According to the document, the new Russian owners will be able to cancel the buyback options of foreign companies through the court, which these companies had included in contracts when leaving the country.
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Applicable to Western countries
The law applies only to foreign investors from, according to Russia, “unfriendly” states – those who left the Russian market after February 24, 2022.
The new owners or the responsible ministry will now be able to apply to the Moscow Region Arbitration Court and demand the cancellation of the buyback right if the foreign company publicly supported sanctions against Russia, called for their introduction, discredited the Russian armed forces, or failed to fulfill its obligations, as stated in the law.
The foreign investor will be able to claim compensation within a year from the court decision, but the court has the right to reduce its amount or refuse to pay it entirely.
After the start of the war in Ukraine in 2022, more than a thousand companies left the Russian market – from “McDonald’s” to “Mercedes-Benz” – they were sold, transferred to management, or abandoned their assets in Russia. Some of them withdrew with the possibility to buy back the business, others were forced to sell it to local investors after temporary asset confiscation.
Every fifth company considered returning
According to “Reuters” estimates, every fifth such deal included a buyback option, allowing the business to be reclaimed under pre-agreed conditions. Moreover, two-thirds of the options provided for buyback at a non-market valuation.
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V. Putin himself demanded last March to ensure that foreigners wishing to return could not buy back their business “at a discount” compared to the market price. At that time, the Kremlin hoped to see the return of Western companies and the prospect of lifting sanctions by making a deal with the Donald Trump administration.
In reality, the government commission did not receive a single request regarding the return of foreign companies. The cancellation of the buyback rights may encourage foreign investors to apply to international investment arbitrations, said “FTL Advisers” consultant Ekaterina Drozdova.
“If the state unilaterally cancels contractual obligations enshrined in investment agreements or even under the usual civil law framework, this may be considered a violation of investment protection obligations,” explained E. Drozdova.
A buyback option is a contractual right (but not an obligation) to recover or repurchase previously transferred assets in the future at a pre-agreed price, such as shares, goods, or real estate.
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