Yandex Hit as Kremlin Backs Limits on Foreign Stakes in IT Firms

(Bloomberg) -- The Kremlin is backing a draft law to restrict foreign ownership of Russia’s largest internet company, Yandex NV, and other local tech firms on national security grounds, despite warnings from providers that it will harm their businesses.

The presidential administration supports proposals by Anton Gorelkin, a United Russia deputy in the lower house of parliament, that would limit foreign ownership in “significant information resources” to 20%, according to three people with knowledge of the matter, who asked not to be identified discussing internal issues. Yandex fell 17% in U.S. trading Friday, its biggest decline in a year.

“As global IT corporations are seeking a monopoly and conquering new markets, it’s essential that we retain national companies in this sphere,” Gorelkin said at public hearings on the draft law late Thursday. “If we say the invisible hand of the market will do everything by itself, then our technology companies may end up in the hands of larger corporations.”

Kremlin spokesman Dmitry Peskov didn’t respond to a request to comment. The Bell online news service earlier reported that the Kremlin supported Gorelkin’s bill, which imposes the same limit on IT companies as the one on Russian media in a 2014 law signed by President Vladimir Putin.

Yandex, which has expanded from Russia’s largest search engine to embrace services including taxis and food-delivery, has a free-float of 85% of its shares in the U.S. The draft law would hurt investments and restrict international development for Russian companies if passed in its current form, Yandex General Director Elena Bunina said at the hearings. Oleg Tumanov, founder of Russian online film and TV streaming service Ivi, said the proposed law would kill his company that’s been developing for a decade with help from foreign investors.

“Yandex will be hit for a couple more days because of margin calls,” said Alexander Losev of Sputnik AM. “Investors are scared of any news about internet restrictions.”

It’s up to the government to determine which companies would be covered by the legislation, though Yandex is likely to be among them, and it may choose to set a higher threshold in individual cases, Gorelkin said on the sidelines of the hearings.

‘Good Prospects’

The measure, which is being prepared for first reading in the lower house of parliament, “has good prospects,” Gorelkin said. It’s supported by the state communications watchdog, Roskomnadzor, and the Federal Anti-Monopoly Service, “while divisions with the Communication Ministry can be resolved in a working group,” he said.

“This law is about national security. Data is the new oil,” said Igor Ashmanov, a government-linked IT expert who heads a company specializing in information technology. “What’s good about foreign investments? The Russian government is planning to spend billions to develop the digital economy.”

While Yandex’s founder Arkady Volozh and some of its developers have a special class of shares that gives them voting control in the company, “if something happens - they leave the company or, god forbid, die - these rights disappear and Yandex turns into an American pumpkin,” Ashmanov said.

--With assistance from Yuliya Fedorinova, Alex Nicholson and Olga Voitova.

To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net;Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net, Tony Halpin, Alex Nicholson

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