How a Swiss Engineering Firm Became an Unexpected Casualty of Russian Sanctions

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ZURICH—Late last Friday, hours after the U.S. slapped sanctions on a handful of wealthy Russians and the companies they own, executives at Swiss engineering firm

Sulzer
AG

SULZF -1.12%

started getting calls from the company’s American bankers.

They said they couldn’t allow the firm to conduct any more dollar-based transactions. Sulzer, which services turbines for power plants across the U.S. and sells pumping equipment, wasn’t on the sanctions list. But Renova Holdings, a Russian conglomerate that holds a majority stake in Sulzer, was—as was

Viktor Vekselberg,

Renova’s owner.

The phone call plunged Sulzer into crisis mode—setting in motion a weekend of calls to Washington seeking sanctions relief, as well as an effort to put some distance between itself and its Russian owners. The company can’t accept new U.S. orders until it clears things up with the banks. Its corporate credit cards have been blocked.

The scramble at Sulzer illustrates the unusual fallout the most recent round of sanctions targeting Moscow has triggered at Western companies with ties to Russia. Many observers have been surprised by Washington’s latest list of targets—including businessmen, like Mr. Vekselberg, who weren’t seen as particularly close to Russian President

Vladimir Putin.

“We’re collateral damage. We’re the law of unintended consequences,” said Sulzer Chief Executive

Greg Poux-Guillaume,

in an interview. The company first learned that Mr. Vekselberg and Renova were on the U.S. sanctions list from news reports on Friday.

Over the weekend, Sulzer orchestrated a deal to help insulate the company. It agreed to buy back shares in Sulzer from Renova, to bring Renova’s ownership stake below 50%. That, Sulzer said in a statement Monday, would “assuage” concerns that it was controlled by the sanctioned Russian firm.

The move didn’t convince everyone. Sulzer’s share price has fallen over 15% from Friday’s close.

Renova has representatives on Sulzer’s board, but Mr. Poux-Guillaume said the Russian firm has nothing to do with its operations. Mr. Vekselberg wasn’t reachable for comment.

Sulzer has 2,400 employees in the U.S. with locations in Texas, Oregon and South Carolina among others. It has just 290 employees in Russia. One-quarter of its annual revenues come from the U.S.—roughly 700 million francs ($732 million).

“If you’re an American power utility and your turbine is down and you call Sulzer right now, we technically can’t transact with you,” Mr. Poux-Guillaume said. “We’re getting agitated emails from customers saying ’we need your guys’.”

Sulzer’s U.S.-based attorneys have been in touch with the U.S. Treasury’s Office of Foreign Assets Control since Sunday, and have submitted an application to have it affirmed that Sulzer isn’t subject to sanctions, so that banks can restore the flow of financing. Mr. Poux-Guillaume said he hopes things will be cleared up in the next few days.

“I don’t begrudge anybody. The sanction methodology is very effective,” he said. “I just hope that it becomes, very soon, theoretical knowledge on my part, rather than practical knowledge.”

Write to Brian Blackstone at brian.blackstone@wsj.com



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