Yukos Shareholders to Consider Bankruptcy

Russian oil giant Yukos is "close to insolvency" and will call an emergency shareholders meeting for next month to consider a possible bankruptcy, chief executive Stephen Theede said Wednesday.

Theede said the meeting would be held Dec. 20.

"Bankruptcy hasn't been something we've wanted to do, but if we're bankrupt, we're bankrupt," Theede was quoted as saying by Dow Jones Newswires.

If a court upholds a possible bankruptcy filing, Yukos' main shareholder, Menatep - founded by former company CEO Mikhail Khodorkovsky - would have a strong position among the company's creditors.

Yukos already has received a default notice on a US$1.6 billion (euro1.3 billion) loan from Menatep, as well as on a US$1 billion (euro800 million) loan from a syndicate of Western Banks led by Societe Generale.

Theede's comments came after tax authorities served new, crippling back tax bills on Russia's floundering No. 1 producer Monday for nearly US$10 billion (euro7.9 billion), bringing the company's total tax debt to some US$17.6 billion (euro13.9 billion).

Theede called those bills "laughable" and "ridiculous."

"It exceeds what I consider to be the government's embarrassment level," he said.

Yuganskneftegaz, Yukos' core unit that produces 1 million barrels per day, is expected to be sold imminently to cover Yukos' tax arrears. However, no date for the sale has been announced and observers suggested that Theede's comments were an attempt to force the government into the endgame, for better or worse.

"This is an effort to bring matters to a head," said Chris Weafer, chief strategist at Moscow's Alfa Bank. "Putin has always said he wouldn't allow the company to go bankrupt. Management are trying to force his hand."

While bankruptcy is perceived to be the best option for Yukos and would give its owners control over which assets are liquidated, the company still needs a court decision to initiate proceedings. That appeal could be refused or, at worst, expose its managers to criminal charges if deemed frivolous.

Theede said Wednesday the company had proposed a variety of ways to pay off the tax bills, but that the sale of Yuganskneftegaz could have dire consequences for the whole Russian oil sector, the Interfax news agency reported.

"To simply tear out an asset that is the heart of the company and avoid reducing effectiveness is impossible," he said.

The politically charged Yukos tax case and the parallel fraud and tax evasion case against Khodorkovsky have worried some investors and helped drive international oil prices up on fears that Yukos could fail to get its crude to international markets.

While the Kremlin has said the woes of the company and its founder are well-deserved punishment for shady bookkeeping, observers say the case was triggered by Khodorkovsky's political activities.

(From Forbes, 3.11.2004)