Way Is Cleared for Yukos Seizures

The Moscow Arbitration Court upheld a $3.4 billion back tax claim against Yukos on Tuesday, opening the way for asset seizures and raising the prospect of default on $2.6 billion in international loans.

Yukos said it would appeal the decision, which could bankrupt the company, in the next highest court. Company officials said the firm would also file for a stay on the ruling's execution, which can now come into force as soon as the Federal Tax Service signs off on an order to collect. The tax service did not say Tuesday when it would enforce the ruling.

Yukos officials called on the government to intervene to slow down the ruling's enforcement to give it time to pay. Yet it remained unclear Tuesday whether the court's decision also lifted an all-important asset freeze that had tightened the screws on the company's financial position by preventing it from selling property to raise cash.

The oil firm's lead defense counsel, Sergei Pepelyayev, said the ruling did appear to lift the asset freeze, but only to allow the company's property to be seized as payment for the tax claim. "This appears to reduce the likelihood of bankruptcy," he said.

But, he said, it would not be possible to say so with any certainty until Yukos' lawyers received a written copy of the court's decision, which might not be until the end of the week.

"The court marshals could come as soon as next week," he said, adding that it would probably take about five business days for all the paperwork to be completed.

President Vladimir Putin has said it is not in the government's interest to bankrupt Yukos, which has been under siege ever since its founder and largest shareholder, Mikhail Khodorkovsky, was arrested last October on charges of large-scale fraud and tax evasion. The legal onslaught against Yukos and its owners has been seen as key in establishing greater state control over big business.

But even though the president's statements soothed investors spooked over the tax claim, which Yukos says it cannot pay while the asset freeze is in place, Putin also said the company's fate will ultimately be decided in the courts.

The beleaguered oil company said Tuesday it was counting on the government to make good on its statements that it was not in the country's interest to bankrupt Yukos.

"We will use all the legal options open to us to regulate the situation," said Yukos spokesman Alexander Shadrin. "The government has declared goodwill toward us. It seems that now it's time for some kind of concrete decision."

Analysts agreed, saying the government could now influence the tax service's decision on when and under what conditions to enforce payment. A schedule of payments over several months could allow the company to gather enough cash to pay.

"This is where the buck stops," said Stephen O'Sullivan, head of research at United Financial Group. "Someone in the government has to decide whether they meant it when they said it was not in the government's interests to bankrupt Yukos. It's time to put up or shut up."

A bankruptcy of one of the nation's most profitable companies could destroy investor confidence.

But it remained unclear Tuesday whether the oil firm's international creditors would decide Tuesday's ruling was sufficient grounds to call in $2.6 billion in loans -- which could lead to Yukos' bankruptcy whether the government wants it or not. The company has said it only has just more than $1 billion in cash.

Tim Osborne, a director of Yukos' parent company Group Menatep, which is backing a $1.6 billion loan to the company, said the group had not yet made a decision on whether to call in the credit. "Everything is possible. We are reviewing a number of options," he said by telephone from London.

Citibank, which is part of a syndicate of foreign banks behind another $1 billion loan, would not comment on the likelihood of such a move.

Yukos' credit agreements include a clause that calls for immediate payments of the entire loans if conditions are extremely negative for the company, said Yelena Anankina, a credit analyst at Standard and Poor's in Moscow.

"Whether this happens or not depends on the decision of the creditors," she said, adding that Tuesday's court decision could be grounds for such a move. "But so far they have not taken any action.

"There's still a risk of a liquidity crisis at Yukos," she said, adding that for now S&P would maintain its CCC credit rating for Yukos, which already indicates a high risk of default over a short period of time.

Yukos spokesman Shadrin said the oil firm was still seeking to reach an out-of-court settlement with the government, but so far it had received no answer to a rescue plan sent several weeks ago to Prime Minister Mikhail Fradkov.

Recently elected Yukos board chairman Viktor Gerashchenko also told Reuters that the firm was getting nowhere with its overtures to the state, and a tax service representative told the court during hearings Tuesday that it had no intention of reaching an out-of-court settlement.

Yukos slammed that remark in a statement issued late Tuesday and said it hoped "it was not a sign that the final aim of the 'Yukos affair' was its artificial bankruptcy."

Yukos shares closed down 4.8 percent at $7.90 on the Russian Trading System.


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