Mikhail Khodorkovsky’s oil empire Yukos goes bankrupt with 18 billion dollar debt

At a meeting yesterday, YUKOS creditors decided to solicit the court of arbitration for the company to be declared bankrupt and for competitive production to be introduced. The court should by law give a verdict on the basis of this decision. In this way, it is possible that the bankruptcy will proceed according to prior plans, which state that on the 1st August, YUKOS will be declared bankrupt at a meeting of the court of arbitration.

Meanwhile, Gazprom, hoping to acquire YUKOS assets at a low price before the court meeting, seem to be running into difficulties. A representative of the disgraced company informed Interfax yesterday that it would be impossible to complete the transaction before August 1: “We cannot prepare an estimate and the necessary documents in such a short space of time, this would require two or three months.” But the official representative of the company Claire Davidson announced yesterday that as well 20% of Gazprom oil shares, the gas giant is determined to obtain other assets (all sources indicate she was referring to Tomskneft), however she chose not talk about whether the management of YUKOS would agree to a quick sale: “The company received an offer from Gazprom last week and began negotiations regarding the purchase of these assets, and has concluded that in order for the process of negotiation to continue in a profitable manner, it is essential to inquire into obtaining permission from the arbitration manager, Edward Rebgun as a first step before beginning any negotiations,” she says in her statement. However, yesterday evening Mr Rebgun informed Vremya Novostei that he had not received such requests. “This is a very significant issue,” he said. “If some assets are sold, thousands of pages of materials will have to be copied before the court meeting on August 1. I will begin working on this problem as soon as I receive the corresponding documents, for now it will only excite the public and nothing else.”

Yesterday, after a five day break, the meeting between YUKOS creditors continued, during which the decision was made to solicit the court for the company to be declared bankrupt and for competitive production to be introduced. Creditors who control 94% of YUKOS debts voted for this. In his speech, Mr Rebgun announced that the company’s credit debt as confirmed by the court, considering fines and penalties, totals 491.5 billion rubles (18.2 billion dollars), and their assets, according to the estimates of their specialists, stand no higher than 477.1 billion rubles (17.7 billion dollars). In other words, YUKOS, according to the estimate of the arbitration manager, is not in a state to repay its debts.

In their presentations, representatives of YUKOS insisted most of all that the company is worth considerably more than the arbitration manager estimates. The financial director of Group Menatep Ltd. Tim Osborne announced during the creditors’ meeting that YUKOS assets total 37.7 billion dollars. “It is clear that YUKOS is solvent,” he said with confidence. Meanwhile, lawyer Zack Clement has stated that the management of the company assumes that YUKOS is capable of canceling all their debts by selling some assets and following this it will become a solvent company with a capitalization of over 15 billion dollars.

However, Mr Rebgun said that the estimate of YUKOS assets presented to them is contained in the company’s own records. “This data comes from the balance, written by the company in its official accounts.” Mr Rebgun’s advisors said in their statements that for YUKOS’s estimate, the liquidation value of the assets had been adapted rather than the market value, and with a discount ranging from 15% for production capacities to 40% for a 20% share of “Gazprom oil.”

Even ifGazpromproposesmore for the YUKOS assets than is proclaimed in Mr Rebgun’s account, this is still unlikely to be enough to cancel all the debts of the disgraced company. “491 billion rubles only account for debts confirmed by the court,” says the arbitration manager. “These are the debts owed to twenty creditors who went straight to court. But according to the balance, YUKOS has a credit debt of 787 billion rubles (29 billion dollars). The company has not disappeared with the introduction of external observers, it has continued to work. With the beginning of competitive production, if the court introduces it, all the creditors (of which there are over 200), may arrive. And it is this figure that needs to be understood. The difference between 491 and 787 billion rubles is about 10 billion dollars; it is unlikely that this can be covered by private sales of assets.”

Evidently, in this case, from the point of view of creditors, it is not profitable to sell Gazprom assets cheaply. “Furthermore, if you were a foreign YUKOS shareholder and YUKOS began selling its assets cheaply, what would you do? Correct, you would go to an American court. And an American court is something terrible!” said Mr Rebgun.

However, it is clear that Gazprom are perfectly aware of the prospective consequences of buying YUKOS assets for relatively low prices, and this is why they do not comment officially on the matter, but repeat the words of Claire Davidson, stating that Mr Rebgun’s approval is essential for the continuation of negotiations with YUKOS.

The fate of Mr Rebgun himself was also decided yesterday. As is well-known, at the end of last week, many sources suggested that he is unlikely to become involved in the sale of YUKOS property. The fact is that on the agenda for the creditors’ meeting, the issue was raised that the self-regulating organizations of arbitration managers should make a nomination for the competitive manager before the Chamber of Commerce and Industry. Creditors yesterday also voted on this point. Informed sources confirmed that Mr Rebgun (considered loyal to the Rosneft team, headed by the representative of its council of directors, the deputy head of the administration of President Igor Sechiny) will most likely be discharged from the process of the sale of YUKOS property, and his place will be taken by a competitive manager, in agreement with the ideas of another Kremlin group, under the management of the head of the council of directors of Gazprom, the first Vice Prime Minister Dmitry Medvedev.

However, this has not occurred. Yesterday, at the YUKOS creditors’ meeting, Mr Rebgun decided to use an amendment in the law on insolvency (bankruptcy) that came into force at the end of last week and proposed to confirm his candidature for competitive managers. According to the amendment, if creditors put forward a nomination for a competitive manager, the court is obliged to confirm it (providing, of course, that he takes responsibility for claims laid to the arbitration manager), and not the proposed self-regulating organization. The creditors agreed with Mr Rebgun’s proposal and also decided to recommend the court to fix a monthly recompense for the manager in the region of 8.6 million rubles (319 thousand dollars). However, in May, representatives of the creditors asked the court to pay Mr Rebgun 20 million rubles (742 thousand dollars), but the judge considered that a salary of 300 thousand rubles (11,000 dollars) was enough.

YUKOS shares, according to yesterday’s figures, have fallen by 26.7% on the Moscow Interbank Currency Exchange, down to 15.9 rubles per share (the minimum price is 13.5 rubles, as fixed last Spring), whilst RTS has fallen by 35.4%, down to 53 cents per share.

Vremya Novostei

Translated by Leila Wilmers

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Author`s name Dmitry Sudakov