Impact of Russia’s decision to seize control over Danone assets

02-08-2023 | |
Russia has taken control of the Russian subsidiaries of Danone, alongside beer company Carlsberg. Photo: Canva
Russia has taken control of the Russian subsidiaries of Danone, alongside beer company Carlsberg. Photo: Canva

Danone’s assets which have been recently taken under state control in Russia, could have a major impact on investor confidence and negatively affect the dairy industry in the country, according to sources.

Russia has taken control of the Russian subsidiaries of Danone, alongside beer company Carlsberg. The assets have been put under the temporary management of the state under a new order signed by Russian President Vladimir Putin. The decision follows a regulation adopted earlier this year allowing Russian authorities to seize the assets of firms from some countries.

Danone said in a statement on 16 July that it had taken note of the decision of the Russian authorities aiming at placing Danone Russia under temporary external administration of the Russian authorities. Danone said it was investigating the situation and preparing to take all necessary measures to protect its rights.

Indirect expropriation

Natalya Dyatlova, head of corporate law with the Russian law firm Maxima Legal, told local news outlet Dairy News that although Danone formally did not lose ownership of its assets, the decision made is equivalent to the seizure of property from the company and can be seen as indirect expropriation. In international law, it is equated to direct expropriation, the consequence of which is the termination of ownership.

Ivan Fedyakov, director of the Russian think tank Infoline, told the publication that the government’s decision would have major implications for business in Russia, not only in the dairy industry.

“We can say that the process of nationalisation of foreign assets in Russia has begun. A new countdown of economic life in our country begins. It will be accompanied by complete isolation [of Russia] from the entire modern financial world, which will limit the development [opportunities] of domestic companies,” Fedyakov said.

What next?

Fedyakov also said that investors questioned whether this process of expropriation of private property would affect only foreign companies.

Dmitry Mironchikov, an independent dairy market analyst, agreed the decision to transfer Danone’s assets under state management sent a signal to the market. “For investors working in the market, this creates a situation of uncertainty, as the question inevitably arises: is this a single or a systemic solution? Will this decision be applied in the future to other companies?” he said.

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