Leaving Russia, a profitable choice for companies listed so far

(BFM Bourse) – About a thousand companies have chosen to withdraw from Russia following the military invasion of Ukraine under the pretext of “denazification” launched on February 24. Those who preferred to cut ties, often at the cost of significant depreciation, nevertheless made the right choice, reveals a study by Yale University.

The attack on Ukraine has placed companies historically established in Russia in a dilemma: simply cease to operate in a country that has committed such aggression against another sovereign state, stay put in order to honor contracts in progress but without pursuing any new project, or doing more or less as if nothing had happened? The decision arises from a moral but also an economic point of view, also taking into account the impact of international sanctions.

Quickly, the announcements of departure multiplied and more than three months after the beginning of the conflict, the sanction of the markets now appears clear: leaving Russia was the best financial choice, many companies recovering even more in capitalization than they have lost in asset depreciation, according to a study by Jeffrey Sonnenfeld, Steven Tian, ​​Steven Zaslavsky, Yash Bhansali and Ryan Vakil, of the Yale University School of Management in the United States.

Professor Sonnenfeld and his team have compiled a list of more than 1,200 large companies that have publicly expressed a position vis-à-vis whether or not to maintain their activities in Russia, by going through financial newspapers, regulatory declarations to the authorities market reports, press releases etc. as well as various non-public sources (notably the Yale alumni network). They then classified these companies into five groups: A – withdrawal carried out by writing off its assets on the spot B – activity suspended but retaining the possibility of returning to it C – certain activities continued but significantly revised downwards D – volume of activity maintained but new projects frozen F – company entirely resisting calls to leave Russia

The researchers then looked at the performance of companies based on their rankings and found that those rated F (often used for “fail”) underperformed their peers. Among American firms for example and over the period from February 23 to April 8, those in complete withdrawal (70 rated A) gained on average 4.36%, when those rated F (16) gained nothing. Among European companies, 64 A-rated companies gained 3.44% on average, while those rated F (29 companies) lost 8.12% on average.

A clean break that pays off

From this analysis, it is clear that the performance of companies that have made a clean break or a permanent exit from Russia has been far better than that of companies stubbornly resisting demands to reduce their activity in the country. In addition, several companies that have recorded significant asset write-downs – Heineken, Shell, Exxon, Carlsberg, AB InBev, and Société Générale – have in fact benefited from value creation (in the sense of an increase in their capitalization ) far greater than accounting losses. Collectively, these six groups erased $14 billion from their balance sheets, but “recovered” $39 billion in capitalization. BP, for its part, recorded the largest depreciation -25 billion dollars- and if the British had not fully recovered them over the period of the study, the stock still posted a positive performance.

“Clearly, the recipients of funds [investisseurs] unambiguously consider that the risks associated with remaining in Russia, when nearly 1,000 multinationals have chosen to withdraw, clearly exceed the cost of withdrawal.

Guillaume Bayre – ©2022 BFM Bourse

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