Troubled Russian oil giant Yukos moved closer to a break-up on Tuesday, with gas giant Gazprom officially tipped as a bidder for its key unit and its debt downgraded to virtual junk bond status.
Analysts say the end-game is now near in the year-long tax dispute after the state privatisation agency announced plans on Monday to auction off next month Yuganskneftegaz, Yukos's main oil producing unit, to raise cash to meet the authorities' demands for billions of dollars in back-taxes.
In the first official confirmation of what analysts have long suspected, Deputy Economic Minister Andrei Sharonov told Interfax agency he had information Gazprom could bid via one of its affiliates at the Yugansk auction on November 22.
In a further blow, international credit rating agency Moody's said it had downgraded Yukos's B1 senior implied rating to B2 and the issuer rating from B3 to B2 and warned further downgrades were likely given government back-tax claims of at least $8 billion.
Shares in what was once one of Russia's most profitable companies dipped 13 percent to 108.6 roubles ($3.73) on the downgrade.
Sharanov, whose portfolio includes Russia's monopolies, told Interfax: "According to my information, some companies affiliated with Gazprom could be among the possible participants in an auction for Yuganskneftegaz."
A government source also told Interfax that Germany's E.On, Gazprom's biggest gas customer and a 6 percent shareholder, might possibly bid on Gazprom's behalf. E.On officials were not available for immediate comment.
The government's use of the legal system to crush Yukos has already scared off foreign portfolio investors, sent billions of dollars of capital fleeing the country and added to concerns about the rule of law in Russia.
And market fears of a fire sale of Yugansk assets, which would dilute the value for minority shareholdings, were fuelled on Monday by a report from Interfax that said the opening bid for the closed auction might only be for the equivalent of what Yukos immediately owes in taxes, which it put at $3.7 billion.
Yukos has already paid around $3 billion towards total tax claims of $8 billion for 2000 and 2001, while the official estimate of what remains immediately due are tax claims already upheld by the courts, leaving the balance of the $8 billion accounted for by tax claims still to be tested in the courts.
The company has now hired US investment bank J.P. Morgan Chase & Co in the hope of getting a higher valuation for Yuganskneftegaz than the low-end estimate of $10.4 billion included in a government-commissioned study by Dresdner Kleinwort Wasserstein, a source close to the situation said.
Yukos's tax woes are widely seen as part of a broader campaign which many in business circles see as the Kremlin's punishment of Yukos's main shareholder, Mikhail Khodorkovsky, for his political activities. Khodorkovsky is now on trial for fraud and tax evasion.
"If the government is now going to let this case end in a shambles, then that raises the prospect of the complete destruction of any residual value in Yukos," Alfa Bank analyst Chris Weafer wrote in a research note.
Russian Finance Minister Alexei Kudrin also weighed in with a warning the battle over Yukos was unnerving global investors.
"The Yukos affair is influencing the general economic climate in Russia. This is causing a feeling of nervousness in the world economic community," Kudrin said in an interview with Itogi magazine published on Tuesday.
The liberal reformer's pledge a month ago that any Yukos sale would be transparent and in accordance with the law has been overshadowed by a government announcement last week that it plans to sell assets in Yugansk at a knockdown price.
Oleg Vyugin, head of the Federal Financial Markets Service, said any sale of Yukos assets at unfair prices would hurt confidence further.
"If they (the assets) are sold at an unfair price for next to nothing this will mean the property owned by Yukos's minority shareholders has been expropriated by state bodies for its new owner," he told Interfax.
Increasing legal pressure on Yukos, which produces 20 percent of Russia's oil output and 2 percent of global output, has also raised oil market fears of supply disruptions and contributed to the surge in world oil prices. Yugansk pumps 1 million barrels of crude per day out of Yukos' total output of 1.7 million barrels per day (bpd).
But Kudrin said the problems at Yukos were not influencing Russia's oil production and exports.
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