Court blocks sale of Raiffeisen Bank’s Russian unit

Stay up to date with free updates

Just sign up Russian Business and Finance myFT Digest – delivered straight to your inbox.

A Russian court has blocked the sale of Raiffeisen Bank International’s Russian subsidiary, a move that will put the largest Western financial institution still operating in Russia in a bind.

In a statement on Thursday evening, the Vienna-headquartered RBI said A preliminary injunction issued by a judge in the Russian exclave of Kaliningrad on the Baltic Sea coast has frozen the transfer of ownership of shares in the company’s Russian subsidiary.

It is unclear how long the order will last. A preliminary hearing is scheduled for Oct. 16. The injunction relates to a civil lawsuit brought by companies linked to oligarch Oleg Deripaska and a claim for $2.2 billion for “non-compliance with financial obligations.”

“This will complicate the divestment process in which RBI is seeking to sell a controlling stake. [its subsidiary] “This will inevitably lead to further delays,” the bank said. “The RBI will seek to reverse today’s court decision using all legal options.”

The move echoes other recent efforts by powerful Russian businessmen close to the Kremlin to use the country’s justice system to take control or seize Western companies still operating in the country.

Germany’s Volkswagen had its assets frozen by a Russian court last year as it tried to withdraw from Russia, a move widely seen as a move to pressure the company to further reduce the sale price of its subsidiaries.

The RBI has historically operated relatively freely in Russia, but as its profits there have soared, it has come under increasing pressure from Western governments and regulators to scale back or even withdraw from the country.

Bank of Austria executives have long argued they are in an unmanageable situation: on the one hand, the bank’s continuing role in supporting Russia’s economy exposes it to the threat of Western sanctions, and on the other, it cannot move forward with sale talks because of punitive restrictions the Kremlin has imposed on ownership changes or dividend payments.

Meanwhile, Western security officials and politicians have grown increasingly frustrated with the RBI as the Russian economy continues to prove resilient despite Western economic restrictions.

In May, the European Central Bank ordered the Reserve Bank of India and other European financial institutions that still have operations in Russia to accelerate efforts to wind down their operations there if they cannot sell them.

The RBI had earlier said it was in talks with two companies interested in acquiring the Russian subsidiary, but the order to curtail activities has adversely affected the negotiations.

Still, RBI’s Russian subsidiary accounted for more than half of the banking group’s total profits in the first half of this year.

Although the bank has significantly reduced its loan balance to Russia and is offering economically unattractive returns on savings at home, it continues to attract Russian savers because it is considered a safe financial institution in the West. The high interest rates it earns on deposits with the Russian central bank allow the bank to make big profits.

The RBI said the court injunction was issued as part of a lawsuit filed by Russian company Rasperia, which Western security officials say was once owned by Deripaska and still has ties to him.

Earlier this year, Rasperia tried to swap a majority stake in Austrian construction company Strabag with the Reserve Bank of India (RBI) in exchange for gaining control of a Russian subsidiary, in a complex arrangement designed to avoid Western sanctions.

The deal was halted due to pressure from the US government.

According to Kaliningrad court records, Rasperia filed suit on Aug. 19 against Strabag and several other entities, including Hans-Peter Haselsteiner, a shareholder and founder of Strabag, an RBI affiliate based in Lower Austria.