Russia pressed ahead yesterday with the last step in the destruction of oil major Yukos, saying it will auction its main Siberian unit on December 19 for $8.65 billion and hit it with a new tax claim.
Yukos slammed the sale of Yuganskneftegaz as state-sponsored theft, designed to strip its main owner Mikhail Khodorkovsky - on trial for tax evasion and fraud and facing up to 10 years in prison - of his main asset.
The sale would mark a climax in a 16-month-old battle between the Kremlin and the politically ambitious tycoon which has damaged investor conference in Russia and helped push world oil prices to historic highs.
"Yukos as we know it can never look the same again," said Adan Landes from Renaissance Capital. "We have reached a point of no return for the company and the Kremlin."
Analysts said the price, at the low end of an independent valuation but above the most pessimistic expectations, would still allow the state to sell more Yukos assets later to recover its tax debts, which were jacked up to $24.5 billion yesterday.
They tipped gas monopoly Gazprom as front-runner, while bankers and western executives said foreigners, although allowed to bid, were likely to be deterred by the legal and tax risks that a Yugansk purchase would entail.
Yukos produces a fifth of Russian oil or 1.7 million barrels per day and Yugansk is responsible for 60 per cent of its output.
"The starting price bears no resemblance to the true value of Yugansk, one of the world's premier oil producing firms, and amounts to theft of Yukos assets," said Yukos CEO Steven Theede.
"What we are witnessing is, simply put, a government organised theft to settle a political score." The state will sell all Yugansk voting shares or 76.79 per cent of its capital.
Yukos shares fell 31 per cent by 1420 GMT to $2.05, their lowest since early 2001, on news of the sale and a new tax claim of $6 billion for 2003 in addition to existing demands of $18.5 billion for preceding years.
Once Russia's largest firm by market capitalisation, worth over $40 billion, Yukos is now worth just $5 billion. Renaissance Capital withdrew its "buy" rating on Yukos, saying the stock had now joined the distress investor class.
Shares of other Russian oil and metals firms like Sibneft and Norilsk, snapped up by "oligarchs" Roman Abramovich and Vladimir Potanin in 1990s privatisations, also slumped on fears of Yukos-style probes.
Oil majors, such as BP and Shell, are actively investing in Russia, one of the last places in the world where major oil reserves are still up for grabs.
But investors doubted oil majors would bid for Yugansk. "The idea that a foreign company will buy Yugansk is a joke," said Martin Taylor, hedge fund manager at London-based Thames River Capital, which manages $5.5 billion of assets.
Officials and sources at firms, such as BP, Shell, Total and LUKOIL, said they were very unlikely to bid.
But one senior western investment banking source said he did not exclude a joint bid by a Russian and a foreign company.
"Someone will show up," he said. Italian media have reported Eni could bid for Yugansk, but the energy group denied it had presented an offer. US ChevronTexaco and ExxonMobil were not available for comment.
The auction starting price is below a low-end valuation of $10.4 billion by investment bank Dresdner Kleinwort Wasserstein on behalf of the government. The bank recommended a selling price for Yugansk of $14-$17 billion.
"We still believe that a Russian company will be a front-runner at the auction, most likely Gazprom, and that more assets could be sold afterwards," said Valery Nesterov from Troika Dialog brokerage.
Gazprom and Russia's No.4 oil firm Surgut, also tipped as a potential bidder, declined to comment.
"I think there will be no bids," said Vadim Mitroshin from CSFB. "No company in the world would bid for a unit whose tax debt is still unclear. Then there could be another auction with a lower starting price."
Yukos' other key assets include two producing units in Siberia and the Volga region as well as five refineries in Russia and one in Lithuania.
The auction will come one day ahead of a Yukos shareholders meeting to consider reorganisation, bankruptcy or liquidation on December 20.
Bidders must place a huge returnable deposit of $1.73 billion in a move seen to prevent the current owners of Russia's No. 1 oil exporter trying to hamper the auction by bidding up the price without intending to buy.
"Nobody is going to put down 1.7 billion dollars of deposit unless they get sovereign guarantees. And nobody is going to bid for Yugansk unless they get a Kremlin agreement that they are not going to hit Yugansk with further taxes," said Mr Taylor.