Yukos May Go Bankrupt, Has Three Weeks of Cash

OAO Yukos Oil Co., Russia's biggest oil exporter, said it will go bankrupt if the government carries out plans to sell the company's main unit, after a freeze on its assets left Yukos with enough cash to produce oil for three more weeks.
Yukos shares tumbled as much as 14 percent after Chief Executive Officer Steven Theede said the company may run out of money by mid-August and hasn't been able to begin a dialogue with the government. Bailiffs have frozen accounts that handle $900 million a month of Yukos's revenue, he said in Moscow.

``Yukos is a single-country company, and to be successful, it needs to get along with the government,'' Theede said at a press conference. ``If we can't, we don't have a bright future.''

The yearlong probe into Yukos and its biggest shareholder, Mikhail Khodorkovsky, increased the perception of risk regarding Russia, leading investors to pull billions of dollars from the country. Crude oil futures rose in London amid concern about reduced shipments from Russia, the world's second-biggest oil supplier after Saudi Arabia.

Brent crude oil for September settlement rose 22 cents, or 0.6 percent, to $37.38 a barrel at 12:24 a.m. on London's International Petroleum Exchange, amid concern that oil supplies from Russia, the world's second-biggest exporter, may falter if Yukos runs out of cash next month.

`Yukos Is Alone'

``Yukos is clearly alone -- the company has no one to speak to in the government and that makes finding a solution impossible,'' said Jean-Louis Tauvy, who manages $200 million in Russian stocks including Yukos shares at Atria Advisors Ltd. in Moscow. ``Their destiny is in the government's hands.''

The company sent 11 letters to the government and to President Vladimir Putin's administration over the past six weeks, without receiving any reply, Theede said.

Putin said June 17 it wasn't in Russia's interest to bankrupt Yukos. He hasn't commented on the company's situation since.

Yukos's biggest owner Khodorkovsky, 41, who was arrested on Oct. 25 and has been in jail ever since, is facing trial on tax evasion and fraud charges he denies as politically motivated.

Khodorkovsky and his allies at Yukos supported parties that opposed Putin, obstructed government efforts to raise taxes on oil producers and sought to build private oil pipelines, breaking the state's monopoly.

Seizing Production

Russia officials on Tuesday said they will seize and sell OAO Yuganskneftegaz, which pumps as much oil as Indonesia. Yugansk extracts 1 million barrels of oil a day, or 60 percent of Yukos's production, and is valued at about $20 billion by Goldman Sachs Group Inc.

``A loss of Yugansk will be a very serious blow,'' Theede said. ``If Yugansk is lost, we'll have to re-access where we are in the overall supply and demand balance.''

Yukos shares fell 8.8 percent to 155.53 as of 3:24 p.m. in Moscow. The stock's price has dropped by a third in the past three days, wiping out about $6.9 billion of the company's market value.

``Investors can't really see the state collaborating in any way -- it is really unclear what their motives are and what they are trying to achieve,'' said Aivaras Abromavicius, who manages $600 million in East European assets including Yukos shares at East Capital Asset Management in Stockholm.

Bankruptcy Possible

Yukos Chief Financial Officer Bruce Misamore on a July 6 conference call with investors said bankruptcy ``may be an option'' to protect Yukos. The company failed to meet a July 7 deadline to pay $3.4 billion in taxes from 2000, the largest tax bill in Russian history.

Payment for oil shipments through pipelines has been prepaid through August, Misamore said today.

Yukos may be left with nothing if the government sells Yuganskneftegaz for less than its true value, Goldman Sachs said in a report to investors late Tuesday.

``The Justice Ministry has no obligation to sell Yuganskneftegaz at an auction, therefore there is no guarantee that Yukos will get a fair value for it,'' Goldman said. Yukos may be left ``with assets worth between zero and $12 a share.''

Misamore said today the company is not yet bankrupt and wouldn't speculate on when that might occur.

Yukos agreed to lend as much as $449 million to Yugansk and another fully owned unit OAO Samaraneftegaz, according to the units' filings to Russia's Federal Service of Financial Markets.

Misamore said the loans make ``nothing unusual'' and are meant to support the production units' working capital.

Creditors Nervous

The company is ``constantly'' talking to the creditors for a $1 billion loan organized by Societe Generale SA last year, Misamore said.

``They are supportive, but very, very nervous,'' he said.

Yukos has paid $300 million on the tax bill. The company has said it plans to pay a total of at least $1.3 billion this month.

The company is generating about $1.8 billion a month in revenue and needs to pay out about $1.7 billion a month to fund operations, Yukos said.

``Contrary to the statements of some Russian government officials, the company has no cash reserves anywhere within the consolidated group with which to pay the full amount of the tax bill,'' Yukos said in its statement.

Some investors had said Yukos might seek to enter bankruptcy to prevent the state from seizing its assets.

``One option which Yukos might now consider is that of voluntary bankruptcy in order to take control of the asset disposal process and ensure some modicum of fair value for its shareholders,'' United Financial Group, the Moscow unit of Deutsche Bank AG, said in a note to investors Tuesday.

If a Yukos bankruptcy petition was upheld by a Russian arbitration court, that could delay sales of the company's assets while a list of creditors was drafted, according to Katerina Kazachenko, head of the legal department at Aton brokerage.

Shareholders

Of the six biggest shareholders of Group Menatep, which owns 53 percent of Yukos, two -- Khodorkovsky and Platon Lebedev -- are sitting in a Moscow jail during their trial. Three Menatep shareholders -- Leonid Nevzlin, Mikhail Brudno and Vladimir Dubov -- fled to Israel and one, Vasily Shakhnovsky, was sentenced for personal income tax evasion and then freed by a Moscow court.

The authorities presented Yukos with the largest tax bill in Russian history, ruling that the company illegally obtained tax breaks in the country's provinces. Local tax breaks have enabled Yukos's rivals OAO Sibneft and TNK-BP to pay about 7 percent in income taxes, compared with Russia's statutory rate of 24 percent.

The Organization of Economic Cooperation and Development on July 7 called the Yukos case an example of ``arbitrary'' use of state power and a ``highly selective'' legal attack.

The fall of Yukos would ``negatively affect the investment climate'' in Russia, said Yukos board chairman Viktor Gerashchenko, a former central bank head.

``Most investors aren't ready to write off Russia because of Yukos,'' said Steven Dashevsky, ahead of research at Moscow brokerage Aton. ``But for many, the Yukos case is a litmus test.''


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