- The Washington Times - Monday, December 20, 2004

MOSCOW (AP) — Russia has sold the heart of the Yukos empire in an auction reminiscent of the country’s notorious privatizations of the 1990s, analysts said yesterday as the former CEO of the oil company offered bitter season’s greetings to the Kremlin from his courtroom cage.

“The authorities have given themselves a wonderful Christmas present,” said Mikhail Khodorkovsky, the jailed founder of the business that had been considered the most transparent of all Russian companies.

A day after an auction that saw 11 percent of Russia’s oil output handed to a previously unknown company registered in a provincial western city, Russian stocks fell across the board, with Moscow’s RTS exchange closing down 1.2 percent for the day.

Yukos — once the bluest of the Russian blue chips — plunged deeper into junk stock status, falling nearly 26 percent on the RTS to 57 cents. At their high, Yukos shares traded at $16.

Even after the sale of the giant Yuganskneftegaz unit, the company must come up with $18 billion to pay crippling back-tax bills, meaning the breakup of the company’s assets is likely to continue.

In a statement on his Web site, Mr. Khodorkovsky, once Russia’s wealthiest man, pulled no punches in describing the Kremlin-orchestrated legal assault on a company he built from a suspect auction about a decade ago.

“They have destroyed the most effective oil company in Russia,” said Mr. Khodorkovsky, who has been behind bars since his arrest on tax and fraud charges more than a year ago.

The auction winner — BaikalFinansGroup — is an obscure company whose registered address is a building in the city of Tver that houses a food store, cafe and a mobile-phone shop. BaikalFinansGroup joined the bidding on Friday, one day after a U.S. bankruptcy court issued a 10-day injunction against the sale.

Yukos lawyers had turned to U.S. courts as a last resort, seeking Chapter 11 bankruptcy protection in an effort to stave off the sale of Yuganskneftegaz, which pumps nearly 60 percent of Yukos’ oil.

After that decision, a syndicate of Western banks pulled their financing for state oil giant Gazprom, which had been expected to acquire Yuganskneftegaz. In the auction, a representative for Gazprom’s nascent oil production arm declined to bid, having first left the auction hall to make a telephone call.

“This is a time-buying mechanism — they were caught off guard by the Houston decision and its effect on the banks,” said Ronald Smith of the Renaissance Capital investment bank.

Some analysts suggested that Yukos shares could be handed back to the state if BaikalFinansGroup failed to provide the cash by a Jan. 2 deadline, and forfeited its $1.7 billion deposit.

A spokesman for the Russian Property Fund, which organized the auction, suggested that the company could have until Jan. 11 to pay because of the New Year holidays.

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