Global Insight Perspective | |
Significance | Promneftstroi, a company that was originally bidding on behalf of Rosneft before the state-owned Russian oil giant denied the connection, won the auction for Dutch-registered Yukos Finance BV, the international arm of Yukos. |
Implications | The mystery bidder, which was apparently recently acquired from Rosneft by equally unknown Monte-Valle, paid just 7.84 billion roubles (US$306 million) to win the auction for Yukos Finance, which includes a 49% stake in Slovakian pipeline operator Transpetrol and about US$1.5 billion in cash from the sale of Yukos Finance's stake in Lithuania's Mazeikiu Nafta to Poland's PKN Orlen last year. |
Outlook | Yukos representatives, not surprisingly, have promised litigation as a result of the auction, which they claim was not only invalid but also illegal, and with a further court hearing on the case in Amsterdam (the Netherlands) slated for late October, the net effect is that the Yukos affair will drag on, albeit to a foregone conclusion. |
More of the Same
Throughout the series of auctions to liquidate bankrupt Russian oil major Yukos over the past five months, there has been one constant: controversy. In some auctions, Rosneft has emerged victorious outright, while in others, the state-owned oil giant has bid and lost or stayed on the sidelines, only to acquire the assets from the mystery auction winner later. In all cases, however, controversy has never been far behind, with Yukos representatives accusing the Russian authorities of perpetrating a sham with the systematic dismantling of the one-time leader of the Russian oil industry. Yukos officials have found fault with both the auction process and the fact that the auctions are taking place at all (see "Related Articles").
Hence, with all of the company's domestic assets already parcelled out—virtually all padding Rosneft's portfolio—it comes as little surprise that yesterday's auction of Yukos Finance BV, the Dutch-registered international arm of Yukos, would result in a dispute. Promneftstroi, a unit said to be bidding on behalf of Rosneft, won the auction with a bid of just 7.84 billion roubles (US$306 million), trumping its only rival bidder, Versar, with an offer just 2.5% above the starting price. However, a spokesperson for Rosneft said after the auction that neither Rosneft nor its affiliates had bid at the auction for Yukos Finance, the first of two lots for sale. Nevertheless, there was no confusion over Rosneft's participation in the second lot, as the state-oil giant acquired a series of debts owed to Yukos, paying a total of 332 million euro.
Confusion and Delay
Yukos representatives seized on the confusion over Rosneft's participation in the auction to hammer home the message that the auction was not only invalid, but illegal too. Claire Davidson, a spokeswoman for Yukos, said that Eduard Rebgun, the court-appointed receiver for Yukos, had no right to proceed with the sale of Yukos's international assets as litigation in the Dutch court system was ongoing. Questions over the validity of the auction, which unfolded like many of the other Yukos asset auctions with just two bidders and little actual competitive bidding, also surfaced, given the low winning price and speculation that both Versar and Promneftstroi have Rosneft connections.
Yukos officials also repeated complaints about the low starting price for the bidding. Yukos Finance BV includes a 49% stake in Slovakia's pipeline operator Transpetrol, which Slovak officials have said alone is worth US$100-120 million, as well as approximately US$1.5 billion in proceeds from the sale of Yukos Finance's stake in Lithuania's Mazeikiu Nafta to Poland's PKN Orlen. However, with Yukos representatives promising a "lifetime of litigation" for the buyers of the firm's assets, Rebgun's reasoning for setting a lower starting price for Yukos Finance was, he said, that it reflects the high risks.
While this initially appeared to play directly into Rosneft's hands, allowing the state oil giant to pick up Yukos assets at a discount, yesterday's auction seems to indicate that even Rosneft has some hesitation over acquiring Yukos's international assets. Unlike the bankrupt firm's Russian assets, where Rosneft knows it can count on a compliant Russian judiciary to uphold its acquisitions and strike down lawsuits filed by Yukos and its shareholders, the fight for Yukos Finance BV extends beyond Russia's borders to the Dutch court system, which is less predictable than the Russian court system in its rulings—and thus presents an actual risk for Rosneft in purchasing the Yukos international arm outright. This helps to explain why Rosneft did not participate in the auction, and why the company said that it sold Promneftstroi recently to little-known Monte-Valle.
Outlook and Implications
As in previous auctions, Rosneft is still expected to end up with the assets of Yukos Finance, although this will likely drag out for months in legal proceedings. A source close to Rosneft said yesterday's auction developments could have been a "technical move" by Rosneft, with the sale of Promneftstroi to Monte-Valle before the auction effectively shielding Rosneft from legal liability until the final outcome of the litigation over Yukos Finance is complete. The expectation then is that Rosneft would re-acquire Promneftstroi (or Monte-Valle) after the hullabaloo over Yukos Finance dies down and Rosneft triumphs in court in the Netherlands.
Rosneft's strategy may also be influenced by a Dutch court ruling yesterday that issued a temporary injunction prohibiting the company from using the 3.5 billion roubles that it could receive from Yukos Finance. The injunction relates to a lawsuit filed by British Virgin Islands-registered Glendale Group, which claims that Yuganskneftegaz, the former Yukos production unit now owned by Rosneft, owes it 3.5 billion roubles from eight promissory notes the unit issued to Glendale Group in 2003. Several Russian courts have refused to include Glendale Group's 65.6-billion-rouble debt claim on the list of Yukos creditors, but this injunction indicates that Glendale could be more successful in pressing its claim in the Dutch court system.
Hence, any hope that yesterday's auction would serve as the merciful end to the long-running Yukos affair has evaporated, as even if the auctions for the firm's domestic and international assets have now finished, the litigation battle will continue, just as Yukos owners promised. They have filed suits in both the Dutch court system and the European Court of Human Rights, with the next hearing scheduled for 31 October. Barring an upset, Yukos will press its case in vain, and Rosneft will ultimately end up in control of the assets that comprise Yukos Finance, but the fight will proceed in the courts. If nothing else, Yukos is proving to be a nuisance for Rosneft as the state-owned Russian oil firm finds it difficult to escape the shadow of the Yukos affair and move forward.
Related Articles
Russia: 14 August 2007: Rosneft Makes Play for Legitimacy with Initial Crude Oil Tender
Russia: 8 August 2007: Rosneft Picks Up More Former Yukos Assets
Russia: 16 July 2007: Creditors Vow to Sell Yukos Dutch Subsidiary, Including Stake in Slovakia's Transpetrol
Russia: 3 July 2007: Rosneft Buys and Sells Ex-Yukos Assets in Curious Portfolio Shuffle
Russia: 27 June 2007: Rosneft Acquires Ex-Yukos Gasoline Stations, Eyes Deal to Buy Former Yukos Headquarters
Russia: 28 May 2007: Dutch Court Says Foreign Assets of Bankrupt Russian Oil Firm Yukos Can Be Sold
Russia: 11 May 2007: Rosneft Cements Status with Samaraneftegaz Addition; Mystery Company Wins Yukos Retail Fuel Assets
Russia: 10 May 2007: Rosneft Emerges Victorious Again in Auction for Additional Yukos Assets
Russia: 4 May 2007: Rosneft Becomes Top Russian Oil Producer with Yukos Auction Victory
Russia: 28 March 2007: In the End, No Surprises in First Yukos Auction