Stranded assets: Corporates disclose billions in exposure to Russia due to Western sanctions

As thousands of companies around the world try and account for cash and assets stranded in Russia due to Western sanctions imposed after its invasion of Ukraine, the toll on treasuries rises by the day.

In April, Shell announced it will write off up to $5bn in Russian assets while BP is expected to write down up to $25bn after it abandons its stake in oil giant Rosneft.

Banks are also very much in the firing line, with JPMorgan CEO Jamie Dimon, warning investors in April that the lender lose around $1bn due to the Ukraine conflict and its exposure to the Russian market.

The issue of trapped assets and cash is a perennial problem for multinationals, but usually because of FX or other regulations. But it has landed centre stage because of the conflict and the pressure is mounting daily because of the risk of falling foul of sanctions.

Simon Ring, global head of maritime and trade technologies and ESG at intelligence company Pole Star, says treasurers are dealing with an unprecedented challenge as they move to ostracise Russia from all commercial dealings.

“When it comes to exporting goods or commodities from Russia, banks and shipping companies will have to screen any transaction to be certain there are no links to sanctioned oligarchs or financial institutions,” he says.

“It may be hard for companies operating in Russia to prove that. But if banks or carriers get it wrong, the US authorities and other international regulators may come down hard on them with penalties.”

These obligations apply across the entire commercial sector – all forms of transportation, every kind of financial arrangement, trade, energy and industrial.

“Treasury is responsible for risk management as a whole and we have to both quantify and eliminate all risks,” Ring adds. “And this includes any geopolitical challenges that create additional financial risks for us.”

As sanctions bite, one of the many headaches for treasurers is counterparty risk. As the UK’s Association for Corporate Treasurers (ACT) warned members in a point-by-point briefing: “If you currently have investments in Russia that are trapped, do you know what the total exposure is and which counterparties and banks are involved?”

There is also the risk of the counterparty being downgraded, which also has a bearing on the value of assets. “Non-Russian banks with significant exposures to Russia or Russian businesses may be downgraded. For your main relationship banks, do you understand the extent of their exposures and possible risk of downgrade?” asked the ACT.

Similar problems apply to loans. As the ACT points out, if your Russian business had loans outstanding with a bank or other local financial institution, it’s important to establish whether the terms of the loan have been affected.  For instance, the debt may be due for immediate repayment. The problems multiply if treasuries happen to have a Russian bank in a syndicated facility because of the potential knock-on effect on the entire syndicate.

Currently, many corporates doing business in Russia are faced with the possibility of total write-offs, with obvious implications for accounting and tax implications. “On the basis that it is currently not possible to access or transfer the funds out of the country, do you understand the accounting and tax implications of this loss of access?” prompts the ACT.