THE BELL WEEKLY: The tussle for a billion-dollar stake in ‘Russia’s Amazon’

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Hello. This week we reveal that the tussle for a major stake in “Russia’s Amazon” is preventing one of the most important investment firms in Russian history from leaving the country. We also look at the LGBT movement being labeled “extremist” and plans to make foreigners sign a loyalty pledge.

Kremlin delays Baring Vostok’s exit as it eyes billion-dollar stake in ‘Russia’s Amazon’

The Baring Vostok investment fund, set up by American investor Michael Calvey and partners, was one of the first to specialize in direct investment in Russia. It’s no exaggeration to say that without Baring Vostok, some of the most iconic Russian companies that dominate the domestic market today might not exist — at least not in their current form. Since the end of last year, the firm has been trying to exit the Russian market and is seeking approval from a government commission for a sale. But that approval has been delayed. The Bell has discovered that this could stem from the Kremlin’s particular interest in Baring Vostok’s stake in Ozon, the online retail platform often referred to as “Russia’s Amazon”.

To Russia with cash

Michael Calvey and his partners set up Baring Vostok in the mid-1990s while working at the European Bank for Reconstruction and Development. A pioneer in international investment in Russia, the fund attracted nearly $4 billion and was one of the first major backers of several leading Russian companies — from Yandex (“Russia’s Google”) and Ozon to popular health food chain VkusVill, leading private bank Tinkoff and software leader 1C. The fund famously earned a 500-fold return on its investment in Yandex, helping Baring cement its position as the gold standard for private capital on the Russian market.

Baring Vostok is also known for having an excellent understanding of how to do business in Russia. “These guys know full well how everything works here. They got out of some difficult situations without losing assets and without any scandals. They have a really good understanding of the Russian authorities,” a leading investment banker told The Bell. In addition to professional management, he said Calvey and his partners have worked with various high-ranking individuals to protect their interests. These include representatives of the security services and even former cosmonaut Alexei Leonov, who helped with various negotiations.

In 2019, the firm became known far beyond Russia — and not for its investment track record. Calvey and other Baring Vostok executives were arrested amid a conflict with businessman Artem Avetisyan, a close friend of First Deputy PM Andrei Belousov. The American investor was accused of embezzling funds from Vostochny Bank, in which Baring had held a controlling stake. Baring lost the resulting court case, was stripped of its control over the bank and paid 2.5 billion rubles to Vostochny. After spending almost two years in detention — first jail and then house arrest — Calvey himself received a five-and-a-half year suspended sentence in 2021. “Compared to most cases, receiving a suspended sentence is already almost a victory. But on the other hand, it is simply outrageous to be convicted of a crime that never happened," Calvey said of the verdict.

Exit plans

Calvey had already left Russia before Moscow invaded Ukraine in 2022. By the end of the year it was clear that Baring, too, was trying to get out by selling its assets to its local executive team. Many leading foreign companies, such as British American Tobacco, have done the same.

Before selling their assets, foreign companies need the approval of a specially created Russian government commission. Some companies have had no problems, but others have encountered significant turbulence. Danish company Carlsberg, for example, had its assets nationalized a few weeks after saying it had found a buyer for its Russian business.

Baring Vostok’s exit is a complicated case, with 12 Russian portfolio companies involved in its planned “divorce.” With so many different assets, reaching an agreement was never going to be easy. But, according to three sources familiar with the process, the main issue holding up the sale is Baring’s stake in Ozon, Russia’s second largest online marketplace. Baring Vostok controls 27.7% of Ozon, sometimes dubbed “Russia’s Amazon” — a stake worth about $1.6 billion at current exchange rates.

The Presidential Administration, which now decides which foreign businesses can and cannot sell their assets, will not give Baring Vostok permission to sell to its chosen buyers precisely because of that Ozon stake, one source told The Bell. Another added that the Kremlin does not want Baring Vostok’s Russian managers to inherit such a large stake in such a valuable asset. They believe the administration sees more suitable candidates to take over Baring’s share of the online retailer, including investment vehicles linked to Ivan Tavrin, the former CEO of top Russian telecoms group MegaFon. Tavrin is actively involved in some deals related to the exit of other online companies due to the war and is one of the candidates that could buy into Yandex as part of its upcoming restructuring.

A source close to Tavrin denied that he had any interest in Ozon. Representatives of Baring Vostok declined to comment. Kremlin press secretary Dmitry Peskov did not respond to a request to comment.

The close interest in Ozon is understandable — it’s the biggest asset in Baring Vostok’s Russian portfolio and one of the largest marketplaces in Russia. Some 42.5 million people (29% of the population) actively use the site — a number that has grown by about 30% in each of the last three quarters. Ozon and market leader Wildberries have a combined market share of up to 53%. Despite the war and the mass exodus of foreign brands, Ozon has continued to grow steadily, with revenues up 67% to $3.3 billion in 2022. In the third quarter of 2023, the last set of publicly released results, the company reported revenues of $1.2 billion, up 77% on the same period last year.

