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chicagotribune.com >> Business
Embattled Russian oil giant files for bankruptcy in U.S.
By Alex Rodriguez and Robert Manor, Tribune staff reporters. Alex Rodriguez reported from Moscow, Robert Manor from Chicago
Published December 16, 2004
MOSCOW --
In a last-ditch attempt to stave off its dismemberment at the hands of Russian authorities, oil giant Yukos filed for Chapter 11 bankruptcy protection in Houston, asking a U.S. court to intervene to stop the breakup of the company.
At the heart of Yukos' case, filed Tuesday and announced Wednesday, is the claim that the Russian government engineered a politically motivated vendetta against the company through arrests of top executives and "illegal, discriminatory and disproportionate tax claims" of more than $24 billion.
"The actions by the Russian authorities appear to be expropriation, 21st Century style," said Yukos Chief Executive Steven Theede, who along with other executives recently fled Russia.
Lawyers said Yukos probably has the right to file for bankruptcy in a U.S. court. The company said it does business in the U.S., and legal experts said
bankruptcy laws are liberal in allowing foreign companies to seek the court's protection.
But industry observers in Russia said the court's orders would be impossible to enforce in that country.
"This was our last resort," said Yukos spokesman Mike Lake. He said the bankruptcy is intended to disrupt an auction of the company's main assets by driving off bankers needed to finance the deal.
Many analysts believe Sunday's government-ordered auction of Yuganskneftegaz, Yukos' main production subsidiary, would signal the end for the company, once hailed in the West as a paragon of corporate governance and transparency in a country where corruption is rife.
The auction is expected to ensure that Gazprom, a Kremlin-friendly, state-controlled gas company, seizes Yukos' core asset, Yuganskneftegaz, for $8.6 billion, far below its estimated worth of $20
billion.
Yukos persuaded U.S. Bankruptcy Judge Letitia Clark to schedule a hearing Thursday on its request to block the auction and requested that she compel Russia to arbitrate its billions of dollars in claims. In Chapter 11, payments to creditors can be avoided while a company reorganizes to become viable.
As a leading Russian oil producer, Yukos is a major player in oil markets, producing about 2 percent of the world's crude. Gazprom's acquisition of Yuganskneftegaz would give it one of the world's largest reserves of oil and natural gas.
Yukos officials, along with most observers, believe the tax claims and the jailing of former Yukos CEO Mikhail Khodorkovsky for tax evasion and other alleged crimes are part of a Kremlin crusade with two aims: punish Khodorkovsky for bankrolling Russian President Vladimir Putin's political rivals and regain control of the
nation's lucrative energy resources.
Russian courts have struck down numerous appeals by Yukos. Analysts say it would be futile to seek bankruptcy relief in Russia.
However, some doubt that American courts will protect Yukos for long.
"It would seem extremely unlikely that there would be jurisdiction on Russian natural resources out of Houston," said James Fenker, research chief for the Moscow-based Troika Dialog investment firm.
The likelihood that the Russian government would heed a ruling in favor of Yukos is even smaller, he said.
Christopher Weafer, chief equity strategist at Moscow's Alpha Bank, called the filing "an act of defiance that has no possibility of success. ... Even if a U.S. court said, `Let's stop everything,' we assume that would be ignored by the Russian government. Investors are now realizing that Yukos will be completely
destroyed."
But some U.S.-based bankruptcy lawyers said the move to an American court could make it more difficult for the Kremlin to dismantle Yukos.
"Can they file for bankruptcy in the United States? Absolutely," said Douglas Baird, professor at the University of Chicago Law School. "You can file in the U.S. if you have assets in the U.S."
Gazprom is relying on a consortium of international banks to finance its bid for Yukos. Baird said he thinks the bankruptcy is intended to frighten away the banks, which have assets in the U.S. and are subject to the court's orders.
"We have included the banks in this, and they were represented in the hearing today," a Yukos spokesman said.
Lynn LoPucki, a professor of law at the University of California at Los Angeles, said Yukos is hoping its many creditors and debtors that do business in the U.S. will
adhere to the court's orders. That could disrupt the auction.
"My guess is their objective is limited," LoPucki said. "I don't think they are going to get the court to order Putin to back off."
A Kremlin official said no one was available to answer questions. Alexander Komarov, a spokesman with the Russian Federal Property Fund, which is overseeing the auction, said it will proceed as planned.
Russian authorities have maintained the case against Yukos is a simple matter of a corporation that tried to cheat the government out of billions of dollars in taxes. However, more than half of what Yukos owes is made up of fines and penalties. The company was given no chance to pay its original tax of $9 billion, and the government has never explained how it calculated the fines.
The tax claims against Yukos for 2001 and 2002 exceed the company's gross revenue for
those years, Yukos officials say. It has submitted more than 70 offers to the Russian government to settle the debt. All were ignored.
Before Khodorkovsky's arrest in October 2003, Yukos' stock price on Russia's RTS exchange was listed at $16. On Wednesday, it was listed at less than $1.
Behind bars for almost 14 months, Khodorkovsky is on trial on charges of tax evasion, fraud and embezzlement. The trial is expected to continue into early next year. The billionaire faces up to 10 years in prison if convicted.
Copyright © 2004, Chicago Tribune
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