J-10
07-06-2004, 08:14 PM
More Tax Bills Threaten Russia's YUKOS
July 6, 2004 — By Jonathan Thatcher
MOSCOW (*******) - Russia's government signaled on Tuesday it might spare oil giant YUKOS from bankruptcy but then immediately threatened to hit the firm with more huge tax bills.
Prosecutors said they had no idea how the crisis, which is starting to turn investors away from Russia, would end.
The affair is widely seen as driven by the Kremlin, determined to crush the unwelcome political ambitions of YUKOS's major owner Mikhail Khodorkovsky, now in jail while he faces trial for tax evasion and fraud.
Increasingly, analysts warn that in his feud with the billionaire, President Vladimir Putin is alienating investors just when he needs them to help boost the economy, something he promised voters who swept him to a second term in March.
With just a day before a deadline to pay $3.4 billion in tax arrears, Deputy Finance Minister Sergei Shatalov appeared to show mercy, saying YUKOS could get more time to pay.
"To do this we need a request from YUKOS," he said "So far we haven't had one ... I cannot rule out that a decision on restructuring could be taken, because this is no ordinary case."
But within hours, Prosecutor General Vladimir Ustinov said YUKOS may be charged back-taxes for 2002-2003, on top of almost $7 billion the state insists it owes for 2000-2001.
"It's snowballing. This case has a beginning, but it is very difficult to see the end of this," Ustinov told Ekho Moskvy radio station.
Shatalov's comments had sent YUKOS shares, tumbling for months, up by as much as 23 percent. Ustinov's remarks sent them back down and by the close of trade on the MICEX exchange they were up just 7.4 percent at 200.40 rubles.
Putin has pledged not to destroy YUKOS, which accounts for nearly a fifth of Russia's oil output, but its future looked bleak as courts have frozen the company's assets, leaving it without the funds to pay the back-tax demands.
TEST OF NERVES
To some observers, it has become a test of nerves between Putin and Khodorkovsky -- whose trial resumes next Monday -- that risks going out of control.
"If this is a game of chicken going on and two cars are racing toward the cliff, we're getting very close," a senior U.S. diplomat said.
He said U.S. companies were being warned to exercise considerable caution about investing in Russia and pointed to recent data showing money had been fleeing the country.
Last week, the government said a net $5.5 billion left Russia in the first half of this year, compared to a net inflow of $3.9 billion a year earlier, a change of direction analysts blamed on Russia's mounting political risks.
Analysts say that the battle over YUKOS is fueling the uncertainty, creating doubts about the safety of putting money into Russia despite the attractions of the country's vast array of natural resources.
That could undermine Putin's goal of doubling the size of the economy in a decade.
The YUKOS crisis appears to have squashed chances of Russia winning an investment grade rating from leading ratings agency Standard & Poor's anytime soon.
"One of the, if not the single most constraining factors in the ratings still is the political risk. The uncertainty surrounding YUKOS and what the government policies are highlights the level of political risk," Konrad Reuss, S&P's managing director of sovereign ratings, told ******* in London.
Without that rating, Russia will stay out of reach of a huge new group of wealthy investors.
Some Western creditors have declared YUKOS in default, a move banking sources said was aimed more at the Kremlin for freezing the oil giant's assets and making it unable to service its debts.
Default brings with it the threat of undermining the ability of other Russian companies to borrow on international markets.
Fears that YUKOS's production could be hit have helped push up world oil prices. YUKOS sources said the company could cut some exports unless it can raise the cash to transport its oil.
abcnews (http://abcnews.go.com/wire/Business/*******20040706_332.html)
July 6, 2004 — By Jonathan Thatcher
MOSCOW (*******) - Russia's government signaled on Tuesday it might spare oil giant YUKOS from bankruptcy but then immediately threatened to hit the firm with more huge tax bills.
Prosecutors said they had no idea how the crisis, which is starting to turn investors away from Russia, would end.
The affair is widely seen as driven by the Kremlin, determined to crush the unwelcome political ambitions of YUKOS's major owner Mikhail Khodorkovsky, now in jail while he faces trial for tax evasion and fraud.
Increasingly, analysts warn that in his feud with the billionaire, President Vladimir Putin is alienating investors just when he needs them to help boost the economy, something he promised voters who swept him to a second term in March.
With just a day before a deadline to pay $3.4 billion in tax arrears, Deputy Finance Minister Sergei Shatalov appeared to show mercy, saying YUKOS could get more time to pay.
"To do this we need a request from YUKOS," he said "So far we haven't had one ... I cannot rule out that a decision on restructuring could be taken, because this is no ordinary case."
But within hours, Prosecutor General Vladimir Ustinov said YUKOS may be charged back-taxes for 2002-2003, on top of almost $7 billion the state insists it owes for 2000-2001.
"It's snowballing. This case has a beginning, but it is very difficult to see the end of this," Ustinov told Ekho Moskvy radio station.
Shatalov's comments had sent YUKOS shares, tumbling for months, up by as much as 23 percent. Ustinov's remarks sent them back down and by the close of trade on the MICEX exchange they were up just 7.4 percent at 200.40 rubles.
Putin has pledged not to destroy YUKOS, which accounts for nearly a fifth of Russia's oil output, but its future looked bleak as courts have frozen the company's assets, leaving it without the funds to pay the back-tax demands.
TEST OF NERVES
To some observers, it has become a test of nerves between Putin and Khodorkovsky -- whose trial resumes next Monday -- that risks going out of control.
"If this is a game of chicken going on and two cars are racing toward the cliff, we're getting very close," a senior U.S. diplomat said.
He said U.S. companies were being warned to exercise considerable caution about investing in Russia and pointed to recent data showing money had been fleeing the country.
Last week, the government said a net $5.5 billion left Russia in the first half of this year, compared to a net inflow of $3.9 billion a year earlier, a change of direction analysts blamed on Russia's mounting political risks.
Analysts say that the battle over YUKOS is fueling the uncertainty, creating doubts about the safety of putting money into Russia despite the attractions of the country's vast array of natural resources.
That could undermine Putin's goal of doubling the size of the economy in a decade.
The YUKOS crisis appears to have squashed chances of Russia winning an investment grade rating from leading ratings agency Standard & Poor's anytime soon.
"One of the, if not the single most constraining factors in the ratings still is the political risk. The uncertainty surrounding YUKOS and what the government policies are highlights the level of political risk," Konrad Reuss, S&P's managing director of sovereign ratings, told ******* in London.
Without that rating, Russia will stay out of reach of a huge new group of wealthy investors.
Some Western creditors have declared YUKOS in default, a move banking sources said was aimed more at the Kremlin for freezing the oil giant's assets and making it unable to service its debts.
Default brings with it the threat of undermining the ability of other Russian companies to borrow on international markets.
Fears that YUKOS's production could be hit have helped push up world oil prices. YUKOS sources said the company could cut some exports unless it can raise the cash to transport its oil.
abcnews (http://abcnews.go.com/wire/Business/*******20040706_332.html)