{"id":64954,"date":"2023-08-07T09:02:00","date_gmt":"2023-08-07T09:02:00","guid":{"rendered":"https:\/\/staging.sightlinemg.com\/defensenews\/uncategorized\/2023\/08\/07\/why-dozens-of-russian-enterprises-are-bankrupt-or-heading-that-way\/"},"modified":"2026-08-20T16:13:34","modified_gmt":"2026-08-20T16:13:34","slug":"why-dozens-of-russian-enterprises-are-bankrupt-or-heading-that-way","status":"publish","type":"post","link":"https:\/\/staging.sightlinemg.com\/defensenews\/industry\/2023\/08\/07\/why-dozens-of-russian-enterprises-are-bankrupt-or-heading-that-way\/","title":{"rendered":"Why dozens of Russian enterprises are bankrupt, or heading that way"},"content":{"rendered":"\n

MOSCOW \u2014 Russia\u2019s economy has not shrunk to the point some Western governments and experts predicted following the country\u2019s invasion of Ukraine.<\/p>\n\n\n\n

Indeed, since Feb. 24, 2022, the more than 11,000 added restrictions aimed at pressuring the Russian government have \u201cnot delivered as much hell as originally expected,\u201d according to a report<\/a> released a year later by the Center for Strategic and International Studies.<\/p>\n\n\n\n

But despite the Kremlin\u2019s ability to defy \u201capocalyptical forecasts,\u201d as the think tank put it, and the government\u2019s growing defense budget, dozens of Russian defense plants are undergoing bankruptcy proceedings or have claims for bankruptcy recognition. Some have received contracts to support Russia\u2019s invasion of Ukraine and are still operating, while others have turned to selling their property.<\/p>\n\n\n\n

\u201cOne of the main reasons for bankruptcies is the [inconsistency of] state defense orders,\u201d according to Sergey Tolkachev, an economist at the Moscow-based Financial University. \u201cFurther, [there] is an irregular allocation of funds for the fulfilled state order.\u201d<\/p>\n\n\n\n

For example, imagine a defense plant buys metal to fulfill a state order, but the cost this year is 15% higher than last year. According to government regulations, the state would cover a bit less than half of that additional cost, while the company would have to use its own capital to pay for the remaining amount.<\/p>\n\n\n\n

Click here to see the Top 100, a ranking of the largest defense companies in the world.<\/b><\/a><\/p>\n\n\n\n

Even worse for the business, the Russian state might delay the delivery of funds, forcing the company to seek a loan to cover costs in real time. The bank providing the loan reviews the company\u2019s application, assesses its financial situation and, finding it risky, sets a high interest rate.<\/p>\n\n\n\n

Out of desperation, the defense company enters debt bondage, tightening the fiscal knot around an already struggling business.<\/p>\n\n\n\n

\u2018Nothing here to save\u2019<\/h1>\n\n\n\n

Russia\u2019s national register of bankruptcy information lists data on dozens of domestic organizations and their debt. One of those is the Radiopribor plant, a producer of maritime electronics in Vladivostok that declared bankruptcy in 2018.<\/p>\n\n\n\n

Radiopribor was in debt for 398.2 million rubles (U.S. $4.9 million). Its production capacity was then leased to Dubna Machine-Building Plant to complete work on a state defense order, which ended in 2021.<\/p>\n\n\n\n

Ultimately, Radiopribor\u2019s main property was sold in 2022 \u2014 10 plots of land in total.<\/p>\n\n\n\n

Another example is the Sibselmash plant, an artillery ammunition manufacturer in Novosibirsk, which declared bankruptcy in 2012 with a debt of more than 1 billion rubles. In 2021, the plant\u2019s main complex was sold to the company Merkas. Despite the fact that Merkas pledged to maintain the defense production lines, it ended up demolishing its workshops and buildings throughout 2022.<\/p>\n\n\n\n

\"Ukrainian
Ukrainian air defenses intercept a Shahed drone midair in the third Russian aerial attack on the capital of Kyiv within 24 hours, on May 30, 2023. (Evgeniy Maloletka\/AP)<\/figcaption><\/figure>\n\n\n\n

And the Kalinin plant, which makes fuses as well as components for satellites in St. Petersburg, declared bankruptcy in 2021. The plant\u2019s creditors claimed about 1.047 billion rubles. In May 2023, a plot of land once owned by the plant was sold for 300.3 million rubles.<\/p>\n\n\n\n

