Heineken's exit sparks concerns over Russian operations of Samsung, LG

The Korea Times

The Korea Times

Business

Tue, September 26, 2023 | 04:12

Companies

Heineken's exit sparks concerns over Russian operations of Samsung, LG

Posted : 2023-08-30 16:45

Updated : 2023-08-31 08:30

Employees work at Samsung Electronics' TV plant in Kaluga, Russia, in this undated file photo. Courtesy of Samsung Electronics

Hyundai Motor considers selling St. Petersburg factory

By Park Jae-hyuk

Heineken's recent sale of its Russian subsidiary almost for free appears to be creating a dilemma for Samsung, Hyundai Motor, LG and other Korean companies that have suspended the operations of their factories in Russia for more than a year in the wake of the Russian invasion of Ukraine, according to international trade experts, Wednesday.

The multinational brewer sold its Russian subsidiary to a local consumer goods firm for 1 euro ($1) last Friday, despite a significant loss, estimated at around 300 million euros. The deal came after Renault and Nissan were virtually forced to sell each of their Russian subsidiaries to a Russian state-owned company last year for 2 rubles ($0.02) and 1 euro, respectively.

In June, Russian authorities also threatened to ban parallel imports of Samsung and LG devices, as part of attempts to urge the Korean electronics makers to resume the operations of their Russian factories or sell their plants to local firms, such as Lex, Kuppersberg and Schaub Lorenz, according to Kommersant, a Russian economic daily. Parallel imports are branded products brought in from another country without the permission of the trademark owner.

Samsung and LG have reportedly remained reluctant to accept the requests, because Western countries have restricted the exports of components to their factories in Russia and the Russian firms intend to buy the factories at fire sale prices.

According to a Russian presidential decree, companies from "unfriendly countries" must cut the prices of their assets in Russia by more than 50 percent, if they want to sell them. They should also donate at least 10 percent of the value of their respective sales to the state.

As a result, global enterprises have sold their Russian operations almost for free, to avoid criticism that they are financially supporting the country's warfare.

"It has been more difficult for companies to decide whether to give up retrieving their investments in Russia or to endure the international community's criticism for doing business there," the Korea Trade-Investment Promotion Agency's Saint Petersburg office said in a report.

Samsung and LG have been cautious about mentioning their business plans there.

"It will not be easy for Korean manufacturers to pull out of Russia, considering the fixed costs and sales networks they have built up there," said Jeong Min-hyeon, head of the Russia and Eurasia Team at the Korea Institute for International Economic Policy.

Hyundai Motor's plant in St. Petersburg, Russia / Courtesy of Hyundai Motor

Hyundai Motor, another Korean firm that stopped manufacturing products in Russia, is considering selling its St. Petersburg factory. Kazakhstan's Astana Motors, Russia's Avilon and Avtotor, and China's Chery are mentioned as candidates to acquire the Korean carmaker's factory.

It remains uncertain whether Hyundai Motor will follow in the footsteps of Renault and Nissan, both of which sold their factories almost for free, on condition of buying back those plants for the same price a few years later.

"We are reviewing various options regarding our Russian factory, but nothing has been decided at this moment," Hyundai Motor said in a regulatory filing.

The indecisive attitude of the Korean firms, however, drew criticism from international activists.

"Feet-draggers want more money than their Russian assets are worth," said the Moral Rating Agency, a London-based corporate watchdog. "Feet-dragging results in exit difficulties that provide a self-fulfilling justification for further feet-dragging."

pjh@koreatimes.co.kr