Analysts See Insider Link to Debt Bill

A new government resolution enabling it to acquire and sell off majority stakes in Russian companies with huge tax arrears may have more to do with power politics inside Russia's ruling elite than with tax collection, analysts said Thursday.


Under the March 5 resolution, companies with arrears greater than their shareholder capital can avoid bankruptcy proceedings by putting 50-percent-plus-one of their shares under government trust management.


In return, the government lets the company settle outstanding taxes in monthly payments over five years and arrears penalties over 10 years. But if the company misses two consecutive installments, the government can sell off all the shares.


"I expect the government will get the stakes and immediately sell them to the likes of Uneximbank or Menatep," said Maxim Shashenkov, a Russian equities specialist with Merrill Lynch in London. "This is a means for the government to redistribute property among elites, to match the redistribution of power over the last few months."


The plan, the brainchild of a working group headed by First Deputy Prime Minister for the Economy Vladimir Potanin, will not be obligatory, but many companies will have little choice.


The government is likely to target carmaker AvtoVAZ, with arrears of nearly 3 trillion rubles (more than $500 million), and oil companies Noyabrskneftegaz and Nizhnevartovskneftegaz, with $440 million in arrears between them.


"The decision to enter into such a deal can only be taken at a company's shareholder meeting," said Oleg Vyugin, deputy finance minister and a member of Potanin's working group. "But the alternative could be bankruptcy."


Shashenkov said inability to keep up with their payment schedule under the program will force companies to part with controlling stakes. He predicted the government would end up selling the shares to powerful Russian banks.


"In order to buy the stakes, Russian banks will want guarantees that Western partners will come in and will want signs of an overall revival in the economy. They'll want to know they're not buying a dead horse."


However, Vyugin denied that confiscated stakes would go to insiders. "They will be sold to the highest bidders at completely open auctions," he said, adding that foreign investors would have full access to the auctions.


Analysts said the plan could have positive effects for the companies concerned, so long as buyers could be found for the share stakes.


"Take AvtoVAZ, for instance. There was already a plan to sell off half of the company to a strategic investors last year, but the interest wasn't there," said Ken Payne, chief analyst with Regent European Securities in Moscow.