Global Insight Perspective | |
Significance | A creditor meeting yesterday that was slated to decide whether to recommend to a Russian court that Yukos be allowed to survive under a restructuring plan or be declared bankrupt and liquidated was postponed until 25 July at the request of Russia’s Federal Tax Service (FTS), the oil company’s largest creditor. |
Implications | With Yukos officials fully expecting the creditors to recommend that the company be liquidated, Steven Theede, the American chief executive officer (CEO) of Yukos since June 2004, resigned in protest at what he called a "sham" creditor meeting that had no intention of considering a restructuring plan that would allow Yukos to survive. |
Outlook | The decision to postpone the creditor meeting - and likely allow the Russian courts to confirm more claims against Yukos - will only delay the inevitable declaration that the company is bankrupt, with creditors certain to seek Yukos’s liquidation. |
Tit-for-Tat, to the End
With creditors of embattled Russian oil major Yukos set to meet yesterday to decide whether or not to recommend to a court that the firm be declared bankrupt, Yukos again went on the public relations offensive, seeking to steal the news headlines of the day. Before the creditors could meet, Steven Theede, the chief executive officer (CEO) of Yukos, announced his resignation, citing the expected "sham" creditor meeting that he claimed was determined to destroy Yukos. In a resignation letter dated 19 July, Theede wrote that, "I anticipate a sham meeting tomorrow (Thursday), attended mostly by those who are intent on destroying the rest of Yukos and taking its assets with no serious consideration being given to our financial restructuring plan" (see Related Articles below).
Theede took the helm of Yukos in June 2004, nearly a year after the "Yukos affair" was initiated, and has been working in exile from the U.K. for most of his reign for fear of arrest in Russia. He said that he chose to resign, effective 1 August, owing to the belief that the court-appointed supervisor for Yukos, Eduard Rebgun, was certain to determine that "financial restructuring is impossible and liquidation is the only viable alternative". In June, Yukos announced a financial recovery plan geared to allow the firm to survive, but Theede’s resignation letter indicated that he felt that Rebgun and Yukos’s creditors - the biggest of which are the FTS and Rosneft - gave the Yukos plan short shrift. Not to be outdone, the creditors, at the behest of the FTS, postponed their planned meeting until 25 July, delaying the agony for Yukos for a few days more and taking some of the steam out of Theede’s accusations.
The FTS reportedly sought to delay the creditor meeting - which was legally required to take place at least 10 days before a court hearing now set for 1 August at which Yukos’s fate is to be decided - due to the need for technical changes to be made to a report compiled by Rebgun. Meanwhile, there is speculation that the delay could allow more claims to be confirmed against Yukos, thereby ensuring legally that the company’s liabilities outstrip its assets and thus giving justification to a creditor recommendation to liquidate the one-time top Russian oil producer. Yukos, of course, is a firm believer in this theory, and the two sides continue to differ in their valuation of the company’s assets and the extent of the claims against it. Theede said in a statement that Yukos disagreed with Rebgun’s estimate of the claims against Yukos of US$18.76 billion, while rejecting Rebgun’s claim that the company’s assets were only worth US$16.89 billion. Yukos said that its remaining assets were worth approximately US$30 million, while estimating the claims against it at US$16.98 billion, meaning that it could easily survive - if only its creditors allow it.
Outlook and Implications
As an example of just how divergent Yukos's and Rebgun's valuations of the company’s remaining assets are, the case of Yukos’s remaining stake in Yuganskneftegaz is indicative. Yukos continues to hold a 21.7% stake in its former production unit, in which Rosneft acquired a 76% super-majority stake consisting of preferred shares following a controversial auction to pay down Yukos’s debts in December 2004. Although Rosneft acquired the unit for a knock-down price of US$9.37 billion, the 1 million b/d production unit, which accounts for around 70% of Rosneft’s output, bolstered the company's valuation at its recent initial public offering (IPO) to the tune of US$79.8 billion. Yukos thus argued that its remaining stake in Yuganskneftegaz alone could be worth US$15.8 billion, based on the Rosneft IPO. However, Yukos’s creditors surely see the company’s minority stake - which consists of common shares - as far less valuable, especially considering the legal claims that Rosneft has initiated against Yukos for alleged financial mismanagement of the production unit.
After another round of "he said, she said" yesterday, little is likely to change, with Yukos and its creditors continuing to disagree on the state of the company’s finances while the relentless downward spiral that has enveloped Yukos will continue. Theede’s resignation as CEO may serve as another "moral victory" for the company in damaging the creditors’ credibility in pursuing the liquidation of Yukos, but such victories are beginning to ring quite hollow, especially as the end draws nearer and Yukos’s room for manoeuvre becomes more limited. Confirmation of additional claims against Yukos could strengthen the creditors’ case in arguing for declaring the company bankrupt and deciding to liquidate it, but does it really matter? Theede is probably correct that the FTS and Rosneft never gave true consideration to Yukos’s financial recovery plan, but then they don’t really have to - the creditors hold all the cards in this game, and they have little incentive to let Yukos play on. Although Yukos will survive to see another day, the delay in the creditors’ meeting is only postponing the inevitable declaration of bankruptcy and the certain dismemberment of the company.
Related Articles
Russia: 19 July 2006: Yukos on the Brink as Creditors Set to Meet, Rosneft U.K. Listing to Proceed
Russia: 28 June 2006: Yukos Bankruptcy Court Hearing Delayed Until August After Rosneft IPO
Russia: 6 June 2006: Proposed Yukos Restructuring Plan Aims to Fend Off Rosneft Takeover
Russia: 5 June 2006: Court Accepts US$2.77-bil. Yugansk Claim Against Yukos, Strengthening Rosneft's Case as Creditor
Russia: 29 March 2006: Yukos Placed Under External Supervision at Bankruptcy Hearing
Russia: 16 March 2006: Yukos Says Banks Sold Its Debt to Rosneft; Final Yukos Dismemberment Likely
Russia: 13 March 2006: Creditors Petition Russian Court to Declare Yukos Bankrupt
Russia: 19 January 2006: Yukos Hit with Back Tax Bill for 2004
Russia: 20 December 2005: Yukos Faces More Court Action on Debts; Forced Asset Sales Could Soon Resume
Russia: 25 June 2004: Yukos Replaces CEO, Appoints New Board Chairman as Tax Claim Lingers