March 2006

March 31, 2006: Ahead of IPO, Rosneft Hires First Western Exec: Catherine Belton reports that Rosneft has hired U.S. investment banker Peter O'Brien as VP of strategic investment projects and external financing, as the state-owned oil major prepares for the biggest – and most controversial – IPO in Russian history. O’Brien will replace Sergei Alexeyev, who resigned suddenly from his post as chief financial officer in February, citing "personal reasons" for the move, which provoked fears the IPO could be delayed. The government has said it wants to raise as much as $17 billion by selling up to 49 percent in Rosneft's shares on exchanges in Moscow and London, potentially strengthening Rosneft's hold on its most controversial acquisition, YUKOS' main production unit, and cementing a huge shift toward state domination of the energy sector. Rosneft has been named in a lawsuit filed in the United States by a group of YUKOS ADR holders who claim that the company played a lead role in expropriating the assets of YUKOS. Critics, including Andrei Illarionov, the outspoken former economic adviser to Putin, have said that the IPO will essentially repackage shares that were expropriated via the takeover of Yugansk for sale back to investors. Investors expressed hope that O'Brien would help push the company into greater transparency. "There is no doubt that O'Brien is going to push Rosneft to treat investors fairly and shape the company in a fashion that is transparent and market friendly," said Eric Kraus, chief strategist at Sovlink Securities. "But the jury is still out on whether [Rosneft president Sergei] Bogdanchikov is going to listen." (Source: Moscow Times)

March 28: Illaryonov Denounces Role of Western Banks: Former Putin Advisor Andrei Illaryonov denounced the role of western banks in the bankruptcy of YUKOS. The YUKOS case and the Kremlin’s attacks against YUKOS executives including former CEO Mikhail Khodorkovsky, convinced Illaryonov to resign from his position within the Kremlin. Illaryonov is almost sure that the request for a bankruptcy statement will “put an end to YUKOS’ story. The rest of the company should be soon gobbled up by Rosneft”. According to Illaryonov, western banks have obeyed instructions from Rosneft. In his words, it is terrible that “big western companies get in contact with those who, in Russia, dismantle the liberal society”. These accusations have already been formulated by Tim Osborne, GML’s CEO. Reference is made to Tim Osborne’s comments published in the Moscow Times on march 13th, when he said that “Rosneft has given some guarantees to western banks” ensuring them that “they could be reimbursed and be involved in Rosneft’s IPO”. (Source: le Figaro)

March 27, 2006: U.S. Court Will do Without Russia’s Approval: News agencies on Friday released a statement by Russia’s Ministry of Foreign Affairs, which denied it was served via diplomatic U.S. court documents where Russia is named as respondent to the lawsuit filed by YUKOS minority shareholders. ITAR TASS news agency quotes a representative of the Ministry as saying: “The ‘U.S. State Department to Russian Ministry of Foreign Affairs channel simply cannot be used to pass any court documents because a U.S. mutual legal assistance agreement on civil and commercial matters with the Russian Federation and the U.S. was blocked in 2003. The legal assistance can be renewed if U.S. will restart implementing Russian court orders based on cooperation in compliance with long term practice of bilateral cooperation in the legal area”. Meanwhile on Thursday Kommersant obtained a document signed by U.S. Consul in Russia, Robert Hannan, and sealed by the Embassy. The document stated the diplomatic note CON#2006-013 dated 13th of March that contains this package of court documents was passed to the Russian Ministry of Foreign Affairs on March 14, 2006.

Commenting on the statement of the Russian Ministry of Foreign Affairs Tom Johnson, partner at Covington and Burling law firm said that the arguments of the Ministry relate to the Hague Convention of 1965 on delivery of court documents abroad. However in this case the documents were delivered in accordance with U.S. Foreign Sovereign Immunities Act. “As for the U.S. law, Russia has been served the notification. If the Russian Federation does not respond to the summons and does not demonstrate its position with regard to the complaint of the plaintiffs by May 15th, the minority shareholders will seek, and will be awarded, a default judgment”, Mr Johnson said. (Source: Kommersant)

March 27, 2006: Khristenko’s Casus; Russia Denies Receipt of the Summons to the Court in Washington: The Russian Ministry of Foreign Affairs’ department of press and information released a statement in which it denied that documents naming Russia as a respondent in a U.S. court case were passed to Russia via the U.S. State Department. The events are developing according to a plot with which we are already familiar. It was initially played by Victor Khristenko, who first loudly denied any contacts with the judicial authorities, then quietly admitted the fact that he received the documents, and finally turned to his lawyers and went to court. Why at the end did Khristenko stop denying he was a respondent and appoint U.S. lawyer Mike Goldberg at Baker Botts to deal with the matter? According to U.S. law, if a court announces that a respondent received a summons and refused to participate in the proceedings, the respondent has then “defaulted on his obligations.” After this, the plaintiff is pronounced the winner. Alexei Kudrin and Sergei Bogdanchikov also repeated a similar scenario. Tom Johnson, lawyer for the plaintiffs, encourages the Russian Federation to do the same, “If the Russian Federation does not respond to the summons and does not demonstrate its position with regard to the complaint of the plaintiffs by May 15th, the minority shareholders will seek, and will be awarded, a default judgment”. (Source: Gazeta)