Several bankruptcy procedures are also taking place, according to Russia\u2019s national register of bankruptcy information. Examples include the Moscow-based Elektropribor plant, which produces navigation instruments and has a debt of 42 million rubles.<\/p>\n\n\n\n

There is also the Podolsk Electromechanical Plant, which makes components for anti-aircraft and ballistic missile systems and has a debt of 1.3 billion rubles. And the Yekaterinburg-based Radio Equipment Plant, which makes radar components, has a debt of 741 million rubles.<\/p>\n\n\n\n

Sergey Gebel, the chief executive of the Russia-based Gebel and Partners law firm, said some defense industry enterprises, following years of downtime and debt, are unable to build weapons.<\/p>\n\n\n\n

For those organizations, \u201cthere is simply nothing here to save,\u201d he told Defense News.<\/p>\n\n\n\n

Survivors (somewhat)<\/h1>\n\n\n\n

Meanwhile, some enterprises are trying to solve their financial problems by selling all or part of their ownership shares. One example is the Kazan Synthetic Rubber Plant, whose products are used in the creation of sponge, which goes toward making aircraft parts.<\/p>\n\n\n\n

In 2019, with a debt of 5.3 billion rubles, Kazan was declared bankrupt. However, it quickly found an investor in Industrial Technologies, which plans to invest 4.2 billion rubles in the plant by 2025. Production has already been restored.<\/p>\n\n\n\n

United Shipbuilding Corp., which produces military vessels, has proposed that 51% of shares of the Baltic Plant, which constructs surface ships under its purview, be transferred to Rosatom State Corp. The Baltic Plant is experiencing economic problems and is under external management; 90% of its contracts come from Rosatom. United Shipbuilding Corp. hopes that, with Rosatom\u2019s help, the plant will become profitable.<\/p>\n\n\n\n

In 2021, the Sverdlov Plant, which produces explosives, sought to be declared bankrupt. At the end of 2022, an order was issued to transfer the plant from the Ministry of Industry and Trade under the control of the state-owned conglomerate Rostec and, accordingly, implement the plant\u2019s corporatization, which can take up to five years.<\/p>\n\n\n\n

In addition, 12 plants that repair vehicles and fall under the purview of the company Spetsremont have gone bankrupt. The parent organization has been bankrupt since February 2020. In total, Spetsremont oversees more than 30 repair plants.<\/p>\n\n\n\n

In a response to a report on the financial situation at Spetsremont, Rostec noted that around the 2017-2018 time frame, when the process of transferring Spetsremont from the Russian Defence Ministry to Rostec took place, 90% of the holding\u2019s repair plants were experiencing fiscal troubles.<\/p>\n\n\n\n

\"\"
Exhibitors stand next to rifles of Russia’s Rostec enterprise at a 2018 defense exhibition on the outskirts of Chennai, India. (Arun Sankar\/AFP via Getty Images)<\/figcaption><\/figure>\n\n\n\n

Now the government is creating two new armored car factories in the Moscow and Rostov regions.<\/p>\n\n\n\n

Siemon Wezeman, a senior researcher with the Stockholm International Peace Research Institute think tank, said these investments can work out well for the state.<\/p>\n\n\n\n

\u201cNew plants are a high investment, but in the end they are more effective producers and immediately able to outcompete the companies\u201d that produce older equipment and are in debt, he told Defense News.<\/p>\n\n\n\n

International pressure<\/h1>\n\n\n\n

Years of sanctions<\/a> that precede Russia\u2019s full-scale attack on Ukraine<\/a> in February 2022 may have contributed to the current state of Russia\u2019s defense-industrial base.<\/p>\n\n\n\n

\u201cSanctions \u2014 also those from before 2022 \u2014 may have made the situation worse, especially as they can lead to delays in delivery or the need to find more costly substitutes for the sanctioned parts. This increases costs for contracts where a fixed price was already agreed, or delays payment for contracted goods. Both cost increases need to be covered by the companies from their own pocket,\u201d Wezeman said.<\/p>\n\n\n\n

Members of the Committee on Economic Policy and Property within the Legislative Assembly of the Primorye Territory concluded the shipbuilder Vostochnaya Verf was a victim of sanctions. United Shipbuilding Corp. showed interest in buying the plant, but no decision has been made.<\/p>\n\n\n\n

\"\"
Then-Russian Prime Minister Dmitry Medvedev, front, visits the country’s Motovilikha Plants manufacturer in 2016. Currently, the Remdiesel plant \u2014 Russia\u2019s newest manufacturer of special, purpose-built equipment \u2014 is applying to purchase the Motovilikha Plants holding. (Yekaterina Shtukina\/AFP via Getty Images)<\/figcaption><\/figure>\n\n\n\n

