Moscow — The Russian oil giant OAO Yukos missed a deadline Wednesday for paying a multibillion-dollar tax bill, putting the state in a position to begin seizing the company's assets as early as today.
While desperate negotiations aimed at saving the company from bankruptcy were still going on late Wednesday, the passing of the deadline put the Kremlin in a position to begin what many have speculated was the government's intention all along — the effective re-nationalization of one of the country's major natural resource companies.
The turmoil surrounding Yukos has not affected many Canadian businesses in Russia, observers said, although some were scared off a decade ago.Eric Kraus, chief strategist at Sovlink, an independent brokerage in Moscow, predicted Yukos, which accounts for 4 per cent of Russia's economy, would be forced into a “Chapter 11-type” bankruptcy that would not disrupt operations.
“I think there is a zero per cent chance that oil production will be cut,” he told BBC television news. “The issue here is ownership.”
Amid the uncertainty over Yukos, the Russian banking system was in turmoil over the collapse of a bank on Tuesday and rumours — denied by the company — of trouble at the country's largest lender.
Hours before Wednesday's deadline of midnight Moscow time for paying the 94-billion-ruble ($4.27-billion) tax bill, court bailiffs had sealed off public records office in south Moscow to hunt for details of Yukos' assets.
As of Thursday, the company said, the bailiff would be in a legal position to start seizing those assets. The company, which is the target of multiple tax evasion investigations, has been forbidden by the courts in recent weeks from either accessing its cash accounts or selling its assets in order to pay the debt.
“Unless the government gives us more time to pay back what we owe ... we will be, technically speaking, insolvent,” said company spokesman Hugo Erikssen. In addition to the tax bill for the year 2000 due Wednesday, the company owes a similar-sized amount for 2001, and the Prosecutor-General has said charges for 2002 and 2003 may soon follow.
Despite the gloomy outlook, Yukos' share price shot up more than 13 per cent Wednesday as investors bet the company and the government might yet cut a deal. Much of the market's optimism was based on a proposal from the company's jailed former chief executive, Mikhail Khodorkovsky, who offered up his shares in the company as a way of paying the tax bill.
“My client, Mikhail Khodorkovsky, has suggested that the oil company's board of directors use the block of shares owned by the company's major shareholders to settle the government's tax claims,” lawyer Anton Drel said.
“Khodorkovsky also asked the board of directors not to declare the company bankrupt.”
Mr. Khodorkovsky, who has been in a Moscow jail since October on charges of tax evasion and fraud, controls, with associates, 44 per cent of Yukos through a holding company known as Group Menatep. His trial resumes next week.
Many observers feel the year-long legal onslaught that Yukos has faced has been orchestrated by the Kremlin, which wanted to punish Mr. Khodorkovsky for breaking an unwritten rule that the country's superrich “oligarchs” must stay out of politics. Mr. Khodorkovsky had recently begun funding political parties opposed to President Vladimir Putin and there was speculation he was interested in running for office himself.
The Organization for Economic Co-operation and Development Wednesday joined the already loud international criticism of the Kremlin's handling of the affair. “It is clearly a case of highly selective law enforcement,” the OECD said in a statement. It added that courts and prosecutors in the country are “highly politicized.”
In the banking crisis, the state-owned Vneshtorgbank stepped in with an offer to buy Guta Bank after the country's 22nd-largest financial institution collapsed Tuesday, locking out its customers and setting off alarm bells in a country where the wounds are still raw from the 1998 financial collapse that robbed millions of their savings accounts.
Hundreds of depositors besieged Guta Bank's Moscow offices Wednesday, some only heading home when told the state-owned bank would intervene. A sign on the door of one Guta Bank branch said it was unable to execute transactions.
In May, another small lender, Sodbusinessbank, lost its central bank licence amid accusations of money laundering.
Of much broader concern was Alfa Bank, the country's largest private lender. Rumours swirled all day that the bank was tottering on the brink of disaster, leading a stream of Russians to rush to the bank in the middle of their working day to make withdrawals from savings accounts. The bank said clients had withdrawn $100-million (U.S.) in cash since the weekend when media reports first suggested it was in trouble.
In a statement, Alfa Bank, which is controlled by billionaire oligarch Mikhail Fridman, denied it was having financial problems and said it was victim of a “premeditated attack” on its reputation.
In an effort to head off a larger crisis and increase liquidity, Russia's central bank lowered the amount of money banks must keep on reserve to 3.5 per cent of funds from 7 per cent. The move contributed to a spike in the world gold price, which saw its biggest jump in more than a year, rising $9.80 on the New York Mercantile Exchange to $402.80 for August delivery.
Meanwhile, Barrick Gold Corp., Canada's largest gold miner and one of many that have been looking to Russia for investment opportunities, said the latest turmoil has not changed its plans.
Company spokesman Vince Borg said the company is taking a long-term outlook on Russia and that Yukos' woes have not affected Barrick's perspective on the country.
“We are assessing things for the longer term, and what happens day to day or month to month is not going to change our long-term view.”
Greg Stringham, vice-president of the Canadian Association of Petroleum Producers, said Yukos' troubles wouldn't have “much impact at all” on the small number of service companies involved in drilling or technology in Russia.
“Many of the Canadian companies that looked at investment in Russia got touched by previous government intervention before it even went to Yukos in the early to mid-nineties. There's not very many of them that have actually returned. Most of it has been done through the mega-national companies like Exxon,” he said. “It's once bitten, twice shy.”
With file s from reporters Wendy Stueck in Vancouver and Erin Pooley in Toronto
