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Bye Bye Yukos

The Economist reports that the end is nigh for Khodorkovsky’s empire.

There can be little doubt that, by the end of the year, Yukos, an oil company that has drawn the ire of Russia’s President Vladimir Putin and his coterie in the Kremlin, will be a shadow of its former self. The government confirmed this week that, on December 19th, it plans to auction off 77% of Yuganskneftegaz, Yukos’s main oil-production unit, in order to reclaim taxes that it says the company owes.

Yukos shareholders are still fighting the breakup, complaining that the auction is illegal.  Russian law specifies that, if a company must sell assets to pay creditors, their non-core assets should be the first ones to go.  Yuganskneftgaz is Yukos’ largest oil production division and about as central to the company as you can get.  Their will to struggle though seems to be diminishing by the day as Putin squeezes the company mercilessly.

The Economist notes that Russia’s creditworthiness has gone up (Fitch recently upgraded it to BBB minus), but I’m convinced that this is all to do with the rising oil price, rather than Putin reigning in oligarchs.  Under Khodorkovsky, Yukos had developed into one of Russia’s best and most transparently run companies.  By destroying Yukos, Putin is actually sending out the message that Russia wants companies that will toe the party line, rather than well-run economically effective companies. 

Imagine what an attractive prospect Russia would be for investors today if it was not only awash with oil, but promoting the rule of law and strong corporate governance.  Much better than BBB minus, I’d wager.

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