Why the world should care:

Baring Vostok was one of the largest and most important investors in modern Russia, playing a key role in establishing many leading Russian companies. But its history counts for nothing now that the fund has decided to leave and is forced to deal with a government commission with the power to delay sales or block them entirely. As the Carlsberg saga shows, nobody is safe from nationalization while a decision is still pending.

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Outlawing Russia’s LGBT+ community and its advocates

The Russian authorities have been persecuting and discriminating against the country’s LGBT+ community for many years. Last week that campaign escalated once more, as the LGBT+ community and their supporters were effectively outlawed under repressive legislation against “extremist” movements and organizations. It was the biggest blow since Russia introduced its “gay propaganda” law and the authorities first began to mount an official anti-LGBT+ campaign a decade ago.

  • In order to put in place a de facto “ban” against LGBT+ people and their supporters, Russia’s Supreme Court used a tried and tested mechanism previously deployed to outlaw other non-existent organizations — designating them “extremist”. The label effectively allows the authorities to identify anyone they like as a “member” of the “extremist organization,” and punish them accordingly, including for the distribution of symbols and images they deem to be associated with the organization.
  • Russia’s Supreme Court has previously used the designation against movements such as AUE, an informal subculture based on prison culture that was accused of pushing teenagers into crime. In 2022, amid a wave of school shootings, the court branded the “International Columbine Youth Movement” a terrorist organization. Neither of those “organizations” existed in any formal sense. This time round, it was the non-existent “International Public LGBT Movement” that was banned as “extremist,” following a request by the Justice Ministry. Details of the court ruling have not been made public and the hearing was held in secret. The verdict comes into force on January 10, 2024.
  • In general terms, the ruling means that LGBT+ people who do not hide their identity could be punished. Under Russian law, courts are supposed to determine exactly what activities, symbols and language are associated with “extremist” organizations and they are to be banned accordingly. There is no official list, but the Mash Telegram channel, which is linked to the authorities, published extracts from the lawsuit suggesting that the ban would include a rainbow without a light blue arc, patches and badges on clothing, parades, rallies, processions, parties and “anything else that could identify the wearer as a representative of the LGBT community.” The day after the ruling, security forces raided a number of gay clubs in Moscow.
  • If the courts officially recognize rainbows or the rainbow flag as an extremist symbol, displaying them would result in an administrative penalty — a short jail sentence or small fine — for a first offense. Repeat offenses could trigger a criminal charge with a fine up to $11,000 or up to four years in jail.
  • LGBT people will not be prosecuted for their private activities, but could well be targeted for any public activity deemed to be political, lawyers say. Experts say the court ruling does not represent a return to the Soviet-era law against “sodomy,” which was removed from Russia’s criminal code in 1993. “The state cannot prevent LGBT+ people from existing. However, the authorities are trying to remove the LGBT community from the public sphere, and restrict their access to help from lawyers, psychologists, and social workers who can assist them in relation to violence based on sexual identity or gender identity,” lawyer Maxim Olenichev told The Bell.

Why the world should care:

Ten years ago, Sergei Naryshkin — then speaker of Russia’s lower house of parliament, now head of foreign intelligence — stood on the rostrum at the Council of Europe’s Parliamentary Assembly, praising Moscow’s gay clubs and inviting European parliamentarians to visit the Russian capital’s thriving gay scene. A decade later, Russia’s Supreme Court has officially given the security forces carte blanche not only to persecute LGBT+ activities, but also to go after anyone associated with the LGBT+ community, regardless of whether they are engaged in activism. The first consequences of this move are already evident — raids on gay clubs and heads of human rights organizations that support LGBT+ people being forced to leave Russia.

Loyalty test for foreigners entering Russia

The Russian authorities have figured out how to force foreigners living in Russia to comply and abide by Moscow’s worldview — a loyalty pledge. The Interior Ministry wants to force foreigners to sign a “loyalty agreement” when they enter the country, agreeing to obey Russian laws that “protect national interests” during their stay.

  • The draft law aims to prevent foreigners from discrediting the Russian government, “promoting non-traditional sexual relationships” or questioning “the feats of the Soviet people in defending the fatherland and its contribution to the victory over fascism” during the Second World War. They also want to prevent foreigners from “showing disrespect” to “traditional Russian spiritual and moral values.”
  • In another draft initiative, the Interior Ministry is trying to appear as if it is stepping up pressure on illegal migrants, with proposals to stop them transferring money, getting a driving license, operating vehicles, getting married or registering property. They will also have to inform the authorities of their whereabouts and their planned route out of Russia. 
  • Officially, the bill is about imposing new restrictions on illegal immigrants, but in reality it establishes a legal framework that allows them to stay in Russia, albeit with severe limitations. This may be linked to Russia’s severe labor shortage and fears that migrant workers will choose to leave as the ruble falls.

Why the world should care:

In one sense, the authorities have come up with a mechanism that theoretically could replenish Russia’s workforce by establishing a legal basis for illegal migrants. But it also obliges migrants to adhere to Russia’s worldview, and reject any ideological criticism of the country in which they live and work.


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