Russia Sells Yukos’s Main Asset Yuganskneftegaz, Baikal Finance Group Declared Winner

Russia was set to rip the heart out of its biggest oil producer YUKOS on Sunday, with the firm’s core unit being sold in a forced auction after almost a decade in private hands, the Reuters news agency reports.

Unknown firm Baikal Finance Group was announced the winner of the auction of Yuganskneftegaz soon after bidding began at 4 pm Moscow Time (1300 GMT), beating the favorite, state-controlled gas monopoly Gazprom.

Baikal paid 260.75 billion rubles ($9.37 billion) for Yugansk, Russia’s Federal Property Fund said. It was not immediately clear whether Baikal was linked to Gazprom or represented competing interests.

The sale of Yuganskneftegaz, which pumps more oil than OPEC member Qatar, was conducted in defiance of a U.S. bankruptcy protection order and in pursuit of tax claims which have left Yukos with a back-tax bill of $27.5 billion.

The Federal Property Fund had said shortly after proceedings started that just two companies would participate in the auction —- Gazprom and the unknown Baikal Finance Group, named after a huge freshwater lake in Siberia. On Saturday a U.S. judge upheld a Houston bankruptcy court’s temporary restraining order banning Gazprom and its foreign bankers from taking part in Sunday’s auction, pending further proceedings in Yukos’s application for Chapter 11 bankruptcy protection.

Yukos is widely seen by analysts as the victim of a Kremlin campaign to crush its politically ambitious owner, Mikhail Khodorkovsky, and seize control of strategic sectors of the economy sold off in the chaotic privatisations of the 1990s.

Only hours before the auction lawyers for Menatep, a group through which Khodorkovsky and his associates control Yukos, pledged to extend their fight against the sell off to other countries.

The lawyers told a news conference in Moscow they would retaliate by trying to seek injunctions in foreign courts impounding Russian oil and gas exports.

“Menatep intends to take every action available in order to protect its interest in Yukos. We intend to take legal action in multiple jurisdictions,” Sanford Saunders told a news conference.

“We anticipate the first filing to be in the United Kingdom,” said Saunders. He said the group also intended to file petitions throughout Western Europe and beyond, including requests to seize Russian oil and gas exports.

Yukos’s troubles have already helped push oil prices to peak levels over the past few months and concerns over supplies from the world’s second-biggest oil exporter could grow after Sunday’s threat of legal action from Menatep’s lawyers.

Saunders said he had requested that the group’s lawyers attend the auction on Sunday: “We will see the people who we will see in courts in the near future”, he said.

Khodorkovsky is now on trial for fraud and tax evasion and faces 10 years in jail if convicted.

And the auction sale of $9.4 billion for Yugansk leaves his company vulnerable to the Russian authorities requiring further asset sales to meet its full tax bill.

Yukos had said selling Yugansk at the minimum price of $8.65 billion would destroy shareholder value, citing an appraisal by investment bank Dresdner Kleinwort Wasserstein which put the value at $14-$17 billion.

The assault on Yukos has also shaken investment confidence in President Vladimir Putin’s Russia, where the economy is showing signs of slowing despite high oil prices.

Before the auction Russia’s antitrust watchdog had said it had registered four bidders for the Yugansk auction.

The U.S. bankruptcy action had appeared to have sunk plans for the already heavily-indebted Gazprom to get funding for its bid from a consortium including Deutsche Bank and JP Morgan. But analysts say Gazprom might obtain financing from state bank Sberbank or even the Central Bank.

The world’s largest natural gas firm is at the centre of plans to create a huge state energy holding company but the fact it supplies a quarter of Europe’s gas makes it vulnerable to international court rulings.

Other oil firms keen to avoid Yukos ’s fate have toed the Kremlin line, abandoning tax “optimisation” schemes while manoeuvring to carve up Yukos ’s lucrative export quotas.

Meanwhile Roman Abramovich, the main owner of Yukos ’s estranged merger partner Sibneft obtained a court order last week barring Yukos from holding a planned shareholders meeting on Monday. The meeting was to have voted on whether to liquidate the company.

(MosNews, 12.19.2004)