Russia's YUKOS could go bust within a month

YUKOS, Russia's largest oil company by output, expects to be driven bankrupt within a month by record tax demands unless it can raise cash soon.

"We will essentially run out of cash and not be able to fund our business operating expenses and obligations some time in the first half of August," Chief Executive Steven Theede told a news conference called amid speculation YUKOS may file for bankruptcy.

Bailiffs enforcing payment of a $3.4 billion (1.8 billion pounds) tax debt are preparing to sell Yuganskneftegaz, YUKOS's core operating unit, which accounts for 60 percent of its daily output of 1.7 million barrels per day.

YUKOS values Yugansk at over $30 billion, but Theede said "we cannot expect to get any change back" from the sale after the tax debt for 2000 is settled.

Deprived of its core operating unit, YUKOS, only last year Russia's largest listed company by market capitalisation, said it would cease to be a viable business and warned that a halt to its operations would cause severe disruption to oil markets.

"The Company management is currently making every effort to raise additional funds in order to repay, as soon as possible, the tax liability and to finance current operations," YUKOS said in a statement on Thursday.

"However, should those efforts prove unsuccessful and Yuganskneftegaz is sold, in the present circumstances, the management of the Company would be compelled to announce the bankruptcy of Russia's largest oil company," it said.

Oil firm Surgutneftegaz, with close ties to the Kremlin, is seen as the most likely buyer of Yugansk.

SHARES SLUMP

YUKOS shares hit a new 30-month low of $5.30 on Moscow's RTS exchange on the bankruptcy warning. On the rouble-denominated MICEX exchange, they fell 13.5 percent before recovering to 155 roubles, down 8.8 percent.

"We are seeing the materialisation of the worst-case scenario, and I think bankruptcy looks more-or-less certain because we are not seeing any signs of willingness to negotiate," said Zarko Stefanovski, senior oil and gas analyst at Aton brokerage in Moscow.

YUKOS' downward spiral follows the arrest last October of then-chief executive Mikhail Khodorkovsky, now on trial for tax evasion and fraud. Back-tax claims have reached $7 billion and could top $10 billion, analysts said.

The legal onslaught is widely seen as a Kremlin payback for Khodorkovsky's backing of political parties opposed to President Vladimir Putin and as a state attempt to reassert control over strategic companies sold at knock-down prices in the privatisations of the 1990s.

The company said requests to negotiate with the authorities on its tax debt had gone unanswered.

The YUKOS affair has done massive harm to Russia's reputation among investors. Ratings agency Standard & Poor's said it was holding the country back from gaining an investment grade rating.

"With what we have seen it curtails the upside for the rating," said Konrad Reuss, managing director of sovereign ratings at S&P in London. "This is why the whole question of uncertainty weighs so heavily on investor sentiment in Russia."

YUKOS is still one of Russia's most profitable companies in operational terms, but with its bank accounts and assets frozen it expects by mid-August no longer to have the $1.7 billion in free cash it needs to function each month.

FORCE MAJEURE?

YUKOS said, however, it would do all it could to avoid declaring force majeure -- where a company says it cannot fulfil a contract due to events beyond its control -- on oil deliveries.

Force majeure is "the last thing we are trying to have happen", chief financial officer Bruce Misamore told reporters.

YUKOS, its core operations based in western Siberia, said it had paid transportation tariffs to Transneft, Russia's oil pipeline monopoly, through to the end of August.

But, the company warned, any stoppage of operations would have a "significant impact" on Russian oil exports and cause "severe shortages" of supplies of crude oil and refined products to the domestic market.

London Brent crude futures rose after the YUKOS warning.


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