Nearly 1,000 Western companies have pledged to leave or cut ties with Russia following its invasion of Ukraine, according to Yale researchers. Many are reassessing the reported value of these Russian companies, as the weakening local economy and a lack of willing buyers make the once-valuable assets useless. Companies in accordance with U.S. and international reporting standards must receive impairment or impairment charges when the value of an asset decreases.
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When or how do you expect companies to recover from their losses in Russia? Take part in the discussion below. Impairments to date cover a range of industries, from banks and brewers to manufacturers, retailers, restaurants and shipping companies – even a wind turbine manufacturer and a forestry company. Fast food giant McDonald’s Corp. expects to record $ 1.2 billion to $ 1.4 billion in accounting after agreeing to sell its Russian restaurants to a local licensee. Exxon Mobil Corp. has pledged $ 3.4 billion after halting work on an oil and gas project in Russia’s Far East. Budweiser Anheuser-Busch InBev SA has raised $ 1.1 billion after deciding to sell its stake in a Russian consortium. “This round of impairments is not the end,” said Carla Nunes, chief executive of risk advisory firm Kroll LLC. “As the crisis continues, we could see more economic implications, including the indirect implications of the conflict.” The economic impact of the conflict is not significant for most multinationals, in part due to the relatively small size of the Russian economy. Less than 50 companies account for most of the $ 59 billion. Even for them, Russian losses are usually a relatively small part of their total finances. McDonald’s, for example, said its operations in Russia and Ukraine accounted for less than 3% of its operating income last year. Some companies are deleting assets that are trapped in Russia. Irish aircraft leasing company AerCap Holdings NV last month received a $ 2.7 billion accounting write-off, which included the write-off of the value of more than 100 of its aircraft stuck in the country. The aircraft were leased to Russian airlines. Other leasing companies accept similar results. Other companies assume that they will not make money from their Russian activities, even before finalizing their exit plans. The $ 25.5 billion accounting burden of British oil giant BP PLC on its Russian holdings last month included the write-off of $ 13.5 billion in shares of oil producer Rosneft. The company has not said how or when it intends to divest its Russian assets.
BP’s $ 25.5 billion accounting stake in its Russian holdings includes the $ 13.5 billion write-off of Rosneft.
Photo: Yuri Kochetkov / EPA / Shutterstock
Even some companies that have a presence in Russia are deleting assets. French energy giant TotalEnergies SE owed $ 4.1 billion in April on the value of its gas reserves, citing the impact of Western sanctions on Russia. The Securities and Exchange Commission last month told companies that they should make clear the losses related to Russia and that they should not adjust revenue to add to the estimated revenue lost due to Russia. Bank of New York Mellon Corp., which said in March it had suspended new banking operations in Russia, appeared to be violating those guidelines when reporting its results for the first three months of this year. The Bank of New York reported $ 4 billion in revenue in April as part of a $ 88 million measure added to reflect lost revenue due to Russia. A BNY spokesman, Mellon, declined to comment. Investors seem to have mixed reactions to the impairments, in part because most multinationals have relatively little exposure in Russia, according to academic research. Financial markets “reward companies leaving Russia,” according to a recent study by the Yale School of Management. Gains in stock prices for outgoing companies have “far exceeded the cost of one-off impairments for companies that have written off the value of their Russian assets,” the researchers concluded.
Bank of New York Mellon announced earlier this year that it had suspended new banking operations in Russia.
Photo: Gabriela Bhaskar / Bloomberg News
The research, which uses a different methodology, found a more subtle reaction from investors. Analysis by Indiana University professor Vivek Astvansh and his co-authors on the short-term impact on the market of more than 200 corporate announcements revealed a sharp transatlantic gap. Investors fined US companies for leaving Russia and non-US companies for not leaving, according to the analysis. More impairments and other bookkeeping related to Russia are expected in the coming months as the companies complete their planned departures from the country. British American Tobacco PLC, whose brands include Rothmans and Lucky Strike, said on March 11 that it “initiated the process of rapid transfer of our Russian business.” This transfer is still in progress, according to a BAT spokesman. BAT has not received any impairment in relation to the business. Accounting expert Jack Ciesielski said companies may be slow to announce an impairment until they have good management of how big the loss will be. “You do not want to put a number out there until you are sure it is unlikely to change,” said Ciesielski, owner of investment research firm RG Associates Inc. The recovery of the ruble is helping Russia to support its economy and to continue its war effort in Ukraine. WSJ’s Dion Rabouin explains how Russia strengthened its ailing currency and how it affects the world economy. Illustration: Ryan Trefes Many companies give investors rough estimates of what to expect from Russia-related losses. ITT Inc., which has suspended operations in Russia, said last month it expected $ 60 million to $ 85 million in revenue growth this year due to a “significant drop in sales” in the country. That’s a fraction of the total $ 2.8 billion in revenue for the automotive, aerospace and energy component maker. As sanctions weaken the Russian economy, companies still operating there are reassessing their future profits and losses. The travel giant Uber Technologies Inc. In May, it lost $ 182 million in the value of its stake in a Russian taxi consortium amid forecasts of a prolonged recession in the Russian economy. Uber said in February it was looking for opportunities to accelerate its planned share sale. —Thomas Gryta and Nick Kostov contributed to this article. Write to Jean Eaglesham at [email protected] Copyright © 2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8
