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Yukos' Main Subsidiary Up for Sale

Yukos' Main Subsidiary Up for Sale

Yukos' Main Subsidiary Up for Sale

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Russia's justice ministry has announced plans to break up giant oil and gas producer Yukos by selling its main subsidiary, Yuganskneftegas. The announced sale prompted an immediate slide on the Russian stock market.

Russian Justice ministry spokesman, Alexander Buksman, says the decision to sell off parts of Yuganskneftegas, the core production unit of Yukos, is due to what he called the company's slow payment of billions of dollars of back taxes to the government.

Mr. Buksman characterized the dynamic of Yukos' payments as unsatisfactory and said the government had no choice but to move to sell off some of the company's more lucrative assets.

The Yuganskneftegas subsidiary is considered the crown jewel in the struggling Yukos empire and word of its sale sent a shiver through the Russian market.

Trading on Russia's Micex currency exchange was closed for one hour after Yukos share prices dropped more than 10 percent by mid-afternoon trading.

Many analysts attributed the price drop to a symbolic reaction to the $10 billion value the justice ministry assigned to Yuganskneftegas.

Anna Butenko is an oil and gas analyst with Moscow's Alfa Bank. She says the figure is well-below market.

"If it were normal circumstances, and we were just valuing Yugansk[neftegas] and everything was fine with the company, it is obviously lower than one might expect," she said. "I mean it is a below $1 per barrel valuation of reserves, which is low by even Russian standards."

Now that word of the sale is known, Ms. Butenko says the real question is whether the Russian government will go after the rest of Yukos' assets, thereby finishing off the company as it has been known.

Mr. Buksman with Russia's justice ministry revealed little else about the sale, including when, where or how it would be held. He also failed to mention if foreign firms would be allowed to compete. But he did defend the valuation given to Yuganskneftegas as fair.

Mr. Buksman said the German company that handled the figure estimating the subsidiary's worth was extremely reliable and, in his view, accurate.

Numerous Russian reports last month cited Western and Russian analysts as estimating Yuganskneftegas' worth at $15 billion to $17 billion.

Once Russia's largest and most successful oil company, Yukos is now mired in one legal proceeding after another, while two of its leading executives - former CEO Mikhail Khodorkovsky and main shareholder Platon Lebedev - are in jail awaiting trial on multiple charges of tax evasion and fraud.

The company's troubles with the Kremlin are widely believed to stem from Mr. Khodorkovsky's financing of opposition political parties. The Kremlin denies the charge, saying all people from pensioners to wealthy businessmen must be equal before the law.