British Mondi Operates In Russia Despite Promises to Leave

One of the global leaders in producing packaging and paper, British Mondi Group which also has production plant in Ukraine, still operates in Russia. Despite the company’s statement on plans to divest the assets in the country, which is currently under pan-European sanctions, in fact, the production facilities of Mondi in Russia have seen next to no changes and are working at full capacity. It’s been over 6 months since Vladimir Putin started a full-scale invasion in Ukraine and during this time multiple international companies have stopped doing business in Russia. But in relation to the packaging giant, it turned out much harder to say goodbye to 12% of the global revenue.

The long walk

In Russia, the London-listed Mondi Group (MNDI) is represented by an integrated plant for producing pulp, packaging paper, and high-quality uncoated paper (JSC Mondi SLPK, located in Syktyvkar, Komi Republic, Russia) and three processing plants. All these enterprises mainly work for the domestic market and provide jobs for 5,300 Russian employees. The company also has one production plant in Ukraine employing 100 people. But since the beginning of the war, the production there has been suspended.

With the war outbreak Mondi issued a statement saying that the company “is profoundly concerned about the crisis unfolding in Ukraine and is shocked by the humanitarian impact”. Nevertheless, the part of the statement regarding discontinuation or work with the country that started this crisis was much more vaguely worded. “Recognizing its corporate values and broader stakeholder responsibilities, the Board is assessing all options for the Group’s interests in Russia, including any form of legal separation. This does not mean, or imply, that Mondi is planning, or initiating, any liquidation or bankruptcy proceedings in relation to any of its Russian subsidiaries or assets”, – the statement says.

Later in May the company officially reconsidered its position and announced that it would divest its Russian assets. But the wording of the statement allowed for the guesses that, in fact, it’s never going to happen: “The divestment process for these significant assets is operationally and structurally complex and is being undertaken in an evolving political and regulatory environment. Accordingly, there can be no certainty when a transaction is completed or as to the structure of any possible transaction”.

The other point of view

The Russian media were much more eloquent. In May, one of the largest news media in Russia, TASS has published an article with reference to the first deputy chairman of the government of the Republic of Komi Elmira Akhmeeva, saying that Mondi SLPK operations in Syktyvkar will not be suspended.

Later in June, the General Director of Mondi SLPK Klaus Peller gave an interview where he actually confirmed the previous publication. He stated that all plant’s machines in the production worked in the normal mode and that Mondi was the only pulp and paper mill in Russia whose assortment has not changed at all in terms of quality.

Moreover, the company initiated plans for further production development. CFO of Mondi SLPK Pavel Buslaev announced that the plant is now experimenting with the production of packaging that should replace Tetra Pak that has earlier left Russian market. This was also confirmed by the Vice-Prime Minister of Russia, Victoria Abramchenko.

To sell or not to sell

On August 12, the company announced that it was selling its main Russian asset – Joint Stock Company Mondi Syktyvkar, for RUB 95 billion (around €1.5 billion at the current exchange rate), payable in cash on completion. This is almost twice as much as the enterprise earned altogether last year. According to the same statement, for the year ended December 31, 2021, Syktyvkar reported revenues of €821 million, EBITDA of €334 million and profit before tax of €271 million. The deal is expected to be closed by the end of 2022.

The new owner even being one of the top oligarchs in Russia can hardly afford the asset all by himself. Viktor Kharitonin is the leading producer of the "Sputnik V" vaccine, an oligarch close to Deputy Prime Minister Tatyana Holikova, whose protégé Vladimir Uyba is the head of the Republic of Komi where Mondi SLPK is located. In 2022, Forbes estimated Kharitonin's fortune at $1.4 billion — this is the 66th place on the list of the wealthiest Russians. 

Given the numbers, it means that to finance the acquisition new owner will have to give away all of his financial assets, which is hardly possible in reality. In situations like that Russia has another scenario: the deals of this kind might be partially or in full sponsored by the Russian government or people under its influence. Some of the examples are Roman Abramovych and Oleg Deripaska who know what it means to be an oligarch close to the ruling ones.

So officially Mondi’s largest Russian asset is being sold. However, its plants continue to operate as usual. The Russian government supports their activity and receives both taxes and access to the so much-needed technologies. Moreover, Mondy still owns three enterprises in Russia that continue to work.  So what’s the honest answer of the British company to the war in Ukraine?

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