US latest Russia sanctions target Sistema, SPB Exchange, LNG and banks

US latest Russia sanctions target Sistema, SPB Exchange, LNG and banks
Latest round of US sanctions on Moscow will target LNG, banks, Sistema and the SPB exchange. / bne IntelliNews
By bne IntelliNews November 6, 2023

The US Department of Treasury Office of Foreign Assets Control (OFAC) has added 130 Russian individuals and companies to the SDN list, as well as foreign companies that are believed to contribute to Russia’s full-scale military invasion of Ukraine with technology and equipment supplies from third countries. 

As covered by bne IntelliNews, in the previous round of sanctions in September 2023 the US included Russia's largest carmaker AvtoVAZ, car assembler Sollers, the 22nd largest bank Ak Bars Bank, the former owners of UGMK mining major Iskandar Makhmudov and Andrei Bokarev, as well as the owner of the Russian Copper Company Igor Altushkin, among others.

AFK Sistema multi-industry investment holding 

Multi-industry investment conglomerate AFK Sistema of Vladimir Evtushenkov has been added to the SDN list in November. Sistema is targeted as part of sanctions designed to “Impede technological growth”, with its Luxembourg-based East West United Bank, Singapore-based Sistema Asia, Russia-based Sistema SmartTekh also sanctioned.

Sistema is “one of Russia’s largest publicly-traded diversified holding companies, with involvement in the defence, financial, and technology industries,” OFAC commended, adding that it is designated “for operating or having operated in the financial services and technology sectors of the Russian Federation economy. Sistema has also been sanctioned by the United Kingdom”.

Sistema's anchor assets are Mobile TeleSystems (MTS) mobile operator and e-commerce major Ozon Holdings. 

In the two years prior to the Russian full-scale military invasion of Ukraine, Sistema has seen a number of powerful catalysts, such as the sale of its stake in Detsky Mir children's goods retailer, the IPO of its top three e-commerce player Ozon and an IPO of Segezha timber major

Sistema has previously said it may decide on an IPO option for Binnopharm (biotech holding), Medsi (chain of private medical clinics) and Steppe (agriculture holding) in early 2022. bne IntelliNews warned that fallout from Russia's invasion of Ukraine and sanctions against its founder and main shareholder Vladimir Evtushenkov are likely to significantly delay pre-invasion IPO spin-off plans of its major assets in forestry, biotech, healthcare and other deals.

Now, the blocking SDN sanctions mean freezing assets and effectively banning work with sub-sanctioned companies under the threat of secondary sanctions. However, in Sistema's case, a special licence allows the holding to continue to operate in agriculture, medicine, medical equipment and clinical operations.

Saint Petersburg Exchange and banks

The US also sanctioned the Saint Petersburg Exchange (SBP Exchange), which prior to the invasion of Ukraine had emerged as the main platform for trading foreign securities in Russia. OFAC noted its role as “a Russia-based brokerage providing access for investors to the international stock markets, including the Russian stock market”.

Russian investors still had access to securities from the US and Hong Kong through SPB Exchange. In January, the volume of transactions in foreign securities on the SPB Exchange totalled $4.7bn - 52% more than in December 2022, but 84% less than in pre-war January 2022. The number of accounts with securities positions reached 1.79mn.

OFAC of the US Department of the Treasury issued a general licence for SPB Exchange to wind down its operations and exit its securities with a deadline of 31 January 2024.

The exchange itself suspended trading in foreign shares upon the publication of the sanctions. "There will be no blocking of investors' assets. Client assets are not affected," an unnamed source in the exchange's management told Forbes.

The analysts surveyed by The Bell believe that given the licence issued,  SPB Exchange clients will probably have the opportunity to sell foreign securities by the end of January. 

Sources told The Bell that the exchange has been gearing up for sanctions and had built a financial infrastructure with depositories in friendly countries such as the UAE. However, this is only seen as sufficient to sell off the assets ahead of OFAC deadline, as neither the UAE nor other friendly countries will want to risk falling under secondary sanctions after the general licence expires.

Notably, the latest SDN-list included 15 companies from the UAE, along with companies from China, and individuals from the UAE, Turkey, Cyprus, Sweden, Latvia and Ireland, as part of “Disrupting Russian International Supply Chains”.

Along with SPB Exchange, more Russian banks have been put on the SDN as part of “targeting Russia’s financial services sector”. These include Russian Standard Bank, Post (Postal) Bank, Absolut Bank, VBRR and Home Credit Credit bank.

In addition to the previous rounds of US sanctions, this will further complicate transfer of money for Russians abroad. Post Bank, Russian Standard Bank and VBRR issue cards under the Chinese payment system UnionPay, which the clients were able to use outside of Russia.

Novatek’s major LNG project Arctic LNG-2 

The US sanctioned the $25bn Arctic LNG-2 project, the second liquefied natural gas project of Russia’s second-largest natural gas producer Novatek.  bne IntelliNews previously warned that the US is set to impose new sanctions on Russia’s booming LNG exports.

All transactions with Arctic LNG-2 are prohibited, but a special licence from OFAC until 31 January 2024 allows certain transactions necessary to "the divestment or transfer, or the facilitation of the divestment or transfer, of debt or equity”.

Kommersant daily notes that it is not clear whether under sanctions Novatek will be able to sell LNG from the project under long-term contracts to consumers or shareholders.

Novatek owns 60% in Arctic LNG-2, with France's TotalEnergies, China's CNPC and CNOOC, and a consortium of Japan's Mitsui and JOGMEC holding 10% each, in addition to long-term LNG supplies contracts of about 2mn tonnes per year each. 

Market participants surveyed by Kommersant believe that Russian authorities would not allow foreign shareholders to pull out of the capital of Arctic LNG-2. They risk to effectively lose their stakes in the venture, as did Shell in another Russian LNG project Sakhalin-2 of gas giant Gazprom.

The sanctions are also likely to require a reformatting of the structure of external financing of Arctic LNG-2, which was initially planned at €9.5bn. However, the additional financing is not seen as a major problem and could be replaced by the Russian banks.

Inclusion in the SDN-list could additionally complicate the logistics scheme of the project, as it will require a separate fleet of LNG tankers, as they will also fall under sanctions and will not be able to work on other foreign projects.

Among the individual sanctions is the nephew of Chechen strongman Ramzan Kadyrov Yakub Zakriev, who was appointed the head of the Russian business of French dairy major Danone after its de facto nationalisation.

In addition to the OFAC sanctions the US Commerce Department's Bureau of Industry and Security has restricted the supply of US technology and goods to twelve Russian and one Uzbekistani drone and unnamed aerial vehicle companies. Among others, the list includes Russian drone manufacturer ZALA Aero, part of the Kalashnikov group.


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