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Sat, Jul 03, 2004 - Page 12 News List

Court upholds freeze on Yukos' property

COLLATERAL The Moscow ruling moves the Russian oil giant one step closer to bankruptcy and company officials warn it may soon have to stop production


The Moscow Arbitration Court yesterday upheld a freeze order on the Yukos oil company's assets, effectively putting the company's assets up for collateral to ensure payment of the government's back tax claim of 99.4 billion rubles (US$3.4 billion).

Yukos had said it could satisfy the back tax claim only if the court order preventing it from selling assets were lifted and if it were allowed to stagger the payments.

The Arbitration Court ruling came a day after court bailiffs handed the company an execution order on the Tax Service's claim and bank accounts of NK Yukos, a holding vehicle for the company's production assets, were frozen. Those moves prompted a warning from the company that it may have to stop oil production in the near future.

"The actions of the Court Bailiffs Service to arrest the bank accounts create an indisputable threat of halting current operations of Yukos," posing "a threat to the company's ability to pay current taxes and meet its obligations to creditors," the company said in a statement issued late Thursday.

Earlier Thursday, Yukos had offered court bailiffs its 35 percent stake in the Sibneft oil company as payment for the 2000 tax claim. Yukos obtained the Sibneft shares in a failed merger that has yet to be formally unwound.

"The refusal to take Sibneft shares and arrest of its [Yukos'] bank accounts will have a negative effect on the operations of the company, and its ability to continue as a going concern," Yukos said.

It added that the value of its stake in Sibneft "exceeds the total of taxes, surcharges and penalties levied on Yukos Oil Company by the ruling of the Court of Arbitration."

Hours after the bailiffs delivered the court papers on Thursday, Russian news agencies reported that the Tax Service was demanding almost the same amount -- 98 billion rubles -- for 2001.

The company's shares plunged 15 percent in a frenzied response to the reports. Yukos had said the 2000 back taxes bill alone could force it into bankruptcy.

A Yukos spokesman said that the bank accounts that were frozen did not include those of Yukos' operating subsidiaries.

"The company's primary cash flows don't go through these accounts," Dow Jones NewsWires quoted a company spokesman as saying.

Yukos says it hadn't received any official notification of the new claim for 2001, which drives up government demands against Yukos to a crippling US$6.7 billion.

The oil giant could also face new claims for 2002 and last year, which analyst Pavel Kushnir of the United Financial Group in Moscow called "almost certain" now.

The ruin of Yukos, Russia's biggest oil producer with output at about 1.72 million barrels a day, could tarnish Russia's image abroad and slow growth in the oil sector -- the country's main cash earner and an industry that bolsters President Vladimir Putin's international clout.

The multi-pronged attack on Yukos is widely seen as a Kremlin-directed move to punish former Yukos chief executive officer Mikhail Khodorkovsky, Russia's richest man, for his funding of opposition parties and to warn other billionaire businessmen to stay out of politics. Government officials insist, however, that the probe is part of a drive to root out corruption and ensure that businesses and their leaders obey the law.

Putin said last month that Yukos' bankruptcy was not in the government's interest. But some analysts believe that Yukos' only chance for survival is if control over its assets passes from the hands of the politically ambitious Khodorkovsky and his associates into more Kremlin-friendly hands.

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