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By John Helmer in Moscow

There’s a well-known Russian maxim, which can be roughly translated as: “Pull out your nose, your tail will get stuck; pull out your tail, your nose will get stuck.” The sticking place, it’s understood, is mud; murk; one unpleasantly adhesive predicament, or another.

You might say this is what has happened to the leftovers of the Yukos oil empire, once amassed by Mikhail Khodorkovsky. And while his nose is firmly stuck in a Russian jail, his tail is being wagged by a handful of American former subordinates, led by the former chief financial officer of Yukos, Bruce Misamore. To hear his advocates tell his story, he is the innocent victim of a Russian extortion and bribe scheme, in which the prize is a very large amount of cash currently sitting in two escrow accounts of Fortis Bank in the Netherlands. The Russian version charges Misamore and his associates with illegally claiming the last of the Yukos loot, sold up by a Russian bankruptcy administrator after convictions of Khodorkovsky, the company, and his associates on fraud and tax evasion charges.

Late next month, a court-ordered auction will be held in Amsterdam for cash of $1.492 billion, plus a 49% stake in a central European oil pipeline company, worth between $1.2 billion and $1.6 billion. The assets belong to Yukos Finance, a company Khodorkovsky registered for safe haven in Holland. The cash comes from the sale of a 54% stake in the Lithuanian oil refinery Mazeikiu; the balance represents the audited valuation of equity of Transpetrol, the Slovak republic’s pipeline company, in which Yukos held a 49% stake.

Pursuit of these assets has proved sticky, indeed.

Between 2006 and early 2007, Mikhail Gutseriyev, owner of Russneft, a midsize Russian oil production and refining group, attempted to beat others to the liquidation of the Yukos Finance assets by negotiating directly with the Slovak government in Bratislava. Gutseriyev claimed he wanted to acquire all or part of the Slovak state’s 51% stake in Transpetrol. At the time, Gutseriyev’s game was to get hold of the Slovak 51% at a discount, and then position himself to take the Yukos 49% from the competition.

Subsequently, in May 2007, Gutseriyev and his executives were summoned for interrogation at the Russian Interior Ministry, and word of an Investigative Committee and Tax Service prosecution became public. The tax evasion indictments that followed; Gutseriyev’s flight to the UK for asylum; the death in a Moscow car accident of his son, Chingiskhan; and the attempted sale of Gutseriyev’s assets to Oleg Deripaska’s Basic Element holding are well-known.

The last part of the deal has proved unexpectedly sticky for Deripaska; for the Federal Antimonopoly Service (FAS) has so far refused to approve Deripaska’s takeover from Gutseriyev. Deripaska’s spokesman told Mineweb that Basic Element has filed two applications for FAS approval, one in July of 2007; an amended one in September. He doesn’t know why there has been no response since September. Indicating how sore the issue has become, FAS told Mineweb it won’t say if there is a deadline for approval or rejection. Indeed, FAS says it will say nothing at all.

Russian press reports have suggested that the mud began to stick to Gutseriyev when he made his bid for Transpetrol without Kremlin approval – or in defiance of its disapproval. The reports have also noted that Gutseriyev was warned to drop his bid for Transpetrol by the then CEO of GazpromNeft, Alexander Ryazanov. GazpromNeft is the state owned oilco, which had once belonged to Roman Abramovich, and was given up by him to Gazprom for $13 billion.

Once the distribution end in Czechoslovakia of the Soviet Druzhba pipeline system, Transpetrol today is of modest value to the major state-owned Russian oil exporters, Rosneft and GazpromNeft. But at the time it was acquired by Yukos in early 2002, it was part of Khodorkovsky’s break for independence of the state pipeline limits on Yukos’s export volumes; and as part of a larger strategy to concentrate profit-taking at the East and Central European refining end of the crude export chain. The former ploy was politically dangerous; the latter was illegal.

