* Investors confused about how to interpret sanctions
* Some companies are shelving or cancelling projects in
* Polish firm's Russian partner is Crimean politician on
* Banks withdraw pre-payment terms for Russian steel, grain
(Adds JP Morgan move to resume payments, changes date)
By Jakub Iglewski and Megan Davies
WARSAW/MOSCOW, April 3 Elektrobudowa, a Polish
firm that builds power plants, is interested in buying its
partner out of a Russian company they jointly own, but there is
a problem: the partner firm is owned by a pro-Moscow Crimean
politician on the EU's sanctions list.
To buy out the partner would mean Elektrobudowa transferring
cash or assets to the owners, and that, say lawyers who
specialise in sanctions law, could be interpreted as a violation
of the EU measures.
Many Western investors and their banks are facing similar
quandaries after the imposition of targeted sanctions by the EU,
the United States and a handful of other jurisdictions.
Those measures are supposed to punish Russia's elite for
annexing Crimea, but according to people advising companies in
this field they have also spread confusion and created awkward
predicaments for some foreign investors.
Finnish retailer Stockmann said this week it was
freezing plans to open more department stores in Russian cities
because of uncertainty and a falling rouble, and other investors
may follow suit, either halting or cancelling projects.
A surge in net capital flight - mostly Russians sending
their own funds abroad to avoid uncertainty at home - is one of
the main factors prompting Russia's central bank to warn that
economic growth would likely fall below 1 percent this year.
Western banks involved in global commodity trade flows are
also tightening payment procedures for deals with Russia, having
already taken similar steps with Ukraine. Some banks now
require, for example, that payment for exports of steel or grain
be made only once there is proof cargoes have been loaded onto a
vessel, as opposed to allowing the transfer of funds for
material still in Russia or Ukraine.
"I have experienced huge concern in all the European
companies I have been in contact with - both economic concern
and about what happens next, regarding sanctions and
retaliation," said Lars Christensen, chief analyst at Danske
Bank. "The customers are very, very scared. In fact, in 15 years
I have never seen the customers this scared about political
Banks, stung in the past for failing to implement sanctions
correctly, are particularly wary of falling foul of the rules
and are being ultra-cautious about applying them.
U.S. bank JP Morgan agreed to process a payment from
Russia's embassy in Kazakhstan to an insurance agency after
initially refusing on the grounds that the agency was partly
owned by a unit of Bank Rossiya, blacklisted by the White House.
JP Morgan's initial ban caused uproar in Moscow. After
consulting with U.S. regulators, the bank relented.
Meanwhile, Visa and MasterCard have resumed payment services
for clients of another Russian bank, SMP, which they halted last
month because its main shareholders were on the U.S. blacklist,
although unlike Rossiya the bank itself was not. Visa said it
was told by Washington to lift the restrictions.
DISQUIET IN KATOWICE
The biggest ownership change to come as a direct result of
the sanctions so far was that of Gunvor, one of the world's
largest commodity traders. Hours after U.S. sanctions were
imposed on one of its billionaire co-founders, Gennady
Timchenko, the firm announced its other co-founder, Torbjorn
Tornqvist, had just bought Timchenko's stake the previous day.
Gunvor said the move was made as part of its contingency
planning because it thought sanctions might come, and that its
business has not been affected. U.S. officials also made clear
they did not want sanctions on Timchenko to affect the firm.
Unlike Gunvor, it is too late for Elektrobudowa to announce
that it has already bought out its sanctioned partner. Since
2008 the Polish company has owned a 49 percent stake in Vector,
a Russian company that makes electricity transformers at a
factory in the Ural mountains region of Udmurtia.
The other 51 percent in Vector is owned by Tavrida Electric,
which has its headquarters in Moscow. Tavrida is, in turn,
majority owned by a Alexei Chaliy, a businessman who holds a 60
percent stake and has emerged in recent weeks as one of the
leading pro-Russian politicians in Crimea.
Chaliy declared himself "people's mayor" of the Crimean port
of Sevastopol in February and was installed on April 1 as the
acting governor of Sevastopol, now annexed and given the status
of a separate region of Russia alongside the rest of Crimea.
Last month, he sat alongside Russian President Vladimir
Putin as he signed an agreement on Crimea's annexation at a
ceremony in the Kremlin. Dressed casually in a dark sweater
while surrounded by officials in suits, he punched the air with
his fist when the deal was signed.
He is one of 51 people subject to visa bans and asset
freezes under EU sanctions.
Their partner's political activities have caused disquiet at
Elektrobudowa's headquarters in the southern Polish city of
Katowice. Poland, itself occupied by Russia in the past,
strongly backs the authorities in Kiev and opposes Moscow and
its associates in Crimea.
Elektrobudowa executives say they are prepared to buy him
out of their joint venture, especially as he may no longer want
to be seen doing business with NATO member Poland.
"If he decides to sell his stake, we will be thinking about
buying it," Elektrobudowa chief executive Jacek Faltynowicz told
Reuters in an interview. "We are in regular contact with our
Russian partners, and we are planning to visit Russia ... It is
hard to tell how much it would cost. We have not worked out any
Reuters sent questions to Tavrida Electric asking if it
planned to sell or reduce its stake in Vector, and whether the
sanctions on Chaliy had affected its operations. The company
said it received the questions, but did not reply.
Chaliy did not respond to requests for comment. His
spokesman said he had passed the questions to him.
According to Brian Zimbler, managing partner at law firm
Morgan Lewis in Moscow, the sanctions could prevent an EU-based
company from transferring money or assets to the benefit of
anyone on the list.
"If you are doing business with, or doing anything that
benefits anyone on the list, (there is a risk) of violating the
sanctions - EU and U.S.," he said.
Payment can be placed in an escrow account, or the assets of
the person subject to the sanctions can be placed in a trust and
then sold, lawyers say. But how safe these arrangements are
would depend on how strictly the regulating authority - in this
case the Polish government - interprets the sanctions.
Another potential problem is that, depending on how the
rules are interpreted, any dividend received from a firm
controlled or majority owned by someone on the list could be
seen as a payment from that person, which would be a violation
of the sanctions.
Company reports show Elektrobudowa took a dividend worth
1.377 million zlotys ($455,700) from Vector's 2012 profits. The
Polish firm's chief financial officer, Adam Swigulski, told
Reuters it also expected a dividend from Vector's 2013 profits.
Asked about the impact of the sanctions on any transactions
involving Elektrobudowa and Vector, Faltynowicz, the
Elektrobudowa CEO, said: "It is far too early for such
consultations or analysis of the problem."
Financial sources based in Moscow said that in the days
after the sanctions were announced there was a flurry of
activity as companies, especially foreign banks, scrambled to
work out if they were exposed.
Some smaller investors pulled their money out, even if they
were not directly affected, said the sources, but since then
things have calmed down. "The bigger guys are OK," said a second
financial source. "Funds see this as a buying opportunity."
Andrei Kostin, the chief executive of VTB, Russia's
second-largest state bank, said in the previous week he had
visits from representatives of five leading U.S. and European
"They said 'we will keep working with you, we will keep
giving you money but will be doing it quietly because political
pressure is being put on us'," Kostin told a news conference on
Wednesday. "Probably it will be a little more expensive - the
risks have increased."
($1 = 3.0214 Polish Zlotys)
(Additional reporting by Annabella Pultz Nielsen in Copenhagen,
Oksana Kobzeva in Moscow, Christian Lowe in Warsaw, Maytaal
Angel in London and Silvia Antonioli in Lausanne, Switzerland;
Writing by Christian Lowe; Editing by Carmel Crimmins, Peter
Graff and Will Waterman)