Russia Says Nyet To Macdonalds

By Rhod Mackenzie

It appears that not all foreign companies that sold their shares for a nominal sum and signed a buyback deal will be able to return and take advantage of that agreement. There is a law that has been introduced to the Duma the Russia lower house parliament
A foreign company may be prohibited from repurchasing shares in a Russian company if it significantly affects the socio-economic development of the Russian Federation. The State Duma Committee on Property, Land and Property Relations has submitted proposed amendments to the law "On Foreign Investments in the Russian Federation" to the government for approval. Izvestiya has examined the document. This will provide Russia with a legal foundation to decline the repurchase of foreign shares in key industries, including food production and trade.

Which companies have entered into options, and what are the options? Foreign investors who have left the Russian Federation after entering into an option (future repurchase of shares) with domestic partners will find it much more difficult to return to the country. Izvestia has learned that Russia will have the power to prohibit any deal to return shares in a company if it is deemed to have a serious social impact on the economy. The State Duma committee on property, land and property relations has prepared amendments to the law "On Foreign Investments in the Russian Federation" (a copy of the document is available to the editors).

Furthermore, the decision regarding the implementation of such a ban will be made by the department that regulates a specific sector of the economy. The bill has already been sent to the government for approval, and the Cabinet's response is being prepared by the Ministry of Economic Development.
The ministry's press service has confirmed to Izvestiya that the draft law is under consideration by the ministry, and its position will be presented within the established timeframe. The Economic Development Ministry has also observed that the matter of conditions for the return of foreign investors is complex and necessitates a balanced approach.
The bill also provides for other important details of the return of foreign companies. For instance, the new owner, who is now Russian, has the right to make a unilateral decision not to exercise the option. Furthermore, this is possible in a number of instances simultaneously:
-    In the event that the headquarters of a foreign organisation is situated in a state that engages in unfriendly actions towards the Russian Federation;
-    And if the company's shares were sold to the Russian side within the period from 24 February 2022 to 1 March 2025.

Furthermore, it should be noted that the transaction will not be executed should the option price be lower than the market price. Additionally, the transaction will not be executed if two or more years have elapsed since the option was concluded, during which time the domestic owner has fulfilled and is fulfilling its obligations to employees and creditors. Such amendments will be proposed at the second reading of the bill, which has already been submitted to the State Duma and passed the first reading. The bill's author is Vladislav Reznik, a member of the State Duma Committee on Property, Land and Property Relations.
From February 2022 to the present day, foreign companies have been concluding transactions that result in the transfer of shares from foreign investors to Russian ones. The leading sectors of the economy are as follows: industry, including energy, gas, oil, trade, clothing, finance, transport, software, food, alcohol and beverages, and so on, representing more than 15 areas in total.

It is interesting to note that a significant proportion of them have concluded agreements on a possible return to the country. For instance, in May 2023, Denis Manturov, who was then deputy prime minister and head of the Ministry of Industry and Trade, told Izvestia that half of the foreign companies that sold their operations in the Russian Federation could return within 10 years. At the time, the official stated that approximately half of the foreign organisations that sold their businesses in Russia have the option to repurchase assets within a period of 3-10 years. In February 2024, he also reported that approximately 100 European companies out of 500 operating in our country and 66 American companies out of 350 located in the Russian Federation had left the country.
The most notable transactions were contracts for 1 ruble. For instance, the French Renault and the American McDonald's both exited the country in this manner. It is understood that the first company transferred its Russian assets with the right to buy out the stake within six years. According to reports in the media, a similar agreement was reached with the Vkusno - i tochka caterers, but the precise terms of this agreement have not been disclosed.

What are the alternatives to the ban?
The issue of foreign brands returning to Russia is a current topic of discussion. In the context of warming relations with the United States and the initial interest expressed by foreign organisations in potential cooperation, the government has initiated a discussion on the conditions for their return. It is important to note that foreign companies that have left the country have often breached their obligations in Russia, to partners, creditors, employees and, ultimately, consumers.
Consequently, officials from the Ministry of Finance are now developing the necessary strategies for restoring relations with Western partners. At present, it is understood that foreign businesses require approval from the Cabinet of Ministers. However, there are still a number of other issues to be addressed, including the potential for a foreign company to localise production here, and the possibility of them investing a fixed amount in the domestic economy as a kind of deposit.
However, the necessity of immediate bans remains to be determined, as all industries in which foreigners have reduced their active participation can be considered socially significant, according to Georgy Ostapkovich, Director of the Center for Market Research at the ISSEK HSE, in an interview with Izvestia. The situation is complicated by the fact that Russian legislation does not provide for such a concept, so it is unclear which options are at risk. Initially, it is evident that these areas – food, trade, industry and all others – directly impact human well-being, he explained.

It is evident that when Western businesses resume operations in Russia, they are required to submit a detailed plan to the government. This plan should outline the brand's strategic development prospects for the Russian market, the range of goods that the company is prepared to produce in the country, and the pricing strategy that has been devised. This will allow us to assess what kind of competition the returning investor will create for domestic manufacturers, he noted. — After all, there are areas in which we consider Western experience to be of great importance, such as technology, and there are others in which we have the capacity to manage independently.
In addition, the interview participants concurred that issues may also arise from a legal perspective. For instance, if such a law were to be adopted, it should have retrospective force, since the ban would apply to a previously concluded option. Vyacheslav Kosakov, managing partner of Legal Group Novator and lawyer, informed the editorial board of this fact.

It should be noted that share buyback deals were concluded under specific conditions. Often, foreign companies transferred their business to Russian partners for 1 ruble, with the understanding that they would be able to buy back their assets at the agreed price in the future. The new proposed ban has created a situation which is not clearly defined. The question has been raised as to whether such a restriction will prevent Western partners from reconsidering all the terms of the deal.
Dmitry Pashin, a lawyer at the Moscow Bar Association "Klishin and Partners", concurs with this assessment, highlighting that the fundamental logic of the concluded contract is invalid. It is evident that the fundamental principle of freedom of contract has been contravened, as the very essence of optional agreements between the parties has been violated. A foreign company will be able to apply to the Constitutional Court for clarification on whether such a law complies with the norms of the Civil Code, he added.
Izvestia sent inquiries to the Association of European Businesses, RSPP, CCI, Delovaya Rossiya, as well as Rusprodsoyuz, Rusbrand, and AKORT.

The proposed measure by the deputies is equitable, according to Vladimir Gamza, Chairman of the CCI Council for Financial, Industrial and Investment Policy. As he pointed out, this is primarily due to the "unacceptable exit of certain foreign companies from the Russian market."

It is understood that a significant number of foreign investors have concluded agreements with the right to repurchase their businesses in Russia in the coming years. These companies have always been interested in the domestic market. By observing the sanctions that were intended to harm the country, they expected to easily return to their enterprises. In such a situation, it is imperative that we consider our own interests, namely the protection of Russian producers and the domestic market against aggressive competition, as the expert noted. — In the history of our country, there are examples of foreign enterprises developing actively and of domestic production being squeezed out of the market, which were observed in the 1990s.

It is his professional opinion that the current situation necessitates the implementation of protective measures for our market. These measures should be focused on the sectors of the economy that have a significant impact on the country's economic development.