02 May 2004 04:39
Lex: Yukos
There are only two certainties in life: death and taxes. Yukos is facing both with a $3.5bn bill for back taxes and
the possibility that the Russian government wishes to push the oil group into bankruptcy.
Yukos believes allegations that it evaded taxes are "illegal, unfounded and selectively applied". It is
difficult not to sympathise. Yukos, like other Russian companies, sought to optimise its taxes within the existing legal
structure. The $3.5bn bill for 2000, half of which is penalties and interest charges, would not bankrupt the company.
But with the investigation widening the government could apply equally arbitrary penalties for subsequent tax years.
Pushing Yukos, which contributed more than 4 per cent of government revenues last year, into liquidation makes no
sense. Re-nationalisation of the assets would be a hugely retrograde step - in terms of the damage to Russia's
standing in international capital markets and probable losses of efficiency.
But the government's illogical stance only strengthens the belief that the real issue is an increase in the
political pressure on Mikhail Khodorkovsky and other leading shareholders to relinquish control of the company. It
appears more than coincidental that Yukos was handed a huge tax demand and its assets frozen as the date nears for Mr
Khodorkovsky's trial on fraud and tax evasion charges.
The affair is a test for the rationality of the Russian government. Opting for the positive scenario, under which
Yukos agrees a far smaller payment with the tax authorities, requires an act of faith. Yukos shares are cheap - 15 per
cent below a discounted cash flow valuation based on a 12.5 per cent cost of capital and a long-term Brent crude price
of $22.50. Rival Lukoil trades at a 20 per cent premium to its DCF valuation. It is more difficult to argue the shares
have discounted a sufficient probability of bankruptcy.
[FT.com site] |
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