Endgame nears as Russia's Yukos faces renationalisation

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The Independent Online

Shares in Yukos, Russia's largest exporter of oil, dropped by almost 10 per cent in Moscow yesterday as investors sensed that after months of threat and bluff the Kremlin really is going to tear it apart.

The company's demise has been forecast many times before as it has struggled to pay off enormous back tax bills but this time analysts said looked like the beginning of the end.

Anonymous government sources have let it be known that they are planning to sell off a controlling stake (77 per cent) in Yuganskneftegaz, the company's biggest production unit, for one-quarter of its real value.

If the government makes good on its threat the stake is likely to be snapped up by a Kremlin-friendly company such as Gazprom, and Yukos will be left looking like a shadow of its former self. Yuganskneftegaz pumps 1 million barrels of oil a day or some 60 per cent of the company's total output. Selling it off for a fraction of its real value will leave what little is left of the company in serious financial difficulty.

Retained by Russia's Justice Ministry, the investment bank Dresdner Kleinwort Wasserstein (DKW) has valued what is considered to be the jewel in Yukos' tarnished crown at up to $17.3bn(£9.6bn). The shadowy government officials overseeing the sale say, however, that they are considering letting it go for little more than $4bn. DKW made it clear yesterday that it thought the figure too low and it posted its own detailed analysis of the company's worth on the internet, a move which a spokeswoman said was very unusual.

Brokerage United Financial Group said Yukos was now facing total meltdown but stressed that the case was an isolated one which would not affect the Russian stock market as a whole. "What does this plan spell for Yukos? The answer is: total destruction of its equity and also, to judge by the hints, nationalisation of its key assets. Can the plan succeed? Our view: most likely it can. In this scenario, the process of Yukos' destruction will cause no worse than temporary downdrafts in the wider market," a circular from UFG said, adding that it appeared to be a "one-off political project" linked to President Vladimir Putin's persecution of the jailed former Yukos chairman, Mikhail Khodorkovsky.

The two UFG analysts, Christopher Granville and Stephen O'Sullivan, said it was unlikely that any attempt would be made to stop the de facto renationalisation of Yukos through the sale of its main asset to a state-owned business such as Gazprom. They said that any rival domestic bidder could be deemed to be in league with Mr Khodorkovsky while foreign buyers would be deterred from making an offer because of the legal risks of taking part in such a "dubious transaction".

Yukos itself contends that the sell-off is illegal under Russian law since it has other ways of paying off its debts.

Vladimir Ryzhkov, an independent deputy in the Russian parliament, said Yukos had fallen victim to state-sanctioned theft. "The government hasn't given the company a chance to pay (its debts) but accuses it of not paying. The state is behaving like a bandit."

Yukos' bank accounts and assets remain frozen, a situation which puts it in a no-win situation vis-à-vis its debts.