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. Last Updated: 07/27/2016

THE ANALYST: Tainted Yukos Unworthy Of Fresh Foreign Funds




Mikhail Khodorkovsky, chief executive office of Yukos, is losing respect fast. He is in a state of desperation.


The bank he founded, Menatep, had been slowly expiring since last September, and finally had its license revoked last month. Last autumn he lost a 30 percent stake in Yukos, Russia's second largest oil company, to three foreign banks in a repo transaction. Small shareholders in Yukos subsidiaries are organizing a mass rebellion to express their indignation about three dilutive equity offerings that they have been unable to stop. Yevgeny Primakov, with whom Khodorkovsky had managed to build a close relationship, is no longer running the country, and the new fuel and energy minister is believed to be antagonistic to Yukos' interests.


How does Khodorkovsky react to all this? Well, last Friday, he gave disgruntled minority shareholders in Yukos subsidiary Tomskneft just a few hours warning that a scheduled shareholders meeting had been moved to a location in the boondocks some 200 kilometers away from the original meeting site in Moscow. The official reason? Leaky pipes.


As if in Moscow, at that time of day, there were no empty (and dry) halls to fill in as a substitute. Yukos management knows perfectly well that it could have spent $300 to rent a movie theater for a few hours if it wanted; the theater managers would have only been too happy to earn a few extra bucks. But that's the point: Yukos managers obviously didn't want to meet with Tomskneft shareholders.


This event begins a new chapter in the horror novel of shareholder rights in Russia. "The Tale of the Faulty Pipe," as this installation could be titled, comes as a sudden plot twist after Andrei Krasnov, Yukos' chief press officer, wrote in a letter to the editor of The Moscow Times that "[Yukos] plans, as before, to continue negotiations with all shareholders who have a constructive attitude."


Apparently for Khodorkovsky and Krasnov just showing up for a planned meeting is "unconstructive" behavior.


Consequently, Khodorkovsky's reputation has been thrown from the frying pan into the fire. And appropriately so. In addition to the above-mentioned tarnish, the Federal Property Fund recently filed suit against a Menatep subsidiary which failed to fulfill investment conditions pursuant to a purchase of a stake in Avisma, the world's largest producer of titanium sponge. Birkenholz, an offshore company, won a series of arbitration rulings last autumn on the purchase of a 10 percent stake in Achinsk refinery from Eastern Oil, a deal which Yukos refused to acknowledge.


You reap what you sow. Investors and bankers have had enough of Yukos' games. The World Bank in May issued a statement commenting on the possibility of financing Priobsk, Yukos' major oil field: "Not only have we not received any requests to finance such a project ... but there would appear to be no basis for favorable consideration of such a request by the bank." Touch?.


Still, reality hasn't sunk into Khodorkovsky's frame of mind. In an interview with Expert published last week, the undaunted oil baron specifically cited the World Bank as one of the possible sources of finance for developing the exhausted Priobsk field under a production-sharing agreement. "We have experience in attractive funds," said Khodorkovsky, adding that Yukos was the first company to conclude a syndicated loan backed by crude exports. Somehow he failed to mention the $260 million he borrowed as head of Menatep but failed to return to the three foreign banks.


His arrogance knows no bounds. In the same interview, responding to the allegation that Yukos' three subsidiaries used the arrest of the shares owned by Kenneth Dart, the controversial investor, to ram through share emissions that diluted minority shareholders' stakes and sucked value out of Yukos, Khodorkovsky said, "We think that God helps those who are right, and in this case He helped us in the form of Russian justice."


So, Khodorkovsky believes he and his repulsive entrepreneurial undertakings are the blessed recipient of divine intervention. Thus God, probably pressed to exasperation as the second millennium draws to a violent close, found time in His schedule to fiddle a bit with Yukos' corporate governance problems. For Khodorkovsky's sake, one has to wonder how good He is at procuring major credit lines. Will the Creator help the Moses of Menatep procure a loan from the World Bank? International financiers - not least of them World Bank chief James Wolfensohn - are advised to duck next time there's a thunderstorm in Washington.


Sarcasm aside, it is the duty of all honorable, virtuous investors in Russia to prevent Yukos from being able to raise funds on international capital markets. The single best way to achieve this is to wage a counter-offensive against the oil company's efforts to get new money from international financial institutions. Yukos and its CEO should be left alone to choke in the murky grave they have dug for themselves.