GAZ must part with Deripaska to work in the USA

The US Treasury demanded that the GAZ group provide it with reports once a quarter, as well as remove Oleg Deripaska from making decisions. If these conditions are met, the group will be able to continue working with suppliers and contractors.
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The US Treasury presented the GAZ automobile group with several new requirements in exchange for another license extending the company's work permit with suppliers and contractors. This follows from the clarifications published by the department.

In April 2018, the GAZ group, like other major companies of Oleg Deripaska and the businessman himself, was included in the sanctions list of the US Treasury. Banks, suppliers and other counterparties run the risk of falling under secondary sanctions when working with persons on this list. At the same time, for more than two years, the American authorities have been issuing short-term licenses for GAZ, allowing work with the group under concluded contracts. A condition for the complete lifting of the sanctions against GAZ was a “change in circumstances” that imposed these sanctions, including the sale of a controlling stake held by Deripaska. Despite obtaining a license from the American regulator, due to the threat of sanctions, cooperation with the Russian company was terminated, in particular, by the German Daimler.

The existing license expired on July 22, and the new license was granted by January 22, 2021. According to the new requirements (the documents of the American regulator do not indicate whether the Russian company agreed to them), GAZ is obliged, within five days after the close of each quarter, to provide the US Treasury with financial reports and minutes of board meetings, report changes in the composition of the board and the creation of new joint ventures ... The group has not published financials since 2018.

In addition, GAZ will have to confirm every month that it is not acting on behalf of Deripaska or other persons included in the sanctions lists. But at the same time in the explanations of the department it is said that its board of directors and "shareholders" will be responsible for making decisions on the activities of GAZ.

Who owns the GAZ group

According to the list of GAZ Group affiliates as of December 31, 2018, 65.6% of its shares belonged to the Russian Machines holding by Oleg Deripaska. The owners of the remaining 34.4% were not disclosed. Since then, the group has stopped publishing affiliate data.

The shareholding structure of Russian Machines and GAZ is looped. According to SPARK, Russian Machines are now owned by the Cyprus-based Consultrend Enterprises. One of the shareholders of Consultrend Enterprise - "daughter" of "Russian machines" - Nizhny Novgorod "Aritera", follows from the data of the Cyprus register.

The new license allows GAZ to conduct its normal business as it was before the imposition of the sanctions. In particular, the company is allowed import-export operations with counterparties from the United States and other countries, the conclusion of new contracts, the creation of joint ventures, the payment and receipt of dividends and other payments due or required from the company.

The renewed license for the GAZ group is "a very significant expansion of the previous general licenses, which is an unusual tactic," Brian O'Toole, a former senior adviser to OFAC (the US Treasury sanctions agency), told RBC. He sees two options for interpreting such a decision of the American regulator. First, it could be an intermediate step on the road to lifting sanctions on GAZ in exchange for the impending end of control or influence on the part of Deripaska. The second option may imply that the businessman, for some reason, is not able to completely relinquish control over the GAZ group, and this decision of the US Treasury is “the best possible,” continues O'Toole: “All blocked funds of the company remain blocked, but most deals with GAZ become permitted. " If we are talking about the sale of Deripaska's stake or the loss of control over the group, “this is a reasonable option,” the expert says. But when it comes to the second option, "this does not look like a good decision, and a significant part of the US Congress is likely to be unhappy with this outcome," he added.

“Given the importance of providing a delay for the entry into force of the sanctions, it can be assumed that the GAZ group will fulfill at least part of the requirements of the US Treasury,” suggests Dmitry Gorbunov, partner of the law firm Rustam Kurmaev and Partners. “Whether the new license can be called a step on the way to being removed from the sanctions list is an ambiguous question. On the one hand, it is noteworthy that the US Treasury generally makes concessions; on the other hand, it is very difficult to call his requirements soft and easy to implement, ”he added.

How Deripaska achieved the lifting of US sanctions

To lift sanctions against two other companies of Deripaska - En + Group and UC Rusal - the businessman had to reduce his share below control in January 2019. The conditions for lifting the restrictions also included the inclusion of independent directors on the board of directors and a rigorous audit of the company's operations.

Among the options for withdrawing the GAZ group from sanctions, Deripaska's refusal to control was also discussed - through partial nationalization or sale of a stake to the German concern Volkswagen Group. But already in January 2020, the businessman admitted that the negotiations had reached an impasse. “In the US, everyone is worried about impeachment, new elections. They do not want to talk about anything related to this process. It will be a difficult year for the GAZ group, a very difficult year, ”Deripaska said in an interview with Bloomberg TV. He then noted that the sale of the asset will not solve the problem: “We need to lift the sanctions. Who will buy the company under the sanctions? "

In March 2019, Deripaska filed a lawsuit in Washington against the US Treasury over sanctions, and the consideration of this claim has been going on for about a year.

GAZ Group is included in the list of backbone companies that can count on preferential loans to replenish working capital, bankruptcy proceedings cannot be initiated against them, the state monitors their financial and economic condition. The company is also discussing with the Russian government a RUB 240 billion import substitution program for auto components. RBC sent a request to the press service of the Ministry of Industry and Trade about whether GAZ could count on the support of the Russian government by sending reports to the US Treasury.