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. Last Updated: 07/27/2016

Yukos Bankruptcy Case to Kick Off

bloombergThe Moscow Arbitration Court is due to begin hearing a bankruptcy suit brought by a bank syndicate against Yukos.
The Moscow Arbitration Court on Tuesday is due to start hearing a petition to bankrupt the nation's one-time biggest oil major, Yukos, potentially bringing the state -- and major creditor Rosneft -- another step closer to swallowing up the rest of the company.

Yukos said Monday that it planned to contest the petition, which was brought on March 10 by a syndicate of foreign banks led by Societe Generale over $482 million outstanding on a $1 billion loan.

Days after the banks filed the suit, Yukos said state-owned Rosneft had bought the debt from the banks under a December 2005 agreement.

The debt sale has further highlighted the role foreign banks have played in the dismantling of the oil major, which has been smashed by a slew of government back tax claims and the takeover of its main production unit, Yuganskneftegaz, by Rosneft in December 2004.

Analysts say Rosneft could now use the fact that the banks filed the suit to shield itself from potential claims it was behind the legal proceedings. Putin said in 2004 that Yukos should not be bankrupted, a statement that encouraged some investors to hold onto the stock even as Yugansk was being taken over by the state.

The filing came as Yukos said it was on the verge of selling its Lithuanian refinery, Mazeikiu Nafta, a sale that could have brought more than $1 billion tumbling into Yukos' foreign bank accounts, allowing it to pay off the banks' claims.

It is unclear whether the transfer of debt to Rosneft could invalidate the suit, which was brought by the banks even though they no longer held any Yukos debt.

According to a copy of some of the debt transfer agreements obtained by The Moscow Times, Societe Generale said it was resigning as lead agent for the loan in a letter signed March 14, four days after it filed the bankruptcy petition.

Yukos could have other defense mechanisms up its sleeve. It could try to demonstrate that other debts outweigh claims made by the state and Rosneft.

Deutsche UFG, citing company data, said the oil major owed $3.5 billion to Yukos Capital and $2.57 billion to Energotrade, a trader that sells Yukos crude. Together these debts could make up nearly 50 percent of Yukos' total liabilities.

The government says Yukos still owes a total of $10 billion in back taxes, but Russian courts have confirmed only $3.72 billion of that, Yukos spokeswoman Claire Davidson said Monday.

Rosneft is owed a total of $2.7 billion, including $2.2 billion Rosneft claims was misappropriated from Yugansk via transfer pricing schemes before the state took it over and the $482 million outstanding on the banks' loan.

Davidson declined to comment on the reported debts to Yukos Capital and Energotrade.

"Yukos will have to prove that Yukos Capital and Energotrade are not affiliated with Yukos," said Pavel Kushnir, an energy analyst at Deutsche UFG. When the debts first appeared on the company's accounts some two years ago, shortly after the legal campaign against the oil major started, the head of Yukos' investor relations refused to confirm whether Yukos Capital was affiliated with Yukos, Kushnir recalled.

Under Russian bankruptcy procedures, an external supervisor is appointed by the court to decide whether Yukos can be turned around and brought back to financial health or whether its assets must be sold off.

Despite what has long been looking like an inevitable takeover of Yukos by the state, insiders said the situation still looked too unpredictable to say whether the company would be totally liquidated.

If an asset sale is ordered, the court then appoints an external manager, said Dmitry Gololobov, a former lead Yukos lawyer. "It's not clear what's going to happen to the company. If an external manager is appointed, then there could be a sale of some assets to pay off debts, with the rest of the company remaining intact, or the company's liquidation could be launched."

Many observers said what happens to the company was almost beside the point because Rosneft appeared already to be running the company in Moscow. Yukos' Moscow-based managers led by Anatoly Nazarov have launched a mutiny against more senior managers in London including CEO Steven Theede. Last week, Nazarov told Interfax that bankruptcy proceedings were the only way out for the company and pledged allegiance to Rosneft, saying it was Yukos' most important partner.