The same strategic and commercial motives no longer apply to Rosneft or GazpromNeft. LUKoil, the largest of the commercial Russian oil producers, exporters, and refiners, has a strong downstream refining interest, but this has been directed, not westwards, but southwards — to Bulgaria, Greece, and Turkey. For the time being, LUKoil has succeeded in installing itself in Bulgaria, but failed in Greece and Turkey.

Gutseriyev’s move to take control of Transpetrol was not the only source of friction Gutseriyev was generating with his Russian commercial rivals at the time. There was also rivalry over at least three other domestic Russian oil production assets that had been broken out of the Yukos group, and bought independently of Rosneft – Tomskneftegazgeologia, Zapadno Malobalykskoe (AMB), a joint venture with Hungary’s MOL, and Geoilbent.

Transpetrol, by itself, was not the trigger for the state to move against Gutseriyev. The Kremlin view of Gutseriyev was that he was more of a renegade, and so less controllable, than the other proprietors of Russia’s crude companies. So long as his expansion was constrained, rivals like LUKoil, GazpromNeft, and Rosneft felt unchallenged. The Transpetrol negotiations in early 2007 signaled that Gutseriyev intended to interfere with a higher-level plan for the cash in the Yukos Finance auction, and that he threatened the carve-up of the domestic oilfield assets.

Like Khodorkovsky in 2003, when he was warned not to sell Yukos to US oil companies, Gutseriyev didn’t take no for an answer, and his tactics united an alliance of rivals. He was left with no friends. It was this, and the bigger alliance, that brought him down.

Kremlin sources also indicate indirectly that Gutseriyev’s unreliability was also suspected of fronting for Leonid Nevzlin, the Israel-based Yukos shareholder, and with Khodorkovsky, an open plotter against the Putin regime. To the Kremlin, Nevzlin is as welcome as a medieval rat in a bout of the Black Plague. Gutseriyev was suspected, not only of buying up Yukos assets against Kremlin-intended beneficiaries; but also of doing so with tacit, and maybe financial backing, from the old Yukos group itself, led by Nevzlin.

Gutseriyev was thus out of the running for the Dutch treasure, when a decision was reached in Moscow by Rosneft, the principal consolidator of the Yukos production assets, to participate in the auction of Yukos Finance. The auction was organized by the court-appointed manager and liquidator of Yukos, Eduard Rebgun. Rosneft’s participation was indirect.

Rosneft confirms that its affiliate, RN-Trade, sold an affiliated company, Promneftstroy (PNS), to Monte Valle, a vehicle owned by US investor, Stephen Lynch, just days before the scheduled August 15 auction date. There is no indication that Lynch paid a significant sum for the acquisition. It is confirmed that the transfer was part of a concerted plan for Lynch to bid through PNS for the Yukos assets. The others involved in Lynch’s bid were Renaissance Capital (RenCap), a Moscow investment bank, and VR Capital, owned by Richard Deitz; all were acting in concert. RenCap appears to have been the coordinator, with Bob Foresman, RenCap’s vice president, the prime mover at the bank.

The bid for Yukos Finance was inevitable; the Russian government, and the Kremlin factions, wanted to complete the bankruptcy liquidations, and were determined that, in this, the last of the auctions before Rebgun ceased to exercise his mandate, the state should arrange the outcome.

It was therefore decided that Rosneft would take the cash and Transpetrol stake; but it was also decided that a cutout would have to make the winning bid, provide the payment, warehouse the assets for a time, and carry the risk of negative publicity and counter-attack in the Dutch and other courts. Having American nationals and US domiciled corporations as cutouts appeared a good idea to mitigate legal recourse by theYukos defenders, also US nationals like Misamore.

Monte Valle, RenCap and VR Capital appear to have been brought together by three individuals – Lynch, Foresman, and Deitz – with the aim of lowering their individual financial obligation and exposure. They do not appear to have been engaged by separate or contending Kremlin factions.