March 27, 2006: State Snubs YUKOS Summons: The Foreign Ministry has said it is not obliged to respond to a summons served through diplomatic channels earlier this month in an ongoing lawsuit that was filed by U.S.-based shareholders of YUKOS. The ministry said mutual legal assistance in civil and commercial matters between Russia and the United States had been frozen since 2003. Diplomatic channels "simply cannot be used for the transmission of any judicial documents," it said in a statement posted on its web site Friday. The ministry's comments come after the Russian government was served a summons on March 14 in a lawsuit brought by 12 holders of YUKOS’ American Depositary Receipts. The move is part of a suit filed in the United States last fall against the government, a group of senior government officials and four state energy companies. The lawsuit states that the 12 plaintiffs lost a total of $3 million due to the drop in market value of the 115,000 YUKOS American Depositary Receipts they had purchased over a three-year period. According to Thomas Johnson of the Washington-based law firm Covington & Burling, which is representing the shareholders, the plaintiffs could claim up to $9 million in damages under the U.S. Racketeer Influenced and Corrupt Organizations Act, which contains a civil component that allows plaintiffs to sue for triple damages if the defendants are found guilty of racketeering. (Source: The Moscow Times)

March 27, 2006: Rosneft, Bankruptcy Hearing Seen as Final Nail in YUKOS Coffin: Dmitry Zhdannikov reports that a Moscow judge will begin hearing YUKOS's bankruptcy case on Tuesday, in what is widely expected to be the final act in a three-year Kremlin-led campaign to nationalize what was once Russia's largest oil firm. Rosneft is expected to gain ultimate ownership of these assets, estimated at upwards of $20 billion, as the Kremlin continues to increase its presence in the energy sector and boost Rosneft's value ahead of its initial share offering (IPO). "Rosneft appears to be holding the cards and my prediction is that we are going to see a quick decision. The prospect for Rosneft's IPO will be definitely helped by a quick and clean decision," said Adam Landes from Renaissance Capital brokerage. "For Rosneft's IPO, the YUKOS saga must be wrapped up before the placement," agreed Steven Dashevsky from Aton brokerage. (Source: Reuters)

March 24, 2006: After Borodin: Top Russian Government Officials Receive Summons to US Court: YUKOS’ U.S. shareholders filed a suit against a number of Russian ministers and big businessmen accusing them of “actual nationalization” of the company without giving any compensation to its owners. Tom Johnson, a lawyer for the plaintiffs, says: “The Russian Federation has received the notification through diplomatic channels. They will have problems if they don’t appear in court.” Responding to the question of what consequences this could have for those who have been served, legal expert Andrey Knyazev suggested that if they refuse to participate in the process the U.S. court might bring them to justice. This was what happened in the case of Pavel Borodin, the head of the Russia and Belorussia State Union. "The U.S. court system is somewhat different from the Russian one. For example, Russian law says that if an individual does not appear in court he is to be delivered there by force. A U.S. court can punish those who do not appear in court and consider the failure to appear to be disrespectful,” the legal expert noted. (Source: Novye Izvestia)

March 24, 2006: Russian foreign ministry rejects U.S. summons on YUKOS case: Russia's foreign ministry has rejected a summons sent via the American State Department by lawyers acting for American minority shareholders of embattled oil company YUKOS. "The State Department-Foreign Ministry channel cannot be used to hand over any judicial documents, after mutual legal assistance in civil and trade cases between the countries was frozen in 2003, which is the U.S. side's fault," the ministry's information and press department said. Media reports said 12 YUKOS minority shareholders filed a suit in a District of Columbia court against Russia, energy giant Gazprom, oil major Rosneft, its state-owned parent company Rosneftegaz and a number of government officials, charging them with a coordinated attack on YUKOS aimed to renationalize the company. Mutual legal assistance can be renewed if the U.S. resumes the practice of meeting Russia's judicial requests on a mutual basis in accordance with long-standing legal cooperation, the Russian ministry said. A 76.79% stake in YUKOS production unit Yuganskneftegaz was sold by the federal property management fund on December 19, 2004, in lieu of YUKOS’ tax arrears for 2000 and 2001. Several days later, Rosneft purchased the unit from Baikal Finance Group, the shadowy group that won the auction. (Source: RIA Novosti)

