Rumors of a Deal Greatly Exaggerated

Yukos has a chance of striking a deal with the authorities -- at least that is how the market assessed President Vladimir Putin's statement last week that the government was "not interested in the bankruptcy of a company like Yukos." However, the chances of a deal are slim.

First, there is nobody to conduct negotiations, nor is it clear how the price can be agreed upon. One side will argue for the share price to be calculated as of June 16, while the other will argue for it to be fixed at what it was six months earlier. And that will be it: no deal.

Second, while bankrupting Yukos is neither in the interests of Russia nor the market, it offers rich pickings for the president's entourage and for officials in certain state companies, who are already lining up for their share of the spoils. If Yukos' debts are restructured, then all the nouveau elite will get is 15 percent to 20 percent of the company's shares for $3 billion. Who is going to pay $3 billion for a 20 percent stake when there's a genuine possibility of getting the whole lot for peanuts?

The market was on the money in assessing the underlying causes of the conflict between Yukos and the authorities. What taxes? What justice? The fate of Yukos hangs on a single word from one man -- that was the market's conclusion.

But the market was wide of the mark in its assessment of the authorities' logic. The market seems to think that the government and Yukos will reach an agreement because that is the best outcome for the market.

The problem is, the authorities are not thinking of profit, but of conquest. If, during the Punic Wars, market analysts had been around, they no doubt would have written in their reports that Carthage would not be destroyed since it would not be a profitable move.

During the yearlong war with Yukos, the authorities have consistently opted for the most primitive methods, inflicting maximum damage on the company and, of course, on the economy as a whole. Why should the state suddenly opt for a complicated debt restructuring when the endgame has already begun and the carve-up is imminent?

The situation now: Control of Yukos, one way or the other, will be transferred to a bunch of bureaucrats for the sum of $3 billion.

The situation a year ago: Yukos and Sibneft had merged to create a company whose capitalization was approximately $50 billion. The merged entity was in negotiations to exchange a blocking stake with Chevron, the second-largest oil company in the world. Chevron's capitalization at the time was $60 billion. And in the share swap, Khodorkovsky and Roman Abramovich would have got 23 percent of Chevron's shares. The next-largest shareholding in the company would have been 3 percent.

That would have made Abramovich and Khodorkovsky major players on the world oil market. As a result, Putin would also have become a major player, as the controlling stake in Yukos-Sibneft would have remained in Russia.

The influence of a President Putin who can negotiate over the supply of oil to the United States' strategic reserves, through shareholders under his control, is much greater than that of a President Putin who, following the G8 summit, is in a hurry to justify himself over Yukos, apparently goaded by U.S. President George W. Bush's reproaches.

The capitalization of Russian companies is considerably less than that of Western companies, but the ownership concentration is much greater. Russian business had a unique chance due to this major concentration of capital.

In this vision of the future, there was an opportunity for Russian capital to conquer the world, and there was a place in the sun for Putin who would have become a key player in the G8. There was a place for all those who think in terms of geopolitics and billions of dollars in revenues, but no place for those whose strategic vision stretches no further than petty swindling, pilfering a few million and bolstering their personal power.

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