ANALYSIS - Russia's YUKOS Faces Asset Fire Sale
Date: 07-Jul-04
Country: RUSSIA
Author: Richard Ayton
YUKOS produces more crude and makes more money than any other company in Russia's huge oil industry, but a $7 billion mountain of tax bills has driven it to the brink of bankruptcy.
"For better or worse, we believe that all should be decided this week," Adam Landes, analyst at Renaissance Capital, said. "It is high time that cooler heads prevail at some level of the government, as the economic effects of a YUKOS collapse are real and large."
The firm has until midnight Wednesday to pay $3.4 billion it owes for 2000 - an impossible task after a court order barred it from selling assets to raise cash.
But the Finance Ministry yesterday raised the possibility that it may give YUKOS more time to settle the bill, causing its shares to rally.
If bailiffs do move in, they will have two months to raise money or the tax ministry will receive assets in lieu of cash. YUKOS could file for bankruptcy protection, but that requires a court ruling.
An asset sale scenario by brokerage United Financial Group (UFG) sees the sale of YUKOS's $4.5 billion stake in smaller rival Sibneft to pay the $3.4 billion charge for 2000, but at a 20 percent discount.
"The most likely bidder remains (Sibneft owner and Chelsea football club boss) Roman Abramovich," the brokerage said. "We do not read too much into (Monday's) statement by the Ministry of Industry that ChevronTexaco wants to invest $5 to 10 billion in Russia ... In the short term they are likely to be standing on the sidelines."
YUKOS would then have to sell all its operational subsidiaries apart from core production unit Yuganskneftegaz to meet a $3.4 billion tax bill for 2001 and $2.6 billion in loans.
But the firm would sell two other key subsidiaries, Samaraneftegaz and Tomskneft and its Lithuanian refinery and terminal would also go.
UFG said those asset sales could raise $9-$9.5 billion. Many see its final tax bill alone mushrooming to $10 billion after audits for 2002 and 2003.
"The new YUKOS would still be a significant firm, producing more than one million barrels per day, making it Russia's fourth-largest oil producer," UFG said.
"It would, however, no longer be calling the shots and setting the tone - that role would once again fall to LUKOIL, an altogether more palatable option for the government."
DEAL HOPES LIVE ON
The Kremlin is widely seen as having orchestrated the attack on YUKOS, including the arrest last October of politically ambitious former chief executive, Mikhail Khodorkovsky. YUKOS's main owner is in jail, on trial for fraud and tax evasion.
YUKOS's future to a large extent depends on whether he, and other core shareholders who control YUKOS through holding firm Menatep, can reach a settlement with the government.
"Whether YUKOS enters bankruptcy is not the key question," Alfa Bank said. "Rather the key questions are how much it owes, when it can pay and how its assets are valued ... We disagree that the prospect of a deal with Group Menatep is zero." President Vladimir Putin has said officials would help avoid YUKOS's collapse, but offers by the firm's management to pay its tax bill via a share issue has fallen on deaf ears.
"At present an increase in YUKOS's share capital of 75 percent would raise roughly enough to pay off both the 2000 and 2001 tax charges, but would also dilute the share price by 42 percent," Alfa wrote. "Share emission is a worse-case outcome."
At $6.50 a share, a 50-percent share boost would raise around $7 billion, while a 75-percent issue would raise over $9 billion, analyst Matthew Thomas said. At 4:35 a.m. EDT, YUKOS shares were trading at 188 roubles ($6.48).
Meanwhile, the firm's operations may grind to a halt.
"The most important question right now is who will have control of the operating subsidiaries," Troika Dialog wrote. "(Subsidiaries) managers could find themselves being issued with orders from both YUKOS's current management and the bailiff; if this happens, it is
