UK's Mondi to sell its Russian packaging operations amid reports of dealing with Kremlin
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British paper and packaging firm Mondi said on December 15, that it will sell three of its Russian packaging converting operations to Moscow-based Gotek Group for 1.6 billion roubles (€24 million). The agreement comes after in August Mondi sold its fourth and largest plant in Russia, Mondi Syktyvkar, to an investment vehicle owned by Russian billionaire Viktor Kharitonin — a move seen by experts as a result of a deal with the Kremlin.

The London-listed company said the disposal of three Russian packaging operations is leading to an expected loss from the sale in the range of €70 million to €80 million.

The deal includes a corrugated packaging facility and two consumer flexibles plants, which supply various packaging solutions to customers in the Russian market.

The disposal is conditional on the approval of the Russian Federation’s Government Sub-Commission for the Control of Foreign Investments and customary antitrust approvals and is expected to complete in the first half of 2023. However, as the disposal is being undertaken in an “evolving political and regulatory environment”, there can be no certainty as to when the disposal will be completed, Mondi stresses.

Gotek is a leading Russian packaging producer, headquartered in Moscow, and employs around 2,200 people.

The 100% owner of state enterprise Gotek is Salgon Investments Limited, registered in August 2022 in the special administrative district in the Kaliningrad region, Interfax reported. According to the Russian unified state register of legal entities, as of October 2022, Gotek owners are Wythall International (owned by the Gotek head of the board of directors Vladimir Chuikov and his relatives) with a share of 51% and Cyprus Enercom Limited (49%).

According to the Russian media, before the redomicilation, the owner of Gotek was the Cypriot Salgon Investments Limited, and its controlling shareholder was Wythall International, also registered in Cyprus. The company’s website states that it “together with its strategic partner Sberbank is a co-owner of Salgon Investments Limited, which owns 100% of the shares of the Gotek group of enterprises.” Another Wythall International project is a development business in Cyprus.

B4Ukraine is encouraged by Mondi’s decision to sell three of its paper and packaging plants and leave Russia. In doing this, the company has chosen to prioritise human rights over profit. It’s taken ten long months to get to this point: we now need to see a swift and final exit. We also urge clarity on whether the sale of Mondi Syktyvkar to Augment — an investment vehicle majority owned by Russian billionaire Viktor Kharitonin — is going ahead after conflicting reports on its status in the media.

A deal with the Kremlin?

The disposal of three packaging converting operations is not affiliated with the proposed disposal of Mondi Syktyvkar for which the approval of the Russian Federation’s Government Sub-Commission for the Control of Foreign Investments and customary antitrust approvals remain outstanding, Mondi said.

In August, Mondi sold its largest plant in Russia, Mondi Syktyvkar, to Augment Investments Limited for 95 billion roubles, or €1.5 billion. Yet, in 2021, Mondi reported that all its assets in Russia — that is, four factories — are valued at €687 million. Experts of the Economic Security Council of Ukraine (ESCU), one of the B4Ukraine coalition members, argue that the reason behind such a high price is political.

In general, the deal on the sale of the Syktyvkar plant was not supposed to take place at all for several reasons, the experts explain. Earlier, the Russian government had put in place several restrictions that would make a deal like this impossible, especially with the high price. First, in July, it banned all agreements on the sale of assets of companies connected to the military-industrial complex, as well as raw materials production. Secondly, it requires the selling company to obtain the government’s consent and provide a discount of at least 50% of the last market value of the asset.

However, Russians allowed Mondi not only to sell its plant without a 50% discount but also to value it at a considerable sum that exceeds the entire capitalization of Mondi’s assets in Russia by almost three times.

The ESCU believes that the reason behind this is a deal with the Kremlin, which allegedly has helped finance the purchase: “The company can receive such an overpayment for the asset only under the condition that the factory in Syktyvkar will continue to work and provide the Russian economy with products. The stability of food prices and the rise of social tension — this is what Putin worries about and why he agrees to pay Mondi through businessmen close to the government.”

The explanation is reinforced by the fact that the reported buyer of Mondi’s factory — Augment Investments Limited — is controlled by the Russian oligarch Viktor Kharitonin, who is closely connected with the Kremlin, namely with the minister of industry and trade of the Russian Federation Denis Manturov, with whom he shares a long history of business relationships. Minister Manturov is known for the fact that he, in Putin’s vertical, is in charge of parallel imports.

As is known, Mondi had first announced plans to sell its Russian assets in May, following Moscow’s invasion of Ukraine.

Yet, in June, when Swedish TetraPack withdrew from the Russian market, it was Mondi who stepped up and saved the Russian packaging market from complete collapse, the Telegraph reported. In the same month, Mondi Syktyvkar supported the bike action “We are Russia! We are together!” and sponsored a bike ride.

Analysis by the B4Ukraine reveals that out of 248 British companies, which operated in Russia before February 24, only 15 have sold their shares in Russian assets and completely exited the market.

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