Norway Wealth Fund Prepares $2.8 Billion Loss on Russian Holdings

(Bloomberg) -- Norway's $1.3 trillion sovereign wealth fund has seen the value of its holdings in Russia slump about 91% so far this year, with questions over whether it's possible to recover what's left.

“I think you will be able to sell the shares, but the question is whether you'll get the money for them,” Chief Executive Officer Nicolai Tangen said. When asked whether that's the same as just giving them away, he said that in reality that's what is almost happening now.

Norway decided to drop Russian assets from the fund in response to the country's invasion of Ukraine, and asked the central bank to come up with a plan by March 15 on how to remove the investments. The Oslo-based fund is the world's biggest owner of publicly traded companies with a portfolio of more than 9,000 stocks.

The fund's loss on its Russian equity stakes could amount to just under $2.8 billion under current estimates, with the stake now considered to be worth about 2.5 billion kroner ($280 million), down from 27 billion kroner at the end of last year. The estimate of the position's current value is “very uncertain,” Tangen told reporters on Thursday.

The wealth fund's biggest Russian holding at the end of 2021 was Gazprom PJSC, worth about $932 million at the time, equal to 0.86% of the company, according to documents posted on its website on Wednesday. The fund was invested in 51 Russian companies at the end of December.

Still, the Russian holdings are equivalent to just 0.2% of all investments, as measured at the start of the year. The fund as a whole is down 6.1% year-to-date as of Wednesday.

The plan to divest the holdings is being developed under “extreme uncertainty,” with markets essentially closed and sanctions in place, Deputy CEO Trond Grande said. The details probably won't be made public, he said.

The fund is tempering its outlook after posting a bumper 14.5% return last year. It includes in its scenario analysis an extreme case modeling a decline of as much as 40% of the fund's value as a result of stagflation, one of the many outcomes the fund considers, Tangen said in an interview.

“I'm not saying it is absolutely probable, but the probability has gone up,” he said.