Threat to sell Yukos arm fuels fears of investors

Russian authorities raised grave concerns about whether the government will continue to honour property rights yesterday by striking at the heart of Yukos, the country's largest oil company, saying they will sell its main operating subsidiary to settle a $3.4bn (£1.8bn) tax bill.

The Ministry of Justice said it would sell Yuganskneftegas, the company's biggest subsidiary, which accounts for 60 per cent of all its crude oil production.
An enforced sale of Yukos's core assets would end months of legal battles around the company and leave it in ruins. Yukos' shares yesterday closed at $6.80, down a further 13.4 per cent.
"Yukos, as Russia's major company and potentially a global one, is gone," said Al Breach, chief economist at Brunswick UBS, a Moscow-based investment bank. "This raises serious questions about [president Vladimir] Putin's real motives."

The step by the government comes just a month after Mr Putin said that the bankruptcy of Yukos was not in his government's interests. Yuganskneftegas is valued at $30bn on the basis of reserves and $12bn on the basis of discounted cash flow.

"This company has way more assets than the [$3.4bn] tax claim Yukos must pay. The government is trying to cut the heart out of the company," said Stephen O'Sullivan of UFG Deutsche.
A Yukos representative told one Russian news agency that Yuganskneftegas could be sold for as little as $1.75bn. Analysts said a state-owned company or one loyal to the Kremlin would be likely beneficiaries of what they called an alarming example of property redistribution.
 
No senior government official commented yesterday on the decision.
 
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