Mondi Group withdraws from Russian Syktyvkar sale

Mondi Group

Mondi is withdrawing from the agreement to sell its biggest operation in Russia, Mondi Syktyvkar, together with two affiliated entities, to Augment Investments.

Mondi Group said in a statement released earlier this month (Monday 5th June) that the move follows recent discussions with Augment Investments on the lack of its progress in gaining the necessary approvals to complete this transaction.

In February 2023 Mondi was added to the Ukraine International Sponsors of War list. However, Mondi has said that it remained committed to selling the mill.

Mondi had previously agreed a deal to sell Syktyvkar to Augment Investments for RUB95bn (£1.27bn at the exchange rate at the time; £942m today) in August 2022, after announcing in May that it would divest its Russian assets due to the Russia’s invasion of Ukraine.

Augment is owned by Russian billionaire Viktor Kharitonin, whom owns businesses across Russia, Europe, and the UK.

“As per the terms of the sale and purchase agreement, the disposal to Augment will therefore be terminated and will not complete,” Mondi stated today. “The board remains committed to divest Syktyvkar and will continue to assess all alternative divestment options.”

Syktyvkar is an integrated pulp, packaging paper, and uncoated fine paper mill located in Komi Republic. For the year ended 31 December 2021, Syktyvkar had sales of €821m, EBITDA of €334m, and profit before tax of €271m. With around 4,500 staff, it is one of the biggest suppliers of uncoated fine paper and containerboard to the domestic Russian market. The proposed disposal of the group’s three Russian packaging converting operations to Gotek Group, which was announced in December, is not connected with the proposed disposal of Syktyvkar. This transaction remains in progress.

Many companies suspended or halted operations in Russia last year as Western governments imposed sanctions following Moscow’s invasion of Ukraine. Given the Kremlin has put pressure on Western companies to sell their interests to local investors or companies from countries friendly to Russia, this latest news runs counter to the current trend of Western companies leaving the region.

However, the Russian government in December demanded that companies leaving Russia sell their operations for at least half price and it was reported that 10% of the sale for the federal budget, termed an “exit tax” would also be levied, making any withdrawal from Russia a complicated and costly challenge to say the least.

Again, although Mondi say they are committed to the disposal of Syktyvkar it was also pointed out that neither Russian billionaire Viktor Kharitonin or Augment Investments were subject to any sanctions.

Share prices in Mondi PLC continued to fall from the 2023 high of Feb 3rd of £16.01, through £12.59 on the Syktyvkar news to this years low of £11.80, last week on Wednesday June 22nd.