Tom Waldwyn, a research associate for defense procurement with the London-based International Institute for Strategic Studies, told Defense News any additional sanctions on Russian companies will negatively impact both defense and civilian sales in terms of product exports and the import of key subcomponents.<\/p>\n\n\n\n

\u201cAs Russia also experiences high inflation and a brain drain, the Russian defense industry faces a difficult future despite massive increases in defense spending in 2022 and 2023,\u201d he said.<\/p>\n\n\n\n

From 2013 (the year before Russia annexed Crimea from Ukraine) to 2022, Russia increased its defense budget by 15%<\/a>, according to the Stockholm International Peace Research Institute.<\/p>\n\n\n\n

And from 2021 to 2022, its military spending grew by 9.2% to $86.4 billion \u2014 the equivalent of 4.1% of Russia\u2019s gross domestic product, the Swedish think tank reported.<\/p>\n\n\n\n

Government action<\/h1>\n\n\n\n

In realizing the need to bolster the production and repair of equipment during the ongoing war, the Russian government has tried to simplify contractual procedures. It has shortened the terms of state orders and improved the process of agreeing to costs and contractual requirements. The state has also taken steps to provide advance payments to defense enterprises.<\/p>\n\n\n\n

In addition, banks have started lowering interest rates and increasing the amount of a possible loan for defense companies. In July 2022, the preferential rate was reduced to 3%, and the maximum loan amount was increased to 3 billion rubles.<\/p>\n\n\n\n

And on April 1, 2022, a moratorium on bankruptcy was introduced for six months to give businesses additional time to negotiate with creditors and adapt to new circumstances, such as sanctions and the disruption of supply chains. The moratorium was lifted six months later.<\/p>\n\n\n\n

Since then, 10 more Russian shipbuilding and naval repair enterprises have received bankruptcy claims from creditors or filed for insolvency themselves. Among them are both small factories and large companies, including Vostochnaya Verf; the Khabarovsk Shipbuilding Plant; and the 10th Labor Ship Repair Plant, a subsidiary of United Shipbuilding Corp.<\/p>\n\n\n\n

At the same time, six more shipyards were declared bankrupt and have moved into bankruptcy proceedings.<\/p>\n\n\n\n

In September 2022, Russian President Vladimir Putin amended the criminal code so that the failure to fulfill obligations in defense contracts for the state would result in fines of 1 million rubles to 3 million rubles and\/or imprisonment for up to 10 years.<\/p>\n\n\n\n

\u201cUnder these conditions, declaring bankruptcy can be a way to reduce the risks of prosecution and punishment for [those managing] plants,\u201d according to Pavel Luzin, a senior fellow at the Center for European Policy Analysis think tank.<\/p>\n\n\n\n

\u201cIn addition, this is a signal to the government about the need for cash injections,\u201d he told Defense News.<\/p>\n\n\n\n

Indeed, government support and increased spending on the Army during the 2022-2023 time frame helped some bankrupt enterprises continue operating.<\/p>\n\n\n\n

The Motovilikha Plants holding, part of NPO Splav, was declared bankrupt in 2018. This is the only full-cycle enterprise in Russia that produces multiple-launch rocket systems, and it has its own foundry. The company owes more than 17.6 billion rubles. Some of the holding\u2019s enterprises have been sold off.<\/p>\n\n\n\n

But in 2021, it received a defense order from the state worth 40 billion rubles that is to last until 2027. In 2022, the plant delivered to the Army combat vehicles with the Tornado-G and Tornado-S multiple-launch rocket systems. That same year, the plant\u2019s mechanical and assembly production lines increased its shifts to three, and the plant began hiring.<\/p>\n\n\n\n

\"\"
Russian Tornado-S multiple rocket launchers are shown off during a parade through Red Square on May 9, 2022. (Kirill Kudryavtsev\/AFP via Getty Images)<\/figcaption><\/figure>\n\n\n\n

In March 2023, the Perm region\u2019s prosecutor\u2019s office challenged the company\u2019s bankruptcy status. Regional authorities have said they anticipate Rostec and the federal Ministry of Industry and Trade will invest 20 billion rubles to help modernize the plant.<\/p>\n\n\n\n

Currently, the Remdiesel plant \u2014 Russia\u2019s newest manufacturer of special, purpose-built equipment \u2014 is applying to purchase the Motovilikha Plants holding.<\/p>\n\n\n\n