March 23, 2006: State Has to Answer for Yukos in U.S.: The Russian government has been served with a lawsuit by U.S.-based shareholders of Yukos through diplomatic channels and will have until mid-May to respond or face a possible default judgment ordering the payment of up to $9 million in damages, a lawyer for the shareholders said Wednesday. Thomas Johnson Jr. of the Washington-based law firm Covington & Burling said the U.S. State Department informed him by telephone Tuesday that the Russian government had been served the summons on March 14 as part of a lawsuit brought by 12 holders of Yukos' American Depositary Receipts against the government, a group of senior government officials and four state energy companies. Johnson said that the plaintiffs could claim up to $9 million in damages under the U.S. Racketeer Influenced and Corrupt Organizations Act, which contains a civil component that allows plaintiffs to sue for triple damages if the defendants are found guilty of racketeering. Johnson said he would be "surprised" if the Russian government did not respond to the lawsuit by May 15, but that he would expect his clients to receive a default judgment in their favor if it did not. (Source: The Moscow Times)

March 22, 2006: Yukos ADR Holders Deliver Writ to Russian Federation: Tom Johnson, a lawyer representing Yukos ADR holders, says he has been informed that the Russian Federation was served a writ on the 14th of March informing it of the charges it faces in a lawsuit brought by Yukos ADR holders. Johnson also noted that the writ was delivered through diplomatic channels in accordance with U.S. legislation. The Russian Federation has until May 15 to respond to the writ. (Source: Interfax.)

March 18, 2006: Economist Analysis: Yukos chances of survival hurt by banks' bankruptcy proceedings... US Shareholders' lawyer responds: The Economist published an analysis piece entitled "YUKOS - The End Game" detailing how the company’s chances for survival suffered a blow recently when a consortium creditor banks initiated bankruptcy proceedings in a Moscow court. But the article views the banks’ court filing with suspicion. First, because of the way Russian law ranks creditors, the suit seems unlikely to yield much for the banks involved. Second, on March 15th, it emerged that the debt the banks were seeking to reclaim had in fact been sold at face value to Rosneft, which now has an even stronger claim to what is left of Yukos. The article also notes some of the larger litigation issues surrounding the Yukos affair. It notes: “A group of American minority shareholders [in YUKOS] are suing Gazprom, Rosneft, their bosses, the Russian government, and assorted ministers. Tom Johnson, the Americans' lawyer, argues that: ‘Yukos has been nationalised and the owners haven't been paid for it.’” (Source: The Economist.) Read the article »

March 9, 2006: Rosneft President to Face Charges of YUKOS Minors: Rosneft President Sergei Bogdanchikov has acknowledged that U.S.-based holders of YUKOS American Depository Receipts (ADRs) have brought charges against him. Bogdanchikov asked the U.S. District Court for the District of Columbia to extend the time given to prepare a response to the suit. Like Viktor Khristenko and Alexey Kudrin, who were also served with writs of summons under this suit, Bogdanchikov had denied being served the writ up to the last moment, but filed the appeal to the U.S. District Court just in time. (Source: Kommersant)

March 6, 2006: OPINION: Rosneft's Changing IPO Plans Raise Questions of Fairness, Transparency: Prime-TASS published an editorial by Andrew Neff, senior research analyst with Global Insight, which claims Rosneft’s continually changing IPO plans, as well as the possibility that the company could issue additional private shares later this year, should be cause for concern. Neff continues that any plan to make a private share placement should raise red flags with investors and financial analysts, as it triggers the question of how exactly Rosneft intends to treat all potential investors fairly and the increased risk of a non-transparent stock offering. Considering the uncertainty over Yuganskneftegaz, the ongoing legal battle with YUKOS, and now the questions of fairness and transparency in a possible private placement of Rosneft shares, a delay in the company's IPO plans beyond 2006 could be beneficial - especially if it prompts investors to re-think their current enthusiasm for the state-run Russian oil major. (Source: Prime-TASS.) Read the article »

March 2: Rosneft seeks to avoid a possible delay of its IPO: According to journalist Pierre-Alexandre Sallier, there is a lot that needs to be done prior to Rosneft’s IPO. In order to improve its image and reputation amongst foreign investors, Rosneft has to reform its financial structure, and restructure its subsidiaries that are involved in oil production. Moreover, the company has to deal with arbitration procedures launched by YUKOS shareholders. Sallier emphasizes that the so-called “buy-back” of YUKOS assets has provided Rosneft with a huge debt. In order to address these issues, Rosneft has therefore decided to ask a group of Japanese financial institutions for a loan. The purpose is to get a “temporary credit” in case “there is a delay in the IPO process”. Rosneft has borrowed money from a consortium of Western bank to pay for its debts. According to Caius Rapanu from brokerage company UralSib, now the company would like to “refinance this loan – that was initially expected to be refund thanks to an IPO taking pace earlier in 2006”. (Source: La Tribune)

March 2, 2006: Attorney for Yukos ADR Holders Says Plaintiffs May Seize Russian Assets Abroad if Russia Refuses to Honor Judgment: Gazeta reports Thomas Johnson, the lawyer who represents 12 YUKOS shareholders in Washington DC, wants to prove the illegal expropriation of Yuganskneftegaz, as well as the insider-trading of company shares.  Johnson anticipates that even if he wins in court, the Russian Justice system will not agree to pay his clients the damages, amounting $9 million. Therefore, he intends to claim Russian assets abroad, including the proceeds of the stabilization fund. (Source: Gazeta.ru)