These allies of the Kremlin are gaining financially from the departure of Western corporations.
Since the conflict in Ukraine, numerous companies have chosen to leave Russia, sometimes at substantial financial expense. The Russian government has been demanding substantial discounts and a substantial exit fee. This situation has given rise to a new class of entrepreneurs.
Following the criticism from the West and receiving Russian government approval, the British consumer products giant Unilever recently divested their assets.
The new proprietor is the Arnest Group, a Russian firm specialized in creating perfumes, cosmetics, and household items. According to "Financial Times", the transaction was worth 520 million euros. Behind the company is Alexei Sagal, who has previously obtained the local assets of Western companies. Since the Russian invasion, the Arnest Group has procured the local assets of the US can manufacturer Ball Corp, the Dutch brewer Heineken, and the Swedish cosmetics company Oriflame.
Sagal embarked on his career with Arnest as a distributor in 1996 and had a majority stake in the company by 2004. At this time, Arnest had its first agreement with a foreign brand, manufacturing cans for the German consumer goods giant Henkel’s Taft hairsprays. Today, the company generates and packages products for the Russian market and countries such as Belarus and Kazakhstan.
Consequently, the passionate equestrian breeder has emerged as one of the main beneficiaries of the largest distribution of assets in Russia since the fall of the USSR, according to an assessment by the British "Financial Times". The company's profits have surged more than twentyfold. At the end of last year, US financial portal Bloomberg estimated Sagal's net worth to be 1 billion US dollars. "Arnest was relatively unknown until companies started selling assets. The company became a regular and successful bidder", a lawyer who handled Western withdrawals reported to the newspaper. "The collective departure has spawned a new type of entrepreneur."
Advantages of Arnest Group by Sagal
Sagal is not the only businessman to profit from Western companies leaving Russia. Another individual who has made a sizable fortune in this regard is Ivan Tawrin. Last April, he acquired Henkel's assets for around 600 million euros. At the time of the sale, Henkel had been active in Russia for over 30 years and operated eleven production sites in the country.
At the time of the sale, the company's CEO, Carsten Knobel, estimated the loss to be "a low three-digit million euro range". However, a trader stated that Pritt and Persil's manufacturer had no other choice: "It's crucial to remember that they were in a tight spot and had to accept any price due to the sanctions."
It's becoming increasingly difficult for companies that seek to abandon their Russian operations to locate a suitable buyer. They must be acceptable to both Western regulators and the Russian government. "The list of potential Russian buyers who meet these criteria is decreasing", a person involved in several departures said to the "Financial Times". Ilya Shumanov, head of the Russian office of Transparency International, also shared this perspective with the newspaper: "Only those favored by the authorities can secure approval for these assets. No one gets them randomly."
The Arnest Group of Sagal possesses an advantage in that the company has yet to be targeted by Western sanctions. Sagal is also said to be close to Denis Manturov, Russia's Deputy Prime Minister, according to the Financial Times. Since his promotion in May, Sagal has reportedly become a key figure in facilitating departure deals. Wealth is reportedly distributed in a manner that aligns with the Russian Ministry of Trade's interests. This is advantageous for medium-sized companies like the Arnest Group.
When questioned, the company acknowledged that the key to successful negotiations lies in its long-standing partnerships with international companies. The spokesperson pointed to previous collaborations with companies such as Oriflame and Unilever, as well as multiple evaluations by international companies and authorities.
Exit Tax to Rise to 35 Percent
Russia has been strengthening exit conditions for foreign companies since the imposition of Western sanctions. The Russian government demands substantial discounts and takes a portion of the sale price to boost its treasury before authorizing the sale of foreign assets. According to a March analysis by Reuters, foreign companies have incurred over 107 billion US dollars in write-offs and lost revenue due to the exodus of companies from Russia.
The so-called exit tax is reportedly set to increase from 15 to 35 percent, according to an RBC report. The report also states that the minimum discount companies will be required to accept in the future will be increased from 50 to 60 percent of the assets' value. Deals worth more than 50 billion rubles (approximately 517.6 million US dollars) will also necessitate Vladimir Putin's personal approval.
"Russia's approach since the onset of the conflict has been to keep significant Western investors in the country because they are vital for the Russian economy or certain segments", explains Vasily Astrov from the Vienna Institute for International Economic Studies in an interview with ntv.de. By the end of August, Moscow had earned 1.4 billion euros from the exit tax. Given the magnitude of the Russian economy and the budget, this is not substantial, amounting to merely 0.4 percent of government revenue. "Revenues from the energy sector account for about 30 percent", Astrov adds.
The specialist predicts a reduction in income from the exit tax. "The requirements for departure have grown so harsh that only a tiny fraction of international investors will depart from Russia, as they'd essentially be wiping out nearly all their assets in such a scenario." The departure pace has noticeably slowed down compared to the 2022 peaks and might now approach a complete halt.
After receiving approval from the Russian government, Unilever sold their assets in Russia to the Arnest Group._______As a result of the sanctions and the Russian government's strict exit conditions, finding a suitable buyer for Western companies leaving Russia has become increasingly difficult.
