Threat to sell Yukos arm fuels property fears

Russian authorities raised grave concerns about whether the government would continue to honour property rights 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 tax bill.


The Ministry of Justice who declined to seize the company's non-core assets, 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 bring to an end months of legal battles around the company and leave it in ruins. Yukos' shares, which are worth only a fraction of their value before the company's feud with the authorities, yesterday fell to $6.70, a further 15 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 such a company as Yukos was not in the interests of his government.

Yuganskneftegas produces 1m barrels of oil a day - 60 per cent of the Yukos's total and is valued at $30bn on the basis of its reserves and $12bn on the basis of its 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, head of research at UFG Deutsche.

A Yukos representative told one Russian news agency that Yuganskneftegas could be sold before the end of the month for as little as $1.75bn. Analysts said a state-owned company or a company loyal to the Kremlin would be the most likely beneficiaries of what they said was an alarming example of property redistribution in Russia. Mr Breach said: "If the government now sells Yuganskneftegas at a knock-down price, this would be the worst case scenario."

Mikhail Khodorkovsky, who presently stands trial for fraud and tax evasion, told the Financial Times through his lawyer: "The large shareholders of Yukos have done everything we could [to save the company]. The rest is up to the management."

Apart from pressure from the authorities Yukos has been also torn by the internal conflict between the managers and the shareholders.

Yevgeny Yasin, a former minister of economics, said: "This shows that the real aim of the government all along was to take the best assets from one person they don't like and to pass them to someone else."

He said this would further undermine trust among Russian businessmen in the government.

Investors reacted with dismay. Mattias Westman, director at Prosperity Capital Management, said: "It's frustrating to see one of the very few world class companies in Russia being run to the ground like this."

No senior government official commented on the decision.




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