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. Last Updated: 07/27/2016

Yukos Warns It May Go Bankrupt

Yukos warned on Thursday that the company could go bankrupt by the end of the year because it cannot raise the cash to pay a $3.4 billion tax bill imposed by the Tax Ministry in April.

The company's stocks fell almost 12 percent to $8.40 on the announcement, the lowest level since December 2002.

Yukos' warning came the day after a Moscow court upheld the legality of the Tax Ministry's case, and ahead of a Yukos appeal to the Moscow Arbitration Court on Friday against having to pay the bill.

"The situation in large part depends on the goodwill of the government," said Yukos deputy chief executive Yury Beilin at a news conference Thursday. "Without that, then absolutely, the company will go bankrupt this year."

Some analysts said Yukos appeared to be launching a media offensive ahead of the important case.

"This is an attempt by Yukos to steal the initiative," said Adam Landes, an oil and gas analyst at Renaissance Capital. "This is all about getting press coverage. What is Yukos going to do, just sit there until it can't pay? It's got to do something to protect the company, and raising attention ... is one way of doing that."

In a statement, the company said it has $800 million on hand and expects to have $1.1 billion to $1.2 billion by June 30. But a court-ordered freeze on the company's property means Yukos cannot sell assets, including stocks, to help pay the tax bill, the company said.

If the freeze remains in place, the company will have at most 70 percent of the amount owed by the end of the year, according to the statement.

"Unless the court ban is lifted, the sale of assets is impossible," the statement said. "If the tax authorities continue their actions, we can forecast with high probability that we will go bankrupt before the end of 2004."

Yukos also said that the current $3.4 billion figure is for claims of unpaid taxes in 2000 alone, and that another bill for 2001 could be coming.

Beilin said the company would consider selling its shares in Sibneft if the freeze were lifted.

"We might sell Sibneft, just as we might sell any other asset, to cover our tax bills," Beilin said. "We hope that the government isn't trying to bankrupt us, but to raise some tax revenue."

Chris Weafer, chief strategist at Alfa Bank, said Yukos would be able to pay off the tax claim if the company is able to sell off its stake in Sibneft.

"Bankrupting the biggest oil company in Russia would destroy Russia's investment credibility," Weafer said. "It would severely hurt the government. The timing seems very much in response to [Putin's] speech yesterday," in which the president called for pushing ahead with reforms that would require large amounts of capital, particularly from Russian investors.

On Thursday, Standard & Poor's ratings service said it could still downgrade Yukos' long-term corporate credit rating below the current CCC, pending the outcome of the tax appeal. Standard & Poor's cut Yukos' credit rating five levels last month.

Wednesday's court ruling was a confirmation that the Tax Ministry's demand was legal, according to Yukos spokesman Hugo Erikssen. "Yukos had questioned the legality of it," he said. "This means the case has not been dismissed and now can be heard. It had nothing to do with the hearing in substance."

A court ruled on May 19 that Yukos would not have to pay the tax bill until its appeal has been heard.

Staff Writer Catherine Belton contributed to this report.