Russia’s biggest supermarket chain Magnit has offered to buy out its international investors, whose shares in the company have been blocked due to sanctions-related capital restrictions, at knock-down prices.

Magnit said its indirect subsidiary is offering to buy as much as 10% of the company shares at a price of RUB2,215 per share ($26.4), "for the purpose of providing liquidity to investors." That price is a 50% discount to the previous six months weighted average of Magnit’s shares. The price of Magnit’s shares on the Moscow Exchange at the end of trading on June 16 was RUB4,500.

As the buyout is capped at 10% of the shares, worth a total of RUB22.57bn ($269mn), the company said that if investors with shares collectively worth more than that amount apply to participate, then the buyout will be allotted on a proportional basis.

Magnit had to obtain a special permit from the Russian government commission to launch this deal, as large amounts of dollars cannot be sent abroad without the express permission of the Central Bank of Russia (CBR) under the current wartime capital controls.

The buyout price was determined in accordance with the decision of the government commission, which insists that foreigners can only sell out from the local companies at a considerable discount. Many international companies have exited their Russian assets with discounts of as much as 80% because of capital controls and other regulatory limitations that distort pricing for foreign investors.

In Magnit’s case, the discount is 50%, in line with practice of selling Russian assets by international investors at discounts in the current geopolitical environment. Still, the price is much higher than the company’s GDR prices at the end of February 2022, when international investors could still trade them in London. The tender offer includes the shares related to unconverted GDR’s of Magnit held by JPMorgan Chase Bank.

Investors will be able to tender shares for cash until July 11, while all settlements are expected to be completed by early August. They may choose to receive payments in US dollars, euros, Chinese yuan or rubles to international or Russian bank accounts.

The offer “represents a fair proposal for international shareholders”, Magnit said in a statement. Investors, whose rights are currently limited, would be able to “benefit from the option of receiving payment in multiple currencies as well as receiving funds in their bank accounts abroad.”

“Since [the] spring of 2022, foreign investors were unable to sell out from the Russian public companies due to trading restrictions in Moscow, London and New York, and thought these investments would have to be completely written off,” said one analyst covering the deal. “Magnit has become the first mover who [has] showed concern for international investors and offered them an easy way to cash out.”

As of June 16, most foreign investors selling Russian assets have only been able to do so via private placements. Uber Technologies sold its stake in JV with Russia’s Yandex. Shell sold its stake in Salhalin-2 project to Russian energy company Novatek. Henkel sold its Russian business to a consortium of local financial investors. VEON is selling its Russian business to the local management team.

The Magnit deal is the first time since the invasion of Ukraine that global portfolio investors have been able to exit from a publicly traded name. The closest equivalent example so far was the buyout announced by Detsky Mir, a children’s goods retailer and a mid-cap issuer.

Analyst hope that Magnit’s buyback will create a precedent for other investors who have billions of dollar trapped in Russian shares and are unable to sell. Magnit’s size and its high profile amongst international investors as one of the darlings of the market bring a lot of attention, as it has managed to organise it such that investors can receive cash in key currencies transferred to their accounts outside Russia.

While Detsky Mir’s shares dropped approximately 25% against the last closing price in the pre-war market, partly reflecting the company’s decision to go private, Magnit shares were trading at only a moderate discount to that market, which may be one of the reasons behind the level of discount approved by the Russian regulators.

The Magnit chain of stores was founded in 1994 by Sergey Galitsky, and built its business in Russia’s region, ignoring the big cities like Moscow and St Petersburg.

The first retail chain stores opened in 1998. Based in Krasnodar, Galitsky shunned the glitzy life in Moscow and remained the driving force of the company that grew to have an annual turnover of more than $10bn a year.

By 2006 the network had 1,500 stores and had become a major force in Russian retail. He then floated the company on the Moscow Stock Exchange, selling 19% of the shares for $368mn before holding an SPO on the London Stock Exchange in 2008.

As a market darling Magnit has counted many foreign investors amongst its shareholders, including BlackRock, Vanguard, Van Eck, Nordea, Dodge&Cox, Norges Bank and others, RBC reports.

In 2013, Magnit became the largest retailer in Russia in terms of turnover, overtaking its main competitor, X5. But since 2016, the company's financial performance began to deteriorate and in 2018 the businessman sold 29.1% shares to the state-owned VTB Bank and Galitsky quit. In 2021 VTB sold its stake, which was taken over by the Marathon Group.