UK investors poised to sue Rosneft

Yukos considers blocking $73bn flotation. JP Morgan warned over money-laundering laws
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The controversial flotation of Rosneft, the state-owned Russian oil company, is facing the threat of legal action from at least one major UK institutional investor, it has emerged.

Lawyers representing former shareholders in Yukos, whose main production asset Yuganskneftegaz was allegedly expropriated and handed over to Rosneft, said they were speaking to several UK investors about claiming compensation under a bilateral investment treaty between Britain and the Russian Federation.

Meanwhile, Yukos itself said it may take the Financial Services Authority to a judicial review over its refusal to block the listing of Rosneft shares in London next week. If a judicial review cannot be convened in time, Yukos may seek an injunction temporarily halting the flotation.

In a further development, it emerged that a US Congressman, Tom Lantos, has written to one of the investment banks leading the flotation, JP Morgan, to voice concerns that the offer may violate US money laundering laws and the Sarbanes-Oxley Act which imposes draconian corporate governance requirements on company directors. His letter to the chairman of the bank James Dimon says: "Specifically, any financial institution involved in the IPO could be at potential risk of violating federal anti-money laundering laws aimed at preventing the proceeds of theft, corruption and other forms of unlawful activity from entering the payments system."

The fresh legal moves came as advisers to the offer suggested that Rosneft was likely to float at at least $7.15, close to the top of the stated $5.85 to $7.85 price range. This would value the company at $73bn, enabling the offer to raise over £10bn.

Tom Johnson, of Covington & Burling, the US law firm representing former Yukos shareholders, said he was in contact with a number of UK investors and it was likely that at least one of them would sue Russia under the treaty. His firm is already involved in legal action against Rosneft on behalf of a number of US private investors and earlier this week it announced it had written to the Kremlin on behalf of a Spanish investor who was seeking compensation from the Russian Federation under a similar bilateral treaty between Madrid and Moscow.

Speaking in London yesterday, Mr Johnson said it was likely that another Spanish shareholder in Yukos would join the action followed by one or two UK shareholders. In addition to Spain and Britain, nine other European countries have similar bilateral treaties with Russia including Belgium, France, Germany, Ireland, Italy and the Netherlands.

Rosneft's prospectus disclosed that it faces a total of $48bn in potential lawsuits from shareholders in Yukos, whose former chief executive Mikhail Khodorkovsky is serving time in a Siberian concentration camp for tax fraud. Yukos was once Russia's biggest crude producer, but the company was carved up by authorities to pay off a disputed back tax bill of $27.5bn.

It is thought that former UK shareholders in Yukos could claim up to $3bn in compensation. The figure for Europe as a whole is put at $10bn-$15bn, while US claims against Rosneft and the Russian government could total $6bn.

The book building for the offer was due to close last night a day early after what advisers to the offer claimed was strong demand for the shares. BP is set to invest about $1bn in the IPO, while India's Oil and Natural Gas Corporation was said by officials to be interested in buying up to $3bn of stock.

BP already has extensive interests in the Russian oil sector through its joint venture TNK-BP and is eager to obtain further exploration rights. Its strict code of conduct on bribery and corruption prevents any employees doing anything which might incentivise a foreign government to work with the company.

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