27 April 2004 03:40
Banks Warn That Yukos May Default
A syndicate of foreign banks has warned Yukos that it is in danger of defaulting on a $1 billion loan following a
recent court ruling to freeze the company's assets over a $3.5 billion tax claim, Yukos said Monday.
The banks' warning that a "potential event of default has occurred" seriously raises the stakes for
Yukos, as the politically charged conflict between its core shareholders and the government spills over to damage the
company's day-to-day operations and threatens it with insolvency.
Yukos spokesman Alexander Shadrin said the warning from the banks -- which was dated April 23 -- did not mean that
the consortium of foreign creditors led by Societe Generale had announced default, called in the loan or blocked
accounts yet.
But he could not rule out that they could do so in the future.
The banks' notice allows for Yukos to continue unrestricted export trading, but lets lenders use their
discretion to get access to accounts held in security for the credit, the company said in a statement released late
Monday.
Shadrin could not say under what circumstances the banks might start calling in the loan or begin blocking
accounts.
Representatives of Societe Generale, the lead bank in the syndicate, and Citibank could not be reached for comment
Monday.
Other banks in the consortium include Commerzbank, Credit Lyonnais, Deutsche Bank, HSBC, ING Bank, BNP Paribas, and
UFJ Bank's Dutch unit.
Shadrin said the move had been prompted by a court ruling 10 days ago to freeze the entire company's property
pending the outcome of a claim for $3.5 billion in back taxes for 2000 filed by the Federal Tax Service the same
week.
In the wake of that ruling, international credit rating agency Standard & Poor's dramatically downgraded
Yukos' long-term credit rating to CCC last week, citing increasing risks of insolvency and nationalization.
"The actions of the [tax authorities] have reduced, in the view of Yukos' lenders and credit rating
agencies, Yukos' creditworthiness and have also caused considerable anxiety to a number of the largest financial
institutions in the world," Yukos' chief financial officer Bruce Misamore said in a statement.
Foreign creditors have not taken any action on Yukos' other long-term loan, a $1.6 billion syndicated credit the
company attracted last fall as part of its now-failed merger with Sibneft, Shadrin said.
Dow Jones reported that Yukos' American Depositary Receipts closed down 5.4 percent in London following
Monday's announcement, which came after trading finished on the RTS.
The announcement, combined with the tax charge, the downgrade and the potential for further multibillion-dollar tax
charges being levied retroactively could prompt a chain reaction that might pull the company apart, analysts said.
The Federal Tax Service is currently probing Yukos for possible tax evasion in 2001 to 2002.
"There is an increasing chance that a combination of these factors could prove too much for what was a
financially sound company," said Steven Dashevsky, head of research at Aton.
Analysts said it could now prove impossible to disentangle the company from the battle between its core shareholders
and the state.
Yukos founder Mikhail Khodorkovsky and his business partner Platon Lebedev are in pretrial detention on charges of
large-scale fraud and tax evasion in a case seen as Kremlin punishment for Khodorkovsky political and business
ambitions. Investors have been hoping that the fallout from that battle, which is seen as key for establishing greater
Kremlin control over the oil sector, would result in a change of ownership at the company that would affect Khodorkovsky
and his partners alone.
"The story was before that the core shareholders will suffer, but not the company or its minority
shareholders," Dashevsky said. "But the events of the last two weeks have shown very clearly that it is
impossible to disassociate the core shareholders from the company. It is impossible to see how the company is going to
escape unscathed from the current quagmire."
Even though the company could find the funds to pay off the $1 billion loan if it was called in, Dashevsky said,
there was a serious risk of insolvency if taken in combination with the $3.5 billion tax charge and the potential for
more.
"Bankruptcy is becoming much more of a possibility than it was some time before," he said.
Analysts predict the company is likely to generate between $2.8 billion to $3.5 billion in free cash flow this
year.
Chris Weafer, chief strategist at Alfa Bank, said it was now imperative for the government to find a quick resolution
to the conflict -- or risk ruining investor confidence. "The government can no longer afford to have this hang in
the hands of state agencies. It has to take a firm resolution," he said. "Otherwise it risks damaging the
investment credibility of the entire country and three to four years of the government's own work."
He said the Standard & Poor's downgrade last week means that it is unlikely the agency will grant the
country the investment grade for which the government has been striving.
Weafer said it was still unclear whether the government was cranking up the pressure to force Khodorkovsky and his
partners into acquiescing to the Kremlin, or whether the authorities were aiming to consolidate the entire company into
a state oil giant.
He said, however, that it was unlikely the government would force the company into bankruptcy.
"Bankruptcy is a dire consequence, which is still possible, but which would completely contradict everything the
government has been doing for the past four years," Weafer said.
"[Monday's announcement marks] a very serious step up in a conflict that till now has concentrated only on
ownership of assets, but now is affecting day-to-day operations."
Weafer said the announcement would make it even more difficult for the company to get access to working capital.
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[The Moscow Times] |
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