By the time Rosneft sold PNS to Lynch, there was agreement between the Kremlin, the senior Rosneft management, and the American troika that the upside potential of pushing past the risks – the illegality of Rebgun’s jurisdiction over the assets for auction alleged by Misamore and the Yukos legal defence team; the Dutch court injunctions locking up the $1.5 billion in cash — offset the downside risks of reputational damage, retaliation by the Yukos Finance directors, protracted delay in court bickering; and the cost of advancing several hundred million dollars without certainty of payback. In making this calculation, the Americans and RenCap appear to have been swayed by the backing they knew they had from Rosneft for an adventure they considered would be at best harmless, more likely lucrative — win or lose.

Rebgun’s auction in Moscow proceeded on August 15. Lynch’s PNS was the sole bidder, offering Rb7.84 billion (then $305.8 million). Rosneft claimed publicly it had not participated in the auction. Lynch and Deitz claimed publicly they had no contact with Rosneft. Russian press reports subsequently reported that PNS had lodged its $305.8 million payment within two weeks. Rosneft had meantime applied for attachment of the Yukos Finance assets to cover approximately $455 million in Yukos debts it had acquired. PNS (Lynch) then applied to join Rosneft in its application for attachment on the ground that it was the new proprietor, pursuant to completion of the August 15 sale.

Yukos Finance claimed publicly that Rebgun lacked authority to sell the assets, and appealed to the Dutch courts to invalidate the transaction. Claire Davidson, London PR agent for Khodorkovsky, told Mineweb: “in our view, nothing was for sale, and nothing was bought.”

Then on September 6, Catherine Belton reported in the Financial Times that, just before the auction, there had been an unusual twist. According to Belton’s report, Misamore said: “It is a strange situation when someone wins an illegal auction and comes to you in advance and tries to grease the skids.”

The Financial Times report claimed: “Mr Misamore and two other Yukos executives, David Godfrey and Daniel Feldman, told the Financial Times that the group of investors behind the Monte Valle bid included a representative of Moscow investment bank Renaissance Capital and another from US hedge fund VR Capital. They claimed that two members of the group, Renaissance Capital vice-president Bob Foresman and VR Capital president Richard Deitz, had called to ask them to unwind the legal attachments protecting the assets from the bankruptcy sale, saying that in return, state-run Rosneft would drop its creditors’ claims on the Dutch holding. Mr Feldman said Mr Foresman had called him two days before the sale, “to know if there was a way to make a deal that would provide them with comfort”. “He called the day before the auction and said you have to understand if we can work out a compromise you can come back and work in Russia.” Mr Feldman left Russia in February, fearing arrest.”

Belton reported that “the claims could not be fully verified: Mr Foresman declined to comment. Mr Deitz said he did not recall all the details of his conversation with Mr Godfrey.”
Davidson has provided Mineweb with a version of what she thinks happened, and how much money was put on the table. She was asked to say what motive she thought Foresman, Dietz, and Lynch could have for paying $307 million for the Yukos Finance assets, once they knew that Misamore, Godfrey and Feldman had rejected their overture, and confirmed they would challenge the legality of the auction, continuing the Dutch court injunctions that prevented anyone taking the assets. Davidson said she didn’t know.

A source with knowledge of the participants told Mineweb he believes the advance negotiations took place, but failed on account of disagreement over price. The source added that the Foresman and Lynch group’s $305.8 million was also not at risk – that it would have been returned, if and when the Dutch courts ruled to preserve the injunctions and to refuse to release the assets to the new proprietor.

This happened on October 31: a Dutch ruling invalidated the August auction, and disqualified Rebgun from selling assets not under his power as the liquidator of the Yukos Oil Company. Yukos Oil then ceased to exist legally, and Rebgun’s mandate expired.

On December 20, the Amsterdam court ruled that the Yukos Finance assets should be resold by auction, commencing on March 28. PNS, the Lynch-Hietz-RenCap bidding vehicle, has been recognized by the Dutch court as an interested party in the process, but not a lawful proprietor with priority claims. Rebgun also conceded in an interview with the Slovak news medium, Hospodarske Noviny, on September 6, that Lynch and his associates had bought themselves a pig in a poke. “The new buyer has got this share with all existing judicial disputes, possible financial and economic risks and other costs, that is, he has bought what is called a special situation. Now he will solve all the problems arising.”

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