Business News for May 16, 2022

PARIS — The French automaker Renault announced Monday that it was exiting Russia in a deal negotiated with the Russian government that would allow Renault the option of resuming business in the country at a future date.

Under the agreement, Renault will sell its 68 percent stake in AvtoVAZ, Russia’s biggest carmaker, to a Moscow-based automotive research institute known as NAMI. Renault did not disclose the price, but a person with knowledge of the situation, who spoke on condition of anonymity to discuss details not made public, said the automaker was paid the symbolic sum of 1 ruble.

NAMI would continue to operate AvtoVAZ’s two sprawling auto factories and pay its employees. Renault could then repurchase the stake within six years, Renault said in announcing the deal.

“Today, we have taken a difficult but necessary decision, and we are making a responsible choice towards our 45,000 employees in Russia,” said the French automaker’s chief executive, Luca de Meo.

Renault did not immediately disclose how much it is receiving for the stake. The company said it would take a 2.2 billion euro ($2.3 billion) financial hit in the first half of the year because of the sale, and has sharply lowered its financial outlook for 2022.

Russia’s deal with Renault offers a window into how the Kremlin is trying to create openings for Western companies to return to doing business there whenever the dust settles from President Vladimir V. Putin’s brutal invasion of Ukraine.

Western firms have come under immense pressure to divest from Russia, and hundreds of them have suspended operations or exited ventures with Russian partners, heaping pressure on the Russian economy. On Monday, McDonald’s said it would sell its business in Russia to a local buyer.

Russia’s industry and trade minister, Denis Manturov, has previously said that AvtoVAZ, the maker of Lada, Russia’s best-selling car, would probably be handed over to NAMI for care taking “with the possibility of a buyback, if our colleagues decide to return.”

Credit…Gleb Stolyarov/Reuters

The Kremlin has maintained since the start of the war that Western companies were pulling back from Russia primarily because of political and social pressure, rather than economic rationale.

But while Mr. Putin has threatened to nationalize Western companies that leave, the government is also employing other mechanisms, such as the one negotiated with Renault, that could encourage companies to eventually come back in.

Russia is Renault’s second biggest market for cars after France, comprising around 10 percent of global sales. In 2008, Carlos Ghosn, Renault’s chief executive at the time, agreed to partner with AvtoVAZ with the direct blessing of Mr. Putin, who wanted a foreign partner to help improve quality and viewed Mr. Ghosn as the man who could get the job done.

Renault’s partnership with AvtoVAZ added to Mr. Ghosn’s hefty salary at the time, drawing scrutiny from some Renault shareholders. Yet the deal eventually made Renault Russia’s largest automaker, annually rolling 500,000 Ladas and Renault-branded cars off its assembly lines for an increasingly affluent cadre of Russian consumers.

In March, however, Renault announced it was stopping operations at a plant in Moscow and reassessing its partnership with AvtoVAZ, after Western sanctions blocked the import of computer chips and other parts needed for cars. The announcement was made hours after President Volodymyr Zelensky of Ukraine, addressing the French Senate, called on Renault and other French multinationals to leave Russia.

Renault had initially tried to keep its Russian factories running, even as Russia bore down on Ukraine, citing the need to continue producing for the local market. In closed-door meetings early in the conflict, French government officials urged top executives to avoid making hasty decisions to leave.

The French state owns a 15 percent stake in Renault and holds a seat on the board. President Emmanuel Macron said during a news conference in March that French companies should be “free to decide for themselves” whether to stay in Russia.

Credit…Yuri Kadobnov/Agence France-Presse — Getty Images

Renault, like other Western firms, also needed to keep paying its employees — especially after Moscow said it would penalize foreign firms that stopped paying workers.

But the Western limits on shipping parts to Russia soon made it impossible to keep operating the two factories.

Western sanctions targeting Russian oligarchs close to Mr. Putin also took a toll.

Renault’s partner in AvtoVAZ is Russian Technologies Corporation, known as Rostec, which holds a 32 percent stake in the venture through a Dutch holding company. Rostec is run by Sergei Chemezov, who was targeted by Western sanctions after Russia’s invasion. Mr. Chemezov is reported to be a former KGB agent who worked with Mr. Putin in East Germany before the fall of the Soviet Union.

Mr. Chemezov, who was a key interlocutor with Mr. Ghosn on the 2008 deal between Renault and AvtoVAZ, has vigorously defended Russia’s war in Ukraine as “necessary.” Among other things, Rostec also makes Russia’s Kalashnikov assault rifles, as well as ammunition, military equipment and aircraft engines.

With Russia’s economy facing a steep economic downturn as international sanctions bite, Moscow appears eager to mute the pain. Under the arrangement, Renault’s factory in Moscow will continue to produce cars. Sergei Sobyanin, the mayor of Moscow, announced Monday on his blog that the city would take over the plant, which will build passenger cars under the Moskvich brand so that thousands of employees would “not be left without work.”

Renault considered the option of being able to buy back its stake in AvtoVAZ, an important part of any deal, according to a person with knowledge of the situation. But any future buyback would depend on geopolitical circumstances at the time and the state of Western sanctions against Russia, the person added.

Renault officials did not make further comment. But Mr. Ghosn has not hesitated to speak out. In an interview with France’s BFM TV last month from his home in Lebanon, where he is living as a fugitive after escaping in 2019 from a criminal inquiry in Japan for alleged financial misconduct as head of the Nissan-Renault-Mitsubishi auto alliance, he said that the political pressures that had built up on Renault to exit Russia were “a pity.”

“Russia is not going to disappear,” he said. “It is a great country going through a difficult phase today. Obviously, Ukraine even more so. But the market will stay and one day or another, the situation will normalize.”