Russia took control of utilities owned by Finland’s Fortum Oyj and Germany’s Uniper SE, the first such move from the Kremlin in retaliation for asset freezes by European countries over its invasion of Ukraine.
(Bloomberg) — Russia took control of utilities owned by Finland’s Fortum Oyj and Germany’s Uniper SE, the first such move from the Kremlin in retaliation for asset freezes by European countries over its invasion of Ukraine.
Russian President Vladimir Putin signed a decree late Tuesday that allows the government to introduce “temporary” state control over the assets of companies or individuals from “unfriendly” states — which include the US and its allies – in response to similar moves, or the threat of them, by those countries.
Russia threatened to seize the assets of foreign companies last year after Germany took control of a local arm of natural gas producer Gazprom PJSC, which it later nationalized. Chancellor Olaf Scholz’s government has also seized refining assets part-owned by the sanctioned state oil company, Rosneft PJSC.
The only assets listed in an addendum to Putin’s decree are Uniper’s 83.7% stake in Unipro PJSC and Fortum’s 98.2% stake in local Fortum PJSC. Both companies had sought to sell their stakes after Putin ordered troops into Ukraine last year, but were blocked by the Kremlin, which has banned foreign investors from selling Russian assets without special permission and required a large discount.
Fortum shares recovered after two hours of declines in Helsinki trading, when they had fallen as much as 3%.
‘Compensation Fund’
“The main goal of the decree is to create a compensation fund for possible use in tit-for-tat measures in response to the expropriation of Russian assets abroad,” Kremlin spokesman Dmitry Peskov said, according to Tass. The takeover affects power-generation assets “which have primary importance to the stable functioning” of the Russian power sector, he said.
The ownership of the assets isn’t affected, according to the Federal Agency for State Property Management, the government body that will manage the assets. The original owner “no longer has the right to make management decisions,” it said.
The decree introduces the temporary external management on a case-by-case basis and the list of assets may be broadened if needed, the agency said. The arrangement can be terminated only by presidential decree.
“I think many companies that didn’t get or didn’t use the opportunity to leave earlier should be afraid now because it is a clear pattern of further tightening of the regulations and leaving Russia will become increasingly more difficult,” said Elina Ribakova, senior fellow at the Peterson Institute for International Economics. “The key objective is hostage-taking, and that was clear from very beginning.”
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“Yesterday’s action shows there is no longer any room for dithering,” said Chris Weafer, chief executive officer of Macro-Advisory Ltd., comparing the powers taken under the order to a power of attorney to control the assets.
“If a foreign owner is deemed to be damaging a strategic business through its actions or delays,” he said, “then the state will turn up with a power of attorney and the owner will be locked out until the crisis ends and when the state, and only when the state decides to cancel the PoA.”
Fortum said in a statement Wednesday that it had no official confirmation of Russia’s move or its possible implications for the assets, and would issue a comment when it has more information. Fortum’s Russian unit said it had re-elected Chief Executive Officer Vyacheslav Kozhevnikov Wednesday on the instructions of the Federal property agency and that it was operating as before.
Uniper said it is “currently reviewing the legal situation.”
Fortum, controlled by the Finnish state, was among the largest foreign investors in Russia’s electric-power sector, with seven thermal power plants in the Ural region and western Siberia, as well as the country’s largest wind and solar portfolio. In May 2022, it announced a plan to put the assets up for sale, but the process stalled as the Kremlin refused to approve the deals.
Writedowns
Uniper booked a €4.4 billion ($4.8 billion) loss on its Russian unit Unipro earlier this year, writing its value down practically to zero and saying it was no longer in control of operations at the subsidiary. The German company was trying to sell Unipro, which operates five power plants in Russia, and said in February it had lined up a local buyer but the deal was stuck waiting for approval from Putin.
Uniper is a former subsidiary of Fortum and was taken over by the German state last year to prevent its collapse.
So far, Fortum had taken writedowns of €1.7 billion on its assets, leaving them worth €1.7 billion on its books.
“Writing down the entire asset value of about €1.7 billion is the likeliest outcome under the current circumstances in which the company appears to have lost control over the assets,” analyst Juha Kinnunen at Inderes Oyj said in a note.
“With Fortum no longer being in formal control of its Russian assets, we see a fair chance that some investors will now be willing to invest in Fortum, as the Russian exposure might no longer be an obstacle from an ESG point of view,” Danske Bank analyst Jakob Magnussen wrote in a credit note.
–With assistance from Leo Laikola and Kati Pohjanpalo.
(Updates with Kremlin, analyst, Uniper, Fortum comment from sixth paragraph.)
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