it announced it would be “exiting our shareholding in Rosneft and other businesses in Russia, and we are continuing to pursue this.” But it added it had nothing to say about those two facilities’ risk of expropriation.
PepsiCo’s exposure isn’t negligible (those two facilities’ output equals 4 to 5% of PepsiCo’s revenues), but other companies certainly face greater risks. Take, for instance, Trafigura Group, one of the largest oil-and-metal traders: Its 10% stake in the massive Vostok oil project is said to be worth $7.7 billion, taking Trafigura “above a 10 level of exposure,” the report says.
Companies aren’t eager to advertise their slow exits, and investors can sometimes struggle to plot a company’s relative exposure. “Even in the oil and gas sector, there is a huge difference between the players in terms of their exposure,” MRA founder Mark Dixon told Fast Company, referring to the percentage of market capitalization they stand to lose. Oil-industry handwringing is already occurring over the risks in its sector. But the MRA report tries to separate BP (whose stake in Rosneft comes to 12.8% of its entire market cap) from competitors like Chevron (whose stake in the Caspian pipeline is closer to a rounding error, 0.3%, of its market cap). BP didn’t respond to a request for comment.
To anyone who believes we’ve seen the worst of it, Dixon says to look at what the Kremlin has done with the Sakhalin-2 energy project this month. By decree, President Vladimir Putin ordered the project to be given to new owners. Gazprom owned half of the project, which Russia has graciously allowed the state-run company to keep. But the three foreign stakeholders—Shell (which had a 27.5% stake), Mitsui (with 12.5%), and Mitsubishi (with 10%)—were told they must renegotiate the terms with the new owner. Shell announced in February that it intends to sell its stake (but still officially hasn’t), while Japan said this past weekend that it would support Mitsui and Mitsubishi’s efforts to retain ownership.
Media have largely reported this as potential asset expropriation—Putin’s put it in the companies’ own hands. But MRA disagrees, asking what leverage these companies have. “This is already expropriation,” Dixon said. If they agree to the new terms, their assets will be “de-expropriated,” as he puts it. But Dixon argues it will come at a cost: “They are going to be manipulated.”
By enticing outside companies to compromise, to voluntarily give up rights, invest extra money and resources, or promise not to boycott Russia, Putin wins a massive victory, Dixon says, because these companies have a distinctly smaller incentive to support their own governments’ sanctions. “In the end, we think all unfriendly nation-owned assets will be lost,” Dixon predicts. “But in the meantime, Putin may create infighting in the West. We think this is worse than simple expropriation. It’s like torturing a person before murder.”