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December 20, 2004
Mystery Bidder Wins Yugansk for $9.4Bln
By Catherine Belton and Guy Faulconbridge
A mystery shell company won the biggest auction in Russian history Sunday with a $9.37 billion bid for jailed billionaire Mikhail Khodorkovsky's most valuable asset, Yuganskneftegaz.
A Tver-registered company called Baikal Finance Group won once-mighty oil giant Yukos' core production unit after state energy champion Gazprom, the clear favorite and only other contestant, declined to counter a bid that was $503 million above the starting price.
Investors and analysts said the sale of a company that accounts for 11 percent of Russia's oil production to an unknown entity marked a new low in the state's 18- month-long legal assault on Khodorkovsky and his empire. Officials at the Federal Property Fund, which organized the auction, said they were as clueless as everyone else as to who was behind the winner.
"It came as just as much of a surprise for us as it did for you," acting fund chairman Yury Petrov told reporters.
More than 100 reporters packed inside a conference hall in the Federal Property Fund for a ringside seat to a live broadcast of the culmination of a campaign that acquired a new dimension last week when Yukos filed for bankruptcy in Texas and won a U.S. injunction barring Gazprom and its Western financiers from participating in Sunday's auction.
Although the government scoffed at the idea of an American court weighing in on what it insists is an internal affair, analysts and investors said Gazprom's refusal to bid and the last-minute emergence of Baikal suggested the Kremlin was attempting to minimize legal risks.
"Like many scandals, the final denouement is just one more joke, and the joke is pretty sad," said Ian Hague, who manages $900 million in emerging-market assets at Firebird Management in New York. "[Baikal] is effectively a special purpose vehicle for Gazprom or the government. They don't have the money, so they will get it from the state."
Unlike the straightforward privatization auction of second-tier oil producer Slavneft two year ago, Sunday's bidding was delayed by nearly an hour as fund officials huddled in private to consider each bidder's application, which required a $1.7 billion deposit. Although the government had said four companies were cleared to participate -- Baikal, Gazprom's oil arm Gazpromneft, Intercom and First Venture Company -- the fund prepared only three tables and only two were filled.
The auction itself took just six minutes -- enough time for the head of the Gazpromneft delegation to leave the room to make a phone call after Baikal's opening bid, which was thought to be the minimum. When he returned and conceded, Baikal's representative claimed the auctioneer must have misheard him because he actually intended to bid the $500 million above the starting price of $8.87 billion.
After the auctioneer lowered his gavel to close the sale, however, both sides shook hands and left without speaking to the press -- Gazpromneft officials immediately and Baikal officials after several hours of paperwork.
Despite Gazprom's denial that it had anything to do with Baikal, nearly every analyst and investor reached Sunday said they believed it to be a vehicle somehow linked to the state or to Gazprom and that eventually Gazprom will control the asset. According to Itar-Tass, Baikal's registered address in Tver is the same as a subsidiary of Gazprom.
"We can assume that in the end Gazprom will be the beneficial owner -- the only other possibility is Surgut," said Eric Kraus, chief strategist at Sovlink, referring to No. 4 oil producer Surgutneftegaz. Surgut CEO Vladimir Bogdanov ran President Vladimir Putin's 2000 election campaign in the western Siberian region where the company is headquartered.
Surgut denied any links to Baikal.
Baikal may not end up with Yugansk, however. Under the rules of the auction, the winner has 14 days to come up with the cash. And if Baikal cannot come up with $7.7 billion -- the $9.4 billion minus the deposit, the government may end up with the asset, Justice Ministry official Alexander Buksmann said Sunday.
After the auction, officials refused to disclose the names of the people representing Baikal or say anything about where its funding was coming from. Acting fund chairman Petrov would only say that both participants had met all the legal requirements to take part.
Alfa Bank chief strategist Chris Weafer said the lack of transparency raises new questions for investors.
"The whole situation is very unsatisfactory and far from resolved," Weafer said. "The big risk is that this has been done by a bunch of people in the Kremlin who could sell it on for a huge profit, pocketing the difference."
Weafer speculated that billionaire Roman Abramovich could be behind Baikal as part of a complicated strategy to sell his oil company Sibneft and exit Russia without incurring the Kremlin's wrath.
"Abramovich [could be] facilitating the state's acquisition of Yukos assets by taking on this role as intermediary with the intention of eventually selling the asset, perhaps with Sibneft's own assets rolled in, to Gazprom," he said.
Yukos still owns 35 percent of Sibneft despite efforts by both sides to unwind a partial merger of the two companies earlier this year.
Sibneft declined to comment on what it called "goofy rumors."
On a lighter note, in the minutes after the auction was completed, attempts to access the Internet site www.baikalfinance.com ended up on Anglo-Dutch oil giant Shell's home page. An amused Shell spokesman in Moscow said he wasn't aware of any connections between his company and the mysterious buyer of Yugansk.