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.
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 only assets listed so far in an addendum 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.
Shares Drop
Fortum shares fell as much as 3% in the first minutes of trading at 10:02 a.m. in Helsinki.
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 external manager receives powers that allow him to ensure the efficiency of the enterprises in accordance with their importance for the Russian economy,” the state property agency said in its statement. 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.
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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.
The utility, 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.
Uniper booked a €4.4 billion ($4.8 billion) loss on its Russian unit Unipro earlier this year saying it was no longer in control of operations at the subsidiary. The German company was trying to sell Unipro and said in February it had lined up a Russian 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.
Fortum isn’t likely to regain control of its assets in Russia unless there is “a fundamental change in the political landscape,” something that currently seems “unlikely” in the short to medium term, Danske Bank analyst Jakob Magnussen wrote in a credit 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,” Magnussen said.
–With assistance from Leo Laikola and Kati Pohjanpalo.
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