Baikal Finance Group buys Yukos unit

Dec. 20, 2004
A surprise bidder calling itself Baikal Finance Group bought 77% of the Yuganskneftegas unit of OAO Yukos for $9.37 billion at an auction Dec. 19, prompting some analysts to suggest Baikal is linked to state-owned Gazprom.

By OGJ editors
HOUSTON, Dec. 20 -- A surprise bidder calling itself Baikal Finance Group bought 77% of the Yuganskneftegas unit of OAO Yukos for $9.37 billion at an auction Dec. 19, prompting some analysts to suggest Baikal is linked to state-owned Gazprom.

But Gazprom has denied any link with Baikal, Interfax reported. Last week, Yukos received a temporary injunction from a US bankruptcy judge in Houston attempting to block the auction.

A Yukos spokesman said that the injunction applied to a consortium of banks arranging a multibillion-dollar financing rather than to the Russian government (OGJ Online, Dec. 17, 2004).

The injunction effectively froze any financing packages that international banks had arranged for potential bidders. Little information is available about Baikal Finance except that it applied to bid on Friday, the day after the injunction was issued.

After the auction, the Kremlin said that it will seize Yuganskneftegas for taxes unless payment is received from Baikal Finance within 2 weeks, the Russia Justice Department in Moscow told the Associated Press.

The board of Yukos issued a short statement saying it will pursue every legal remedy available to recover the company's corporate value.

Yukos faces billions of dollars in delinquent tax claims. The company's problems began with the Oct. 25, 2003, arrest of Mikhail Khodorkovsky, its former chief executive, on fraud and tax evasion charges.

Khodorkovsky, a critic of Russian President Vladimir Putin, remains in jail and is on trial.

"The authorities have given themselves a wonderful Christmas present—they have destroyed the most effective oil company in Russia," Interfax reported Khodorkovsky as saying through his attorneys.

Yuganskneftegas produces about 1 million b/d of oil, which is 60% of the parent company's total, said Yukos.

Reaction
Yukos CEO Steven Theede told reporters in London, "The auction was farcical as the process being used by the Russians' false tax claims against Yukos."

Theede also said that the price was "half what should have been paid."

Andrew Neff, analyst for Global Insight Inc. in Washington, DC, called Baikal "a front for Gazprom, which apparently shied away from making a direct formal bid for Yuganskneftegas due to legal worries related to the US court ruling."

He believes that Gazprom will see Yuganskneftegas added to its portfolio, "allowing the state to strengthen its hold on the Russian energy sector."

Baikal Finance is registered in Tver, a central Russian region, and it shares an address with Gazprom in Tver, Neff said.