Like I said. Thursday, July 22, 2004. Page 1.
Investors Caught in Yukos Crossfire By Catherine Belton Staff Writer Shocked investors continued to pile out of Yukos stock Wednesday, a day after the government raised the stakes in an increasingly vicious battle with the company's owners by saying it was preparing to tear out the oil firm's biggest production unit and sell it off. Yukos shares plummeted nearly 12 percent to close at $6.00 on the RTS -- a fall of 26 percentage points in just two days. Even normally bullish analysts said minority investors risked being steamrollered in what now seems like an unstoppable fight between the state and Yukos' majority shareholder, Group Menatep. "It looks like Menatep is trying to bring down everything with it, while the government appears to be willing to inflict as much damage as need be," said Eric Kraus, Sovlink's chief equity strategist. "The only innocent victims are going to be international investors." Some market watchers still hoped that the Justice Ministry was bluffing by saying it was preparing to sell off Yukos' 100 percent stake in the Yuganskneftegaz production unit, which produces nearly two-thirds of the oil firm's total output, as payment for a $3.4 billion back tax bill. It could be an attempt, they said, to force Yukos' owners into a deal on the government's terms. But others said the politically charged standoff, which has led to the arrest of Yukos billionaire owners Mikhail Khodorkovsky and Platon Lebedev on charges of fraud and tax evasion, already looked to be snowballing out of control. "This is starting to look like a game of chicken and neither side is swerving," Kraus said. "If this is a bluff, they're bluffing very close to the edge." Investors fear that if the government moves to sell Yukos' stake in Yuganskneftegaz, it could be sold off at a knockdown price to a company close to the Kremlin such as Surgutneftegaz, or sold to state-owned energy companies such as Gazprom or Rosneft, a move that would be tantamount to the first renationalization in the country's post-Soviet history. Already, Yuganskneftegaz is valued at around $30.4 billion by leading consulting firm DeGolyer and MacNaughton, way above the $3.4 billion back tax claim. In a statement issued late Tuesday, Khodorkovsky said the ball was now in the government's court. "My position is unequivocal, to obey court decisions, to seek a compromise with the government that will let Yukos survive," he said in a statement posted on his web site, khodorkovsky.ru. "Further developments, including issues of personnel, depend exclusively on the goodwill of the government." Khodorkovsky has publicly offered to hand over his shares in Yukos to the company as payment for the tax bills. But the government has so far made no public response to that offer and some analysts have said the government may not be able to accept such an offer because in order to sell the shares as payment for the tax bill, it would have to take the risky move of lifting a freeze on Menatep's majority stake in Yukos. Some observers have said Menatep and Khodorkovsky may have been trying to deliberately force the government into taking steps that could damage the investment climate, since -- either locked up in jail or on an Interpol wanted list -- they effectively had nothing to lose. Khodorkovsky's recent standoff with Yukos board chairman Viktor Gerashchenko, in which Khodorkovsky called for his dismissal, could be one example of a "chicken" strategy. On Friday, Gerashchenko fired back at Khodorkovsky by accusing Yukos' majority owners of obstructing a compromise with the government on staving off a breakup or bankruptcy over the $3.4 billion tax bill for 2000. His claim that proposals made by the company on restructuring the debt were not "sincere" could have made it even harder for the government to consider them. But even as Gerashchenko and Khodorkovsky traded blows in public, there was still no official call Wednesday for an extraordinary shareholders meeting to replace Gerashchenko. In another sign he was refusing to bow down, Khodorkovsky remained defiant last Friday as he made his first public statements in court on the fraud and tax charges against him and said the state was making him a scapegoat for its own failings in privatizations. Robert Amsterdam, the Toronto-based lawyer for Menatep, Khodorkovsky and Lebedev, warned on Wednesday that if the government went ahead with a sell-off of Yukos' Yuganskneftegaz stake, it could face a slew of lawsuits in international courts, resulting in possible seizures of Russia's sovereign assets abroad. "Such a sale is illegal," he said by telephone. "Everyone in the world knows what the value of that property is. It's a hold-up in broad daylight." "It would be a clear case under international law of expropriation," he said. "Individual investors would have access to bilateral investment treaties in the event of expropriation, in which sovereign immunity does not apply." A Kremlin spokesman declined comment on the issue Wednesday. Tim Osborne, a Menatep director, said by telephone from London that the group was continuing to consider all options to defend its interests, including the possibility it would call in a $1.6 billion loan it is backing to Yukos. He said the group had plotted a defense strategy, which he hoped they would not have to resort to implementing. He said he could not reveal details of the plan ahead of time. "We have a lot of alternatives open to us," he said. "Yukos put forward a perfectly reasonable offer on the tax bills, but there has been no response from the government, which is disappointing and strange. At the same time, it is continuing the line of confiscation and pushing Yukos towards bankruptcy. "We have our own strategy ready to deal with this, but we hope that it will not be necessary to use it." Yuganskneftegaz is acting as a guarantor to the $1.6 billion loan, as well as to another $1 billion loan from a consortium of Western banks headed by Societe Generale. Societe Generale has already announced that Yukos is in default on the $1 billion loan, but it has not demanded immediate repayment. A spokeswoman for the French bank said she had no more information Wednesday on whether the announcement of the sale would prompt the banks to call in the loan. Yukos CFO Bruce Misamore said, however, that the move "would have no impact" on the loans, and other analysts said that a sell-off would likely not affect the loans because the obligations would be included in the sale. Yukos' second-largest production unit, Samaraneftegaz, is also providing guarantees on the $2.6 billion in loans. Court marshals have also frozen shares in that company. Many major U.S. investors bailed out of Yukos some six to eight weeks ago, said John Paul Smith, head of global emerging markets equities at Pictet Asset Management in London. "A lot of non-emerging markets funds have capitulated. They didn't want to have to explain to their bosses why they bought a stock that was in bankruptcy proceedings," he said. For specialist emerging market funds and others left overweight or at benchmark on Yukos, "it's an act of faith in the economic rationality of the Russian authorities and President Vladimir Putin," Smith said. He said hopes were still held that Putin could rein in the court marshals or make sure the asset was sold at market value. "Things in Russia can change very quickly," he said. Gennady Yezhov, a spokesman for Finance Minister Alexei Kudrin, said Wednesday that Kudrin had received two proposals from Yukos on restructuring its tax debts. Kudrin sent one of them, which he received in mid-July, without examining it to the Federal Tax Service. The second, which he received more recently, would likely be given the same treatment, Yezhov said, Interfax reported. Staff Writer Valeria Korchagina contributed to this report. __________________________________ Do you Yahoo!? Yahoo! Mail Address AutoComplete - You start. We finish. http://promotions.yahoo.com/new_mail
