Over recent weeks the scale of international sanctions imposed by a large number of countries in respect of Russia has increased rapidly.
These sanctions are beginning to have significant financial and economic impacts, both on Russia itself but also on many companies around the world with Russian financial exposures, investments, suppliers and customers.
The Herbert Smith Freehills Sanctions Notes, page provides regular updates sanctions being proposed in major jurisdictions around the world to assist businesses navigate this rapidly evolving situation.
Sanctions imposed to date
The sanctions being imposed on dealings with Russia and Russian related persons and businesses vary from jurisdiction to jurisdiction. That being said, there has been significant coordination in approach between the European Union, the United States and the United Kingdom. Other nations such as Japan and Australia have also introduced sanctions, while Russia itself has imposed "counter sanctions".
Sanctions imposed to date have included financial sanctions, including seizing of assets, shutting Russian banks out of SWIFT and the banning of transactions with Russia’s Central Bank, have been combined with export controls to limit Russian access to various foreign goods and technology.
No other G20 economy has faced such severe and unprecedented economic sanctions in such a short period of time.
Financial impact of the sanctions
Government led sanctions have been closely followed by private sector withdrawals from Russia itself or from Russian ventures. The speed and scale of this seismic shift has had a ripple effect with financial pressures being felt across a range of business sectors.
There has also been significant impact of a range of commodities with energy, grain and base metal prices recently hitting multi-year highs as traders avoid Russia’s largest exports for fear of breaching sanctions and concerns over supply drive prices higher.
Much of the financial distress arising in connection with the Russian sanctions regime is being felt within Russia. However, it is also extending to the operations of Russian corporates outside of Russia. For example:
- Sberbank: the Single Resolution Board of the European Central Bank determined that Sberbank Europe AG (Sberbank’s European subsidiary) and its two subsidiaries in Croatia (Sberbank d.d.) and Slovenia (Sberbank banka d.d.) were failing, initially imposing moratoria on each of them and then subsequently initiating insolvency proceedings against Sberbank Europe AG and arranging the sale of the assets of the other two entities to other banks.[i]
- VTB: Russia’s second largest bank VTB has announced the closure of its London based investment banking arm, VTB Capital Plc.[ii]
- Sova Capital: Sova Capital, an investment bank owned by Russian banker Roman Avdeev has been placed into special administration by order of the English High Court following an application by its directors.[iii]
There is a secondary impact on international companies with exposure to Russia. Notable examples to date include:
- Aircraft lessors: There are reported to be nearly 500 passenger jets, valued at approximately USD12 billion, currently located in Russia that are on lease from international aircraft lessors. It is unclear whether these aircraft will be able to be recovered by the lessors.[iv]
- Nord Stream 2: The certification of the Nord Stream 2 gas pipeline was suspended on 22 February, reportedly leaving its owner Nord Stream 2 AG to consider filing for insolvency.[v] German firm Wintershall Dea, a co-funder of Nord Stream 2, announced a write off of its EUR1 billion financing of the pipeline.[vi]
It has been reported that more than 400 companies have announced plans to exit, suspend or scale back operations in Russia.[vii] From a financial perspective, many of the largest are from the energy sector, previously one of Russia’s major exports:
- ExxonMobil: ExxonMobil has said it will exit Russia oil and gas operations valued at more than USD4 billion and halt new investment.[viii]
- BP: BP has announced plans to exit its nearly 20% stake in Russian oil giant Rosneft, which may result in a write-down as much as USD25 billion.[ix]
- Shell: Shell confirmed on 28 February that it will end its relationship with Gazprom. It will also cease buying Russian oil and gas and close its service stations and other related operations in the country.[x],[xi]
It appears that the Russian government may have narrowly avoided defaulting on two of its bonds after JPMorgan consulted with the US Treasury to confirm it was able to process USD117 million in coupon payments with reports that some creditors received payment in dollars.[xii],[xiii] However, the position in respect of future bond payments both by the Russian government, and Russian corporate bond issuers, remains highly uncertain.[xiv] Until recently, much of this debt was considered investment grade and held in investment portfolios.
These financial impacts can be expected to evolve and broaden in coming weeks and months, and businesses in the Asia Pacific may not be immune from the range of effects.
