Khodorkovsky Hearing Adjourned, YUKOS Shares Slump

Fears that tax claims could bankrupt Russian oil major YUKOS hammered its shares on Friday, as a delay in the prosecution of former CEO Mikhail Khodorkovsky compounded uncertainty over the company's fate.

A pre-trial hearing in the fraud and tax evasion case against Khodorkovsky, the highest-profile prosecution since the 1991 collapse of the Soviet Union, failed to set a trial date amid wrangling typical of Russia's cumbersome legal system.


But it was the company's warning on Thursday that it may be bankrupted by new tax claims, on top of an existing $3.5 billion demand, that sent its shares to their lowest since March 2002.


A wave of selling hit the market after U.S. investment bank Morgan Stanley downgraded its price target for YUKOS, one of Russia's top two oil firms, saying the company's fate rested in the hands of the government.


"We can analyze cash flows and tax codes, but ultimately we think the fate of the company boils down to the government's ultimate intent," Morgan Stanley said in a research note.


YUKOS shares tumbled as much as 12 percent before closing at $7.60, down 9.5 percent. Its falls triggered a broad sell-off which sent the benchmark RTS index five percent lower.


Also hit was oil firm Sibneft, formerly owned by Chelsea soccer club boss Roman Abramovich, which struck a failed merger deal with YUKOS before Khodorkovsky's arrest which the two have been unable to unwind. Its shares fell 9.4 percent.


"People have re-evaluated the situation and decided things look very bad," said Oleg Maximov from Troika Dialog brokerage.


ADJOURNMENT


Khodorkovsky, Russia's richest man, was spirited into court for the pre-trial hearing but proceedings were adjourned until June 8 at the request of the authorities who brought the case.


"The defense thinks the trial could begin today, as the plaintiffs have had enough time to familiarize themselves with the case documents," Khodorkovsky's lawyer Yuri Shmidt told reporters after the closed hearing.


Khodorkovsky faces trial on seven counts, including fraud and tax evasion running to over $1 billion, and could be jailed for up to 10 years if found guilty.


The 40-year-old has been in jail since his arrest in October, in what is widely seen as Kremlin punishment for his overt political ambitions.


The trial is a test of how Russia will deal with the chaotic post-Soviet privatizations of the 1990s, which made a few entrepreneurs instant billionaires while millions of Russians suffered a crushing slump in living standards.


And although the legal onslaught against YUKOS could end in bankruptcy or nationalization, few analysts believe a wholesale rollback of Russia's market reforms would ensue.


CEO UNDER PRESSURE


YUKOS has halved in value since the arrests of Khodorkovsky and Platon Lebedev, his partner in the Menatep holding company that controls YUKOS, last summer.

Although the company continues to pump and sell 1.7 million barrels of oil daily, there were signs of fresh turmoil when business daily Vedomosti reported that its Chief Executive Simon Kukes might lose his job.

Vedomosti quoted sources close to Menatep as saying Steven Theede, a YUKOS executive, would take the helm in June. YUKOS declined to comment on the report.

Lebedev's trial on similar charges, which began last week, was also adjourned until June 8. Defense lawyers said their bid to have the two tried together was not considered on Friday.

Lebedev was originally charged with theft of state property linked to the 1994 privatization of the Apatit fertilizer firm.

The charges against him have since been broadened to include accusations of fraud running to $1.2 billion.



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