Russia Says to Hold YUKOS Auction Despite U.S. Ruling

By Dmitry Zhdannikov
MOSCOW (Reuters) - Russia said on Friday it would go ahead and sell Yuganskneftegaz, the main oil production unit of YUKOS, despite a U.S. bankruptcy court order seeking to block Sunday's auction for 10 days.

"We are selling Yugansk by order of a bailiff and so far we haven't received any order to cancel the auction (on Sunday). Therefore, we are still planning to continue," a spokesman for the Federal Property Fund said.

The Houston court issued a temporary restraining order on Thursday after YUKOS filed for U.S. Chapter 11 bankruptcy protection.

But Russian Foreign Minister Sergei Lavrov said his nation's courts would have the final say.

"The Russian leadership has on several occasions commented on the situation around YUKOS and it (the situation) will develop according to Russian laws," Interfax news agency quoted him as saying on Friday.

The Russian authorities have ordered the auction of Yuganskneftegaz in pursuit of some $27.5 billion they say YUKOS owes in back taxes.

YUKOS has said the sale of Yugansk at the minimum auction price of some $9 billion would destroy shareholder value, citing an appraisal by investment bank Dresdner Kleinwort Wasserstein which put the value of Yugansk at $14-$17 billion.

YUKOS's woes are widely seen as the result of the Kremlin's campaign to crush the political ambitions of the company's main shareholder, Mikhail Khodorkovsky, and regain control over the "commanding heights" of the economy lost in the oil and other industry privatisations of the 1990s.

Russia's state-backed gas monopoly Gazprom, which is regarded as favorite to win the auction, also said it would participate despite the U.S. court's restraining order.

The U.S. court said its ruling applied to Gazprom and a syndicate of Western banks which have offered to raise up to 10 billion euros ($13.39 billion) to fund Gazprom's bid.

The Russian government was not expected to flinch. "It now seems to be a matter of principle for the Russian government to make the sale on Sunday," said Oleg Maximov, an analyst at Troika Dialog in Moscow.

But the Western bankers involved in funding the purchase could have second thoughts, analysts said, mindful that contravention of a U.S. court order could have repercussions for their U.S. domiciled businesses.

And Gazprom appeared to be weighing up its options in the event that Western banks get cold feet.

Gazprom's head Alexei Miller held talks with his counterpart at Chinese oil group CNPC about the Gazprom bid, a source at the gas monopoly said on Friday. CNPC has long been rumored to have been considering making a joint bid for Yugansk with Gazprom.

Russian banks would be unlikely to provide the necessary funding without breaching banking regulations setting prudential limits on granting finance, said Stephen O'Sullivan, strategist at Moscow-based brokerage UFG.

One option for Gazprom's might be to mount a joint bid with another Russian oil company such as Surgutneftegaz, which is flush with cash.

"With its estimated $8.3 billion of net cash and its interest in some of the Yugansk assets ... Surgut is a logical choice as a partner for Gazprom," O'Sullivan added.

GAZPROM MAY SEEK ALTERNATIVE FUNDING

The government could also give Gazprom more time to pay for Yugansk if it makes a winning bid, said analysts. "It (the U.S. court order) is a nuisance, but they should be able to get round it," said Paul Collison, an oil analyst at UBS in Moscow.

But a government official, who spoke on condition of anonymity, told reporters it might be unwise to press ahead with the sale under the circumstances and urged caution.

"It looks like Gazprom will not be able to ignore the court's decision. We already have precedents where foreign courts' decisions provided headaches not only for Russian companies but the government as well," the source said.

The banks involved in the Gazprom funding are Deutsche Bank, ABN Amro, BNP Paribas, Calyon, Dresdner Kleinwort Wasserstein and J.P. Morgan.

But Gazprom has yet to sign a loan agreement in advance of the planned bid, bankers have told Reuters.

YUKOS SHAREHOLDERS' MEETING CANCELED

Meanwhile YUKOS said on Friday the company would not now hold an extraordinary shareholders' meeting on Dec. 20 to consider putting the company into liquidation, after a Moscow court issued an injunction.

Core owners of YUKOS's estranged merger partner Sibneft, led by Roman Abramovich, obtained the court order on Thursday blocking the meeting, as they said going into liquidation would block the exchange of assets needed to complete an agreed demerger between YUKOS and Sibneft.

(Reuters, 12.17.2004)