16 June 2004 05:31
Stocks Plunge on Yukos Tax Proposal
Yukos shares hit a two-year low at one point Tuesday, diving 14 percent during trading as the market showed little
faith in efforts by the oil giant to make a peace deal with the government.
All Russian blue-chips were affected by the plunge, which was precipitated by news that Yukos management had made a
direct appeal to Prime Minister Mikhail Fradkov, and that the government seemed unmoved by it.
In a letter to the premier last week, Yukos offered to cooperate in settling a $3.4 billion tax bill in exchange for
the government not pushing it into bankruptcy, Vedomosti reported Tuesday.
A possible deal could include a reduction of Group Menatep's stake in Yukos, the paper said, without disclosing
the exact content of the letter.
Menatep is the main investment vehicle through which jailed key shareholders Mikhail Khodorkovsky and Platon Lebedev
control Yukos. The men face a range of tax evasion and fraud charges in a trial set to begin Wednesday.
The government gave no signs that it was ready to negotiate Tuesday.
Fradkov, attending the annual International Economic Forum in St. Petersburg, was not available to answer questions
concerning Yukos' appeal. His press office said that Fradkov was the only person in a position to comment, as the
letter was addressed to him.
Tax authorities are charging that Yukos evaded taxes to the tune of $3.4 billion in 2000. If a court rejects
Yukos' appeal of the claim in a hearing scheduled for Friday, the tax bill could send the oil company into
bankruptcy.
"I am absolutely sure that no one needs Yukos' bankruptcy. It will deliver a serious blow not only to the
company itself, but to investors, to Russia's reputation," said Yukos deputy board chairman Yury Beilin, as
quoted by Vedomosti.
In the letter to Fradkov, Beilin said, Yukos offered to settle the tax bill by restructuring payments and regaining
the right to sell some of its assets. Currently, its assets are frozen by a court order.
Beilin also suggested that Yukos' main shareholders -- Group Menatep and its owners, Khodorkovsky and Lebedev --
could play a role in saving the oil firm.
"I think they don't have much choice. The shareholders should help either by providing cash or, if that is
not possible, by restructuring their stake [in Yukos]," Beilin said.
The Kremlin does not appear to have welcomed the peace offering, perhaps because it fails to give the authorities a
graceful exit from the Yukos affair.
"Any separate negotiations with the management would just go to prove allegations that the government is only
prosecuting the company to acquire assets," a government source told Vedomosti.
Negotiations could also leave Fradkov with egg on his face if, for example, Menatep were suddenly to drop out, a
source in the presidential administration told the paper.
While both sides clearly need some sort of resolution, analysts said, it is less clear how the government will end
the Yukos affair without scaring off foreign investors.
Should the court uphold the authorities' $3.4 billion claim Friday, as expected, the issue will inevitably
become something much larger than an infraction of the Tax Code, said Chris Weafer, chief strategist at Alfa Bank.
And if Yukos ends up filing for bankruptcy, the move is likely to be viewed as taking place with the Kremlin's
blessing, he said.
However it is not in the government's interest to let the mammoth tax bill damage Russia's image abroad,
Weafer added.
"[President Vladimir] Putin has to attract investment and has to keep investors' confidence level high.
Otherwise there will only be a skeleton of the economy and no muscle on it," Weafer said.
At the same time, some investors are concerned that the situation may have unraveled beyond the Kremlin's
control.
"There were plenty of chances [for the authorities] to do something, but barely anything has been done,"
said Steven Dashevsky, head of research at Aton brokerage.
Dashevsky said that there are few options left.
"If the state takes a share of Yukos, it just confirms the initial theory" -- that the legal attack was
launched to gain assets -- "and would paint the authorities in the most ugly way."
On the other hand, there are few signs that the process can be stopped.
"So external management and other bankruptcy-related 'niceties' are likely to follow," Dashevsky
said.
A swap of tax debt and fines for assets could actually be seen as a positive outcome, said Roland Nash, head of
research at Renaissance Capital investment bank. Such a scenario could be presented as a mere debt settlement and
finally close the issue.
"Then we can get back to some good news from Russia, like reforms or economic growth, and that would be welcomed
by the market," Nash said.
Any sign of communication between Yukos' key owners and the government is a reassuring development, while
current share volatility, he said, could be attributed to the fact that "at the moment the market is pricing in an
Armageddon."
Yukos regained some of its losses late Tuesday, closing at $6.43 per share, or 8.14 percent down.
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[The Moscow Times] |
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