|
|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads |  |
JULY 19, 2004
Yukos: The Moment Of Reckoning Huge tax and loan bills are now past due. How will Putin choose to wield his ax? Will Yukos survive? By July 8, Russia's second-largest oil company was supposed to pay a crippling $3.4 billion back-tax bill -- but it has only $1.4 billion in cash. Meanwhile, on July 2, Yukos was declared in default of a $1 billion loan from a consortium of western banks, although the banks have so far refrained from demanding immediate payment. These latest developments mean that the long-running Yukos case is heading toward a climax. Investors are desperately hoping for a resolution: Russia's RTS Index has lost 27% of its value since April. Correspondent Jason Bush provides a guide to this very Russian piece of financial-political theater. What is the Kremlin trying to achieve? Political insiders and analysts in Moscow largely agree on one thing: Vladimir V. Putin's main goal is to change the ownership of Yukos and replace the company's present majority shareholder, Mikhail B. Khodorkovsky's Group Menatep, with someone the Kremlin likes. Khodorkovsky, Russia's richest tycoon, fell out with the Kremlin last year by meddling in politics and faces trial on charges of fraud and tax evasion. Dispossessing Khodorkovsky may well mean some form of renationalization of Yukos, although the same objective could be achieved by transferring Menatep's shares to new private owners with the Kremlin's blessing. How could a renationalization -- or change in ownership -- occur? The government could seize Yukos' assets in lieu of taxes, then auction them off to new owners. While the total tax claims could eventually top $10 billion, Yukos' assets are estimated to be worth three or four times as much. The worry is that the state may deliberately undervalue them to justify grabbing a larger share of the company and thus acquire control. But in that case, minority shareholders would be outraged, and Russia's investment climate could be damaged for years to come. The government could decide instead to seize Yukos' 35% stake in Sibneft, another Russian oil company. That shareholding is worth $4 billion. But such a move would leave Yukos intact and -- annoyingly for the Kremlin -- still majority-owned by Khodorkovsky. Another way for the government to take control of Menatep's stake would be a deal under which Khodorkovsky would sell or surrender his shares. Are there any signs of a deal? There are growing signs that Khodorkovsky is willing to give up some or all of his shares in Yukos to the government, either in direct settlement of Yukos' tax bill or as a security for the payments, which would then be rescheduled over several years. In a July 7 statement, Khodorkovsky's lawyer said the tycoon had recommended that the Yukos board offer his shares as a way to negotiate the tax bill. What does Khodorkovsky want? He no doubt is angling for some compensation. If his shares are sold or pledged, they should, at fair valuations, be worth more than the government's tax demands. His stake was worth $15 billion before the tax demands drove down Yukos' stock price. What are the other alternatives? If there's no deal, Yukos minority investors hope that the criminal case against Khodorkovsky and a partner, Platon Lebedev, due to resume on July 12, will solve the puzzle. These accusations are legally separate from the tax claims, and relate to the allegedly fraudulent privatization of the Apatit fertilizer company as well as to tax evasion. If the tycoon is convicted, he'll have to repay $1 billion that prosecutors say he embezzled -- plus any fines the court imposes. Some analysts believe the Kremlin may also be able to get the court to find a legal pretext for full confiscation of Khodorkovsky's shares in Yukos. With Khodorkovsky thus out of the picture, the state could happily negotiate with Yukos about ways to settle its tax debts, thereby avoiding the wrath of Yukos' minority shareholders and the economic consequences of a Yukos bankruptcy, which Putin has said he wants to avoid. The snag is that the state still has to convict Khodorkovsky, whose trial will drag on for several more weeks. In the meantime, the noises of distress from Yukos are getting louder as creditors begin to lose confidence in the outfit's solvency. If Putin does not act soon, it may become too late to save the company -- whatever the Kremlin wants. 
BW MALL
SPONSORED LINKS
Get BusinessWeek directly on your desktop with our RSS feeds.
Buy a link now! Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2004, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