\u201cThe purchase of this plant is attractive because of the large state defense order,\u201d Ivan Kostin, a former director of Motovilikha, told the Kommersant daily.<\/p>\n\n\n\n

Another plant with a state order is the Miass Machine\u2013Building Plant, which produces components for ballistic missiles as well as control equipment for missile systems. It has a debt of 2.38 billion rubles, and was declared bankrupt in 2022. The bankruptcy trustee, Anatoly Selishchev, was going to sell the property, but in May 2023 the creditors refused to sell. As the plant\u2019s management reported, work will increase in 2023, the contracting rate will be 15% higher than in 2022 and the plant will hire new employees.<\/p>\n\n\n\n

But the state defense order will not save the business, according to Alexander Abramov, an economist specializing in bankruptcy, who described such contracts as \u201can obligation\u201d rather than \u201ca lifeline.\u201d<\/p>\n\n\n\n

\u201cIt is impossible to refuse a defense order contract,\u201d Abramov told Defense News.<\/p>\n\n\n\n

Furthermore, if a company does not participate in the development of a product, but only produces it, the business typically won\u2019t received the majority of funds allocated for the technology, according to Sergey Smyslov, an independent defense industry expert and an engineer by trade.<\/p>\n\n\n\n

\u201cThis became possible due to the fact that, since the Soviet era, many enterprises have [duplicative] capacities. And when [the state had an option] to produce a product at a functioning plant, \u2018A,\u2019 or a half-empty plant, \u2018B,\u2019 a fully equipped plant was chosen,\u201d Smyslov told Defense News.<\/p>\n\n\n\n

Next steps<\/h1>\n\n\n\n

After the bankruptcy moratorium ended in October 2022, State Duma Deputy Sergei Mironov petitioned Prime Minister Mikhail Mishustin and chief military prosecutor Valeri Petrov to help stop insolvency among defense enterprises.<\/p>\n\n\n\n

As a result of the petition, Mironov told Defense News, \u201csome of them [defense enterprises] were reorganized \u2014 restructured to prevent the closure and termination of production.\u201d<\/p>\n\n\n\n

Other deputies of the State Duma \u2014 the lower chamber of Russia\u2019s legislature \u2014 proposed the assets of bankrupt companies be transferred to enterprises that successfully fulfill state defense orders during military mobilization and wartime.<\/p>\n\n\n\n

\"\"
Russian President Vladimir Putin, left, meets with Sergei Mironov, head of the political party A Just Russia \u2014 Patriots \u2014 For Truth, on Feb. 14, 2023. (Mikhail Metzel\/Sputnik\/AFP via Getty Images)<\/figcaption><\/figure>\n\n\n\n

\u201cIn the execution of [a] defense order, there is a large pyramid of cooperation. Even if small enterprises \u2014 or enterprises that are [in the third or fourth tier] of suppliers and only indirectly relate to the state defense order \u2014 fall under the bankruptcy procedure, then a huge risk is created for the disruption of the state budget,\u201d Vladimir Gutenev, who leads the Duma Committee on Industry and Trade, warned in October 2022.<\/p>\n\n\n\n

The Russian government created a plan to return state-owned enterprises to the private sector during the 2022-2024 time frame. None of the companies under consideration are undergoing bankruptcy proceedings, but most either had claims from creditors for bankruptcy or are financially unstable.<\/p>\n\n\n\n

The effort includes more than a dozen defense plants. For example, 20% of shares of the Kartsev Research Institute of Computer Complexes, which develops hardware and software, including the Shershen drone, are for sale by the state.<\/p>\n\n\n\n

Also on the list are the Simbirsk Cartridge Factory, the Scientific-Technical Center for Electronic Warfare, the Zvezda electromechanical plant, the Space Communications Co., and several ship repair plants.<\/p>\n\n\n\n

Some have already tried selling themselves in whole or in part, but haven\u2019t found buyers. That\u2019s likely because only Russian organizations without foreign shareholders, that have permits to work with classified information and that have licenses to make weapons can purchase the property of defense enterprises. Often buyers need to commit to maintaining production and fulfilling existing state defense contracts.<\/p>\n\n\n\n

The government\u2019s plan may backfire, according to Wezeman, who warned any temporary support state-owned enterprises received from the government could help them outperform companies that have had to survive on their own.<\/p>\n\n\n\n

\u201cThose companies may in their turn fail,\u201d he said. \u201cHowever, a level of corruption may also play a role: Orders may go to companies that have \u2018friends,\u2019 and those without will have to solve their problems without much support.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

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