Foreign Correspondence

[StephanieVanbryce]

Banks Drop Support of Bid for Russian Oil Giant's Unit

December 18, 2004
By ERIN E. ARVEDLUND

MOSCOW, Dec. 17 - Russia brushed aside an American court's attempt to halt the auction of the oil giant Yukos' biggest production unit, but a consortium of international banks withdrew their support for a bid by the state gas monopoly Gazprom.

Gazprom on Friday said it still planned to bid on Yukos's prize asset, Yuganskneftegas, in an auction Sunday - despite a last-minute decision by Deutsche Bank and others to pull out of a loan reported to be up to 10 billion euros ($13 billion). The starting price for Yuganskneftegas is $8.65 billion.

Alexander Stepanenko, a spokesman for the company's oil unit, said Gazprom had made the necessary deposit of $1.7 billion to take part, despite the fact that Deutsche Bank and other banks were delaying financing - heeding an order issued late Thursday by a judge in Houston who told bidders and their banks not to take part in the auction.

"Gazprom will participate" in the auction, Mr. Stepanenko told the Rossiya television channel. In a statement late Friday, Gazprom, which is widely expected to win the auction, also said that after the sale it would decide whether to borrow money and how much it might need to borrow.

Russian government officials lashed out at the court decision. Russia's foreign minister, Sergei Lavrov, insisted on state television that the Yukos affair would be decided "under Russian law" and argued that the United States court ruling had no legal force in Russia.

The planned auction of Yuganskneftegas is an internal matter, Prime Minister Mikhail Fradkov said in remarks carried by Interfax news agency. "We follow our internal legislation, which is the determining factor."

Yukos supported the Houston bankruptcy judge's decision on Friday, as law enforcement agents yet again searched the company's headquarters in downtown Moscow.

"We remain realistic about the ruling's immediate effect," Yukos said in a statement published on its Web site. "While Russian authorities have stated their intention to proceed with the auction, we hope the ruling will lead international banks and other parties to reconsider their participation."

The Kremlin-inspired campaign against Yukos and its founder, Mikhail B. Khodorkovsky, is widely perceived as punishment for his political ambitions and his lobbying for private oil pipelines. The tax claims against Yukos have mounted to more than $27 billion for the years 2000 through 2003. Yuganskneftegas is being auctioned to cover the tax bill.

A Deutsche Bank spokeswoman in London, Joanna McCulloth, declined to comment. But the syndicate of banks - which included Deutsche, J. P. Morgan, ABN Amro, BNP Paribas, Calyon and Dresdner Kleinwort Benson - will not be lending money to Gazprom in the next 10 business days or risk defying the judge in Houston.

Gazprom "strongly believes the decision was unfair and the filing of a bankruptcy proceeding by Yukos in the U.S. was an attempt to circumvent Russian law," said Nikolai Krylov, a partner at the Winston & Strawn law firm, which is representing Gazprom. "Their main assets were in Russia."

Christopher Granville, a strategist for the UFG brokerage firm, which is partly owned by Deutsche Bank, said that even without the Western bank syndicate, Gazprom "can find the money from somewhere else, possibly Russian banks or other sources."

Surgutneftegas, a Kremlin-friendly Russian oil company with $7.5 billion in cash, could be a source of money.

The Houston court's injunction lasts for 10 days, and if it is lifted the banks might still be able to provide Gazprom funds before the payment deadline of Jan. 2.

"There are options for Gazprom," said Adam Landes, an oil analyst covering Russia for Renaissance Capital out of London.

"The banks could lend to the government, which in turn could lend the money to Gazprom."

There was also a slim chance that the government could cancel the auction; on Friday, Yukos canceled a shareholders meeting set for Monday. The Sunday auction was widely believed to have been timed to trump the shareholders meeting, where bankruptcy and even liquidation would be on the agenda. Yukos also canceled another shareholders meeting, scheduled for Jan. 13.

The Russian authorities "can make this up as they go along," Mr. Granville of UFG said. "The legal environment in Russia allows for great flexibility. If there's a delay in pulling in financing because of the restraining order in Houston, that delay can be accommodated."

He added, however, "large international banks aren't going to take the risk of being in contempt of court - they all have interests in the U.S."

On Friday evening, the Federal Antimonopoly Service in Russia said it had received four bids: from Gazpromneft, a Gazprom investment vehicle; from First Venture; from Intercom; from little-known company, the Baikalfinans Group. All bids are due Saturday at 6 p.m. Moscow time.


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