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Yugansk Goes on the Block for $8.6 Bln

Yukos' main production unit, Yuganskneftegaz, will be sold at auction with a starting price of $8.65 billion, confirming investors' worst fears that the country's biggest oil exporter will be carved up amid massive new tax claims.

The Federal Property Fund said in an official notice published in Rossiiskaya Gazeta that 76.79 percent of Yugansk will be sold at auction on Dec. 19 with a starting price of 246.75 billion rubles ($8.65 billion).

Within hours of the announcement, Yukos said it had received a $5.96 billion back tax claim from the Federal Tax Service, this time for 2003. Tax claims against the company now total more than $24 billion, four times the company's market capitalization. Shares fell 30 percent Friday on the news, falling to their lowest level in nearly four years.

Yukos CEO Steven Theede branded the sale as "government-organized theft to settle a political score," and said that the authorities may "steal more of Yukos' assets." Management may be forced to declare bankruptcy ahead of the sale, the company's CFO, Bruce Misamore, said by telephone Friday.

In what appeared to be a warning of possible production disruptions ahead, former Yukos CEO Mikhail Khodorkovsky said the sale announcement meant responsibility for the oil major's production now lay in the state's hands.

The battle between President Vladimir Putin and Khodorkovsky, the founder of Yukos majority shareholder Group Menatep, is reaching its crescendo with the country's biggest oil exporter on the brink of breakup, Khodorkovsky making threats from jail and the Kremlin's reputation among investors in tatters.

"This is a game of chicken where the cars are now about to collide," said William Browder, chief executive at Hermitage Capital Management, which has $1.5 billion in Russian stocks under management.

State-controlled energy giant Gazprom has been tipped as a prime contender for Yugansk, as has Surgutneftegaz, possibly through the creation of a separate entity with foreign participation. Italian oil major Eni is being seen as a potential dealmaker.

Putin flew to the Asia-Pacific Economic Cooperation summit in Santiago, Chile, on Friday. In comments to Brazilian reporters, he said attempts to politicize the Yukos conflict should be resisted. But the sale announcement even drew criticism from within the Kremlin.

Law enforcement agents have been searching the homes and offices of dozens of Yukos managers in what one unnamed board member described as a massive campaign reminiscent of the Stalinist terror, Interfax reported from Paris on Sunday.

The Federal Property Fund said it will sell all 43 common shares in Yugansk at open auction and that bidders will be required to hand over a returnable deposit of 49.4 billion rubles ($1.73 billion). Bids can be submitted until Dec. 18. The sale would be the state's biggest-ever asset sale.

Confusion has surrounded the sale of Yugansk and Friday's announcement was no different. Rossiiskaya Gazeta was not delivered to subscribers Friday morning, but the announcement was posted on the paper's web site at about 5 a.m. Friday's paper was delivered to subscribers on Saturday and included the announcement.

The total tax claims against the company are nearly three times the Yugansk starting price, increasing the chance that Yukos may lose its other assets, too, leaving it an empty shell.

The auction is set for a Sunday, one day ahead of a planned extraordinary shareholders meeting called by Yukos to consider whether to file for bankruptcy.

Prosperity Capital Management is among a group of minority investors in Yukos considering suing the government over its attacks on the company.

Misamore said that the Yugansk starting price put the value of Yukos' assets way below its total liabilities, leaving it with large negative equity, a technical definition of bankruptcy under Russian law. Management could be forced to file for bankruptcy ahead of the sale, he said.

Yugansk produces more than 1 million barrels per day and accounts for nearly two-thirds of Yukos' production.

Industry and Energy Minister Viktor Khristenko said the sale of Yugansk would not affect the country's oil exports. But Khodorkovsky's statement from jail indicated a possible threat to production.

"These actions are putting all the responsibility for the operations of very dangerous Yukos production facilities, for supplies to regions, for social benefits for workers, etc., on the government. ... Khodorkovsky hopes that this responsibility is exactly what they are striving for," Khodorkovsky's statement said.

Khodorkovsky lawyer Anton Drel said the statement amounted to a warning that there could be future production problems.

The starting price is also way below any of the valuations of Yugansk carried out by investment banks.

Investment bank Dresdner Kleinwort Wasserstein, which was hired by the Justice Ministry in August to value Yugansk, said it was worth $14.7 billion to $17.3 billion after liabilities, and gave the most conservative possible valuation as $10.4 billion. Russian media have reported the unit could be sold for as little as $3.75 billion.

Group Menatep said the sale amounts to "an expropriation" and said it would "take all legal steps available ... to prevent the unwarranted sale in any form of any of Yukos' assets, as well as any expropriation of any part of the company."

Menatep has filed notice with the Kremlin that it intends to sue under the terms of the Energy Charter, an international treaty aimed at protecting the interests of investors, which Russia signed in 1994 but has not yet ratified.

If the Kremlin does not reach a settlement within three months, Menatep will take the matter to international arbitration, group director Tim Osborne said Sunday. "We're still waiting to hear from the Kremlin," he added.

Russian officials have identified E.ON, Germany's biggest utility, as a possible bidder for Yugansk, but the company has denied the speculation.

Italy's Eni also denied reports that it may bid. But in a sign that a possible deal may be in the making, RIA-Novosti cited an official at the Italian Industry Ministry as saying that Eni had been included in a list of potential buyers by the Russian government.

But threats of litigation may scare off potential Western buyers.

(The Moscow Times 22.xi.04)

 
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