29 May 2004 00:00
Yukos trial prompts market to fall RUSSIAN OIL GROUP:
ByLine: By ANDREW JACK and ARKADY OSTROVSKY
Shares on the Moscow stock market dropped sharplyyesterday in a second day of
pessimism fuelled by the prospect of 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 Dollars 3.5bn
(Euros 2.9bn, Pounds 1.9bn) tax charge and a court-imposed asset freeze.
Separately, a Moscow criminal court held preliminary hearings on Dollars 1bn
charges of 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 yesterday. His
parents were not allowed into the court room, which was 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. www.ft.com/yukos www.ft.com/lex
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