29 May 2004 00:00
Yukos trial fears drive Moscow share prices lower
ByLine: Andrew Jack and Arkady Ostrovsky in Moscow
Shares on the Moscow stock market dropped sharply on Friday in a second day of pessimism fuelled by possible
bankruptcy at the embattled Russian oil group Yukos and the imminent criminal trial of its owners.
The company's share price dropped 10 per cent on the day and the key RTS index fell by 5 per cent in the wake of
a downgrading by two brokerages.
That came after a top Yukos executive warned on Thursday that the company could face insolvency before the end of the
year as a result of a $3.5bn (€2.9bn, GBP1.9bn) tax charge and a court-imposed asset freeze.
Separately, a Moscow criminal court held preliminary hearings on charges of $1bn fraud and tax evasion against
Mikhail Khodorkovsky, the former chief executive and largest shareholder, before deferring the formal opening until June
8 after a request from the tax authorities. Mr Khodorkovsky, who faces the prospect of a substantial fine and up to 10
years in jail, was brought to the court under heavy security on Friday.
His parents were not allowed into the court room, which was also closed to the media.
The court also deferred until June 8 the trial on similar charges against Platon Lebedev, Mr Khodorkovsky's
business partner, after the defence requested that the two cases be combined.
The delays sparked fresh speculation that there could be attempts to reach a settlement in a trial widely seen as
politically motivated and likely to result in the confiscation of their controlling stake in Yukos by the state.
Al Breach, chief economist at the Moscow brokerage Brunswick UBS, said: "The market is belatedly capitulating
and waking up to the risk that Yukos really could get forced into bankruptcy. When you face the endgame, the risk
becomes much more real."
However, he said the actions of the authorities were aimed not at bankrupting the company, but at putting pressure on
Mr Khodorkovsky and his partner to hand over their share to the state.
"The authorities clearly want Yukos out of these guys' hands. But what the market is worried about is, that
in order to achieve this, they would bring the value of the equity to zero."
He said the public humiliation of the company was also intended to be a lesson to other businesses trying to minimise
taxes.
Yukos argues that it acted within the law, and its payments had previously been audited without problem by the
authorities and its auditors.
The company faces a separate legal appeal on Monday over attempts by the oil group Sibneft, with which it merged last
year, to declare the transaction invalid.
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