Report: Yukos Value Slashed for Fire Sale

The government may sell Yukos' main production unit for as little as $4 billion, a 60 percent discount on the lowest possible valuation, according to an unsourced Interfax report late Thursday.
A price of $4 billion for Yuganskneftegaz, which pumps 1 million barrels of oil per day, is way below valuations released by Dresdner Kleinwort Wasserstein Thursday.
No government officials contacted late Thursday could confirm the report, which, if true, would put the production unit within the spending power of Kremlin-friendly companies.
If confirmed, the sale terms could send the Yukos share price into freefall Friday and could realize investors' worst fears of a fire sale.
The report could also hammer confidence in the country's investment climate and damage the image of Russia abroad, while President Vladimir Putin is on a state visit to China.
"If true, it would seriously hurt the credibility of the government -- it's as scandalous as loans-for-shares," said William Browder, chief executive at Hermitage Capital Management, which has $1.5 billion in Russian stocks under management. "It differs so much from the real valuation of Yugansk that it's hard to imagine this was not a mistake."
Investors, traders and even Group Menatep were very cautious about the report, which an official indicated could be a trial balloon to test reaction to the idea.
According to Interfax, a 76.8 percent stake in Yuganskneftegaz could be sold for just over $4 billion. The other 23.2 percent of the company's stock is made up of 13 preferred shares.
It was unclear why the government would give a discount intended for the sale of a minority stake to the purchaser of a 76.8 percent stake, which represents 100 percent of the company's voting rights, according to Yugansk's financial reports.
Officials in the government could not confirm the report, which didn't cite anyone. "The fund is not aware of any such decisions," Federal Property Fund spokesman Vladimir Zelentsov said.
Yukos declined to comment on the report.
Yukos, the country's biggest oil exporter, is on the chopping block as the battle between the Kremlin and Yukos founder Mikhail Khodorkovsky draws closer to a conclusion.
Khodorkovsky is on trial on separate charges of tax evasion, fraud and leading an organized criminal group, allegations he denies.
Yukos' American Depositary Receipts fell 8 percent to $16.50, according to traders in New York.
The report on the sale terms came just hours after Dresdner moved to protect its reputation by publishing its valuation of Yugansk.
Dresdner's move was seen as a way to limit damage after a Justice Ministry official said Tuesday that the unit was worth $10.4 billion.
"The valuation from Dresdner was only just published, so it seems strange to just flip around in the face of that valuation," said Dominic Gualtieri, head of equities at Alfa Bank. "The report on the sales terms doesn't make any sense. I can't lend much credibility to it until we get it from a more authoritative source."
Dresdner's six-page valuation opinion, dated Oct. 6, gives a price range of $14.7 billion to $17.3 billion for Yugansk, after deducting liabilities and a $951 million tax claim against the production unit, announced last week. A more detailed 150-page report the bank submitted to the Justice Ministry has not yet been published. Yukos said it has received the full report.
It is highly unusual for investment banks to publish reports they have prepared for clients, especially those stamped "Strictly Private & Confidential."
Dresdner, which was hired in August by the Justice Ministry to value Yugansk, said the $10.4 billion valuation, after liabilities and tax claims, was "overly conservative."
The head of the Justice Ministry's Moscow directorate, Alexander Buksman, was quoted by Russian news agencies Tuesday as saying that Dresdner had put a $10.4 billion valuation on the unit.
Dresdner said it also advised the Justice Ministry about the potential value of a minority stake in Yugansk. The discount for being a minority shareholder would be in a range from 15 percent to 60 percent, according to people close to the valuation process.
"This is very bad news -- this is a valuation that is much lower than even the lowest range of Dresdner's valuation," said Steven Dashevsky, head of research at Aton brokerage. "The explanation provided doesn't hold any water: just indicating they will take a 60 percent discount for selling a block that represents 100 percent of Yugansk's voting stock."
Despite paying at least $3 billion of a $3.4 billion claim for 2000, Yukos still faces massive claims for back taxes and fines.
It is facing a $4.1 billion claim for 2001, and Russian news agencies have reported that the Federal Tax Service will soon serve the company with an additional tax claim for 2002. The company's tax payments for 2003 are also being probed.
Selling Yukos' main production unit for just $4 billion would also open up the company's other units, Tomskneft and Samaraneftegaz, to the threat of fire sales.
"Selling Yugansk for $4 billion would only cover tax liabilities for 2000 and 2001. That leaves potential charges against Yukos for 2002 and 2003, as well as individual charges against Samaraneftegaz and Tomskneft," Dashevsky said. "We are very likely to see the other subsidiaries meeting the same fate as Yugansk."
A company close to Gazprom will probably take part in the auction, the Interfax report said, citing a highly placed government official.
That contradicts comments made by Economic Development and Trade Minister German Gref, who told Germany's weekly newspaper Die Zeit that Yugansk should not be sold to a state company.
"I consider it wrong if a state-owned company were to be the buyer," Gref was quoted by the newspaper as saying. "It should be a private company instead."
Gazprom CEO Alexei Miller has said the company will not bid for Yugansk, as have Russian oil companies. Surgutneftegaz is another company seen as a possible purchaser of some of Yukos' assets.
Foreign buyers are likely to avoid spending billions in the country's most controversial asset sale since the 1990s. In part, this could well be due to the threat of legal action from Group Menatep, Yukos' core shareholder, against purchasers who acquire the company's assets for "less than fair value."
"If this is true it is going to confirm everything we already thought, that this is just orchestrated theft," said Tim Osborne, a board director of Group Menatep.
"Let's give the Russian government the benefit of the doubt and wait until this is confirmed. If it is confirmed, it would make the government a laughingstock throughout the whole world," he said.
"Here is the decision to sell Yugansk into local hands," said Sergei Markov, a Kremlin-connected political analyst and Moscow State University professor.
According to Markov, there is growing discontent within the Kremlin over Western criticism of Putin's decisions to centralize power.
"As for Russia's reputation in the international arena, it was probably decided that it is already bad enough, so nothing can spoil it any further," Markov said.

By Guy Faulconbridge, Valeria Korchagina and Catherine Belton, Staff Writers

(From : The Moscow Times)