Nobody wants Russian assets for ‘few options’

A common problem in environmental, social and governance investing is that if you own stock in a coal company, and you care about ESG, so you sell that coal company stock, you are sort of by definition selling it to someone who does not care as much about ESG. And then what? It is fairly straightforward to say “I care about ESG, so if someone comes to me looking to raise money to open a coal mine, I won’t give it to her.” That’s not what you’re doing. Selling publicly traded stock on the secondary market is not quite the same as refusing to fund new activities. They are related. There is, you hope, some long-term effect: Your refusal to buy coal companies on the secondary market will lower the expected returns on opening a coal mine, leading to less coal mining in the long run. But in the short run it means that people who like coal mines can buy them cheap, and then the coal mines will all be owned by people who like coal mines.
Anyway here is a good Bloomberg News article about how “Anyone Selling Russian Assets Faces Few Options, Big Losses.” One problem is: Who is buying? For large stakes, shareholders in Russian companies could try to find a buyer willing to take over the holding wholesale. Sellers could try to appeal to investors in Asia, but this would carry its own political risk.
“There are potential long-term consequences of selling assets to the Chinese, especially if it means lesser Western exposure to or control or influence over commodities,” said Russ Mould, investment director at AJ Bell Plc.
And the crippling international sanctions are making Russian assets financially unattractive, even at steep discounts, meaning that Chinese investors may not want to risk the political headache either. In an ironic twist, Russian investors could turn out to be the most obvious buyers for some assets.
But there are huge obstacles that make transacting almost impossible in the short term. Stock trading on the local bourse was cancelled, while the ruble plunged to an all-time low. This means buying global depositary receipts of Russian stocks being traded on exchanges such as London has also become prohibitively expensive for Moscow-based portfolio managers.
One quasi-solution is to just, like, forget about your Russian assets?
BP has warned that it could take a writedown of as much as $25 billion from exiting Russia, as finding a buyer for its 20% stake in Rosneft will be very challenging. Shell Plc is exiting its Russian gas ventures, including a massive liquefied natural gas facility.
Other companies with significant investments in Russia may opt to reduce the value of their holdings to zero. “It is going to be difficult to find a buyer with Russia gaining pariah status among the international community,” Susannah Streeter, an analyst at Hargreaves Lansdown Plc, said of BP’s planned retreat. “For now, a very hefty writedown is likely to remain the main course of action,” she said.
One can say “we paid $25 billion for these assets, and now we can’t sell them, so we are going to forget all about them and mark them on our books at zero,” but … you still own them, right? (If eventually things normalise and you are able to sell the stake and reverse the writedown, what did your big public announcement that you’re divesting actually mean?) I suppose you could donate them back to the company — call up Rosneft and say “cancel our shares, don’t bother paying us” — but I am not sure that that’s a good way to impose sanctions on Russia; it is in some sense good for Rosneft (or Shell’s Russian partners in its joint ventures, etc.) to cancel equity claims on its business for free. If you’re writing the assets down to zero anyway I suppose one option (depending on the mechanics of the sanctions regime) is to give them to charity; there would be something a bit satisfying about a Ukraine relief charity owning 20% of Rosneft.
Some brokers were concerned that even if they managed to strike a deal, there was little guarantee it would be settled and the asset exchanged for cash. Most cross-border trades are settled in US dollars, and banks are responsible for managing the currency risk for such transactions.

—Bloomberg