HSF sanctions updates
Navigating the rapidly moving sanctions landscape across so many jurisdictions is a significant challenge for international businesses.
Given the number of countries imposing sanctions and the continuing implementation of further sanctions in response to the Ukraine conflict, Herbert Smith Freehills is helping our clients stay abreast of sanctions by publishing updates on the Sanctions Notes page. Updates are being added daily as the situation continues to develop.
The Herbert Smith Freehills’ restructuring, turnaround and insolvency team is closely monitoring events.
[i] Single Resolution Board, 1 March 2022, Sberbank Europe AG: Croatian and Slovenian subsidiaries resume operations after being sold while no resolution action is required for Austrian parent company, accessed 18 March 2022, https://www.srb.europa.eu/en/content/sberbank-europe-ag-croatian-and-slovenian-subsidiaries-resume-operations-after-being-sold
[ii] Financial Times, 7 March 2022, Sanctions-hit Russian bank VTB prepares to pull out of Europe, accessed 18 March 2022, https://www.ft.com/content/27adf446-517a-4c4b-89e8-dee8757252e9
[iii] Financial Conduct Authority, 3 March 2022, Sova Capital Limited enters special administration, accessed 18 March 2022, https://www.fca.org.uk/news/news-stories/sova-capital-limited-enters-special-administration
[iv] Australian Financial Review, 15 March 2022, Russian airlines will keep planes leased from foreign firms, accessed 18 March 2022, https://www.afr.com/companies/transport/russian-airlines-will-keep-planes-leased-from-foreign-firms-20220315-p5a4uv
[v] Reuters, 1 March 2022, Exclusive: Nord Stream 2 owner considers insolvency after sanctions, accessed 18 March 2022, https://www.reuters.com/markets/europe/exclusive-nord-stream-2-owner-considers-insolvency-after-pipeline-halt-sanctions-2022-03-01/
[vi] Financial Times, 3 March 2022, Wintershall Dea to receive no Russian revenues until sanctions lifted, accessed 18 March 2022, https://www.ft.com/content/ab944599-04d5-4389-bb2c-64cb9aa266d8
[vii] Yale School of Management, 21 March 2022, Over 400 Companies Have Withdrawn from Russia—But Some Remain, accessed 22 March 2022, https://som.yale.edu/story/2022/over-400-companies-have-withdrawn-russia-some-remain
[viii] Reuters, 3 March 2022, Exxon to exit Russia, leaving $4 bln in assets, accessed 18 March 2022,
[ix] Reuters, 1 March 2022, BP quits Russia in up to $25 billion hit after Ukraine invasion, accessed 18 March 2022, https://www.reuters.com/business/energy/britains-bp-says-exit-stake-russian-oil-giant-rosneft-2022-02-27/
[x] Financial Times, 1 March 2022, Shell ends joint ventures with Gazprom in pullback from Russia, accessed on 23 March, https://www.ft.com/content/dfa82ffd-4c0a-42e0-81fe-f88c0d416619#post-21972044-11ac-4b1f-92da-f3af4c19e672
[xi] Financial Times, 8 March 2022, Shell to stop buying Russian oil and gas, accessed on 23 March, https://www.ft.com/content/a29d2d7d-fb07-4976-bd76-45100df07bbf#post-b61ce811-129e-4f7d-877b-da39c9bfccce
[xii] Financial Times, 18 March 2022, JPMorgan processes Russia bond payments, boosting hopes for avoiding default, accessed 18 March 2022, https://www.ft.com/content/232f07d1-5c90-4819-a637-397e14760339#post-a828a061-c426-4db5-a78c-25c647db3bdd
[xiii] Reuters, 18 March 2022, Some Russia creditors have received dollar bond payment -sources, accessed 18 March 2022, https://www.reuters.com/world/europe/russia-says-its-order-pay-117-mln-eurobond-interest-fulfilled-2022-03-17/
[xiv] Financial Times, 21 March 2022, Russian debt default fears stalk bond markets, accessed 22 March 2022, https://www.ft.com/content/3f53ad5e-17a3-432b-bf20-99e5256345dd
