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. Last Updated: 07/27/2016

Creditors Vote to Liquidate Yukos

Yukos' creditors voted overwhelmingly to liquidate the nation's one-time biggest oil producer on Tuesday, opening the way for state energy flagships to gobble up its remains and ending its long battle for survival.

"This is the end of Yukos," said Eric Kraus, manager of the Nikitsky Fund. "It has been the walking dead for the past two years."

The creditors' vote Tuesday ends a 2 1/2-year saga that began with the arrest of Yukos' majority owner Mikhail Khodorkovsky on a Siberian runway in October 2003, and led to the crippling of his company as it fought more than $33 billion in back tax charges.

The politically charged battle has defined President Vladimir Putin's second term and has tipped the scales in the country's oil industry in the state's favor.

The sale of Yukos' main production unit, Yuganskneftegaz, in December 2004 as partial payment for the back taxes transferred 10 percent of the country's oil output into state hands at a bargain price. A further chunk reverted to state ownership when Gazprom snapped up Yukos' intended merger partner, Sibneft, just nine months later.

If Yukos' remaining production units go to state companies, as expected, the state will directly or indirectly control more than 60 percent of the nation's energy output.

The Moscow Arbitration Court still has to back the creditors' vote for Yukos to go into receivership. But the hearing, scheduled for Aug. 1, is widely expected to rubber-stamp the decision of the creditors, opening the way for a firesale of Yukos' remaining assets to pay off debts in as little as six months.

The creditors, dominated by representatives of the Federal Tax Service and state-controlled oil firm Rosneft, voted to liquidate Yukos in a conference room on the fourth floor of Yukos' central Moscow headquarters. Once the symbol of Yukos' Western management style, the recently built office block emptied after senior executives fled the country in 2004, fearing arrest.

On Tuesday, police guarded the entrance, while the company's barrel-chested, court-appointed temporary manager Eduard Rebgun presided over the vote. Also in attendance were his wife and a beefy bodyguard.

Yukos president Steven Theede resigned last week ahead of what he called a "sham" creditors meeting that would inevitably lead to bankruptcy. On Tuesday, however, a Yukos lawyer made a last-ditch attempt to save the company from oblivion.

Via a video link-up from a London boardroom the lawyer, Zack Clement, presented a financial restructuring plan that would allow the company to remain a going concern. Valuing Yukos' assets at more than $37 billion, Clement said all of Yukos' $18.2 billion in debts could be paid off within 18 months.

But after rattling through extracts of his own 250-page analysis of the company's financial situation, Rebgun pronounced the company insolvent.

"The debtor is not capable of paying off its debts in the allotted time," Rebgun said. "This allows us to conclude that the company should be declared bankrupted and its assets sold off."

Rebgun said that after a 24 percent profit tax had been applied to Yukos' assets, their sale value stood at just 477 billion rubles ($17.7 billion), a figure lower than its debts of 491 billion rubles ($18.2 billion).

Clement and Tim Osborne, the director of Yukos' main shareholder, GML, formerly Group Menatep, protested Rebgun's valuation of Yukos' assets, and said an independent assessment conducted by U.S.-based evaluator Alvarez and Marsal placed the company's value at $37.7 billion.

"The assets have been drastically undervalued in Mr. Rebgun's report in order to justify the liquidation of the company," Osborne told the meeting, via the same video link-up from London.

Clement and Osborne said Yukos would be able to pay off all its debts by merely selling off its stakes in noncore assets, such as its 20 percent stake in Gazprom Neft, formerly Sibneft, and its share in Rosneft via Yuganskneftegaz, which could net as much as $10.4 billion, based on Rosneft's IPO share price.

Rebgun conceded that he had not used a market valuation of the company in his report. He said his valuation was based on the assets being sold off at breakneck speed to pay off creditors in time, and thus at a steep discount.

Creditors from the tax service and Rosneft took issue with Yukos' financial rescue plan, saying it did not provide a concrete timeline for paying off claims and that it overvalued future income. The Yukos plan was then put to a vote and overwhelmingly rejected.

GML's Osborne called their subsequent vote in favor of the company's liquidation "absurd."

"The rejection of Yukos' rescue plan flies in the face of both internal and external valuations, including from UBS," Osborne said in a statement e-mailed after the vote. "The decision is simply the final step in the Russian government's campaign to destroy Yukos."

The creditors also voted Tuesday to appoint a creditors committee consisting of four representatives of the tax service, two from Yuganskneftegaz and one from Samaraneftegaz, a Yukos production unit.

The creditors also agreed to back Rebgun's candidacy as the firm's receiver. If approved by the court, he is to receive a salary of 8.6 million rubles ($320,000) per month.

Claire Davidson, a spokeswoman for Yukos in London, confirmed by e-mail that managers for the stricken oil major had held last-minute talks with Gazprom in London as late as this week on the sale of its 20 percent stake in Gazprom Neft.

"Gazprom has expressed its interest in acquiring the 20 percent stake of Gazprom Neft and other Russian assets owned by Yukos," she said, adding that Yukos was now considering whether to continue negotiations following Tuesday's vote in Moscow. She declined to elaborate on which other Yukos assets Gazprom was interested in.

A source close to Yukos said Tuesday's vote opened the way for a new battle between Gazprom and Rosneft over Yukos' oil assets. The two state-controlled companies are vying for control of the company's creditors' committee, he said, speaking on condition of anonymity because of the sensitivity of the situation.

The two companies already faced off in 2005 over plans to merge Rosneft into Gazprom. On that occasion Rosneft, which took over Yuganskneftegaz, outmaneuvered Gazprom. Since its $10.4 billion IPO in London and Moscow this month, Rosneft has become an industry heavyweight in its own right.

In a sign the battle could begin anew, Gazprom deputy CEO Alexander Medvedev has said the gas giant is interested in acquiring Yukos' second-biggest oil unit, Tomskneft.

Company insiders, including Theede, have said the company has long been taken over by Rosneft, which, they say, is forcing managers at Yukos to act in its interests.

Rosneft denies the claims.

Former Yukos vice president Alexander Temerko again appealed for the company to be saved. He said by telephone Tuesday that the state still had a choice. He said putting the company into receivership still meant the sell-off of assets could be stopped once all debts were paid off. If they were sold at market prices, the company could be kept as a going concern, he said.

"If they sell the assets cheaply it will only confirm that the people behind the creditors -- Rosneft and the state -- are part of a thieves' gang," he said. "They will be personally responsible."

Yukos shares plummeted Tuesday to a 12-month low of 13.5 rubles, valuing the firm at a paltry $1.35 billion.