U.S. Judge Moves to Halt Yukos Subsidiary Auction

A U.S. bankruptcy judge issued a temporary injunction late Thursday to block this weekend’s planned auction of Russian oil giant Yukos’ main production subsidiary.

The injunction, sought by Yukos, was a last-ditch effort to forestall the breakup of Russia’s second-largest oil company. Russian authorities say the company owes $27.8 billion in taxes and want to auction off its Siberian subsidiary, Yuganskneftegaz, on Sunday in Moscow. Yuganskneftegaz produces about 60% of Yukos’ oil.

In issuing the injunction, Bankruptcy Judge Letitia Clark also accepted jurisdiction of the Yukos Oil Co.’s Chapter 11 bankruptcy case, filed Wednesday in Houston.

Yukos has 10 business days to seek a permanent injunction.

“Obviously we are pleased and encouraged by the judge’s ruling,” said Mike Lake, a spokesman for Fulbright & Jaworski, the Houston law firm representing Yukos.

Lake said the injunction did not apply to the Russian government, but to a consortium of international banks, including Deutsche Bank, that are putting together a multibillion-dollar loan to finance a bid in the auction. Yukos lawyers say that bid is to be made by Russian state natural gas giant Gazprom at Moscow’s instruction.

Lake said the Russian government could go forward with the auction, but the top bidder wouldn’t have the financing for the opening $8.6-billion bid if the banks withdrew.

“If the banks adhere to the ruling, which we hope they would, there would be no financing available for the banking syndicate,” Lake said. “It will be interesting to see what’s actually going to happen on Sunday.”

Analysts in Moscow have said they expect Russian authorities to go ahead with the auction regardless of any moves by courts in the United States.

Matthew Botica, a Gazprom lawyer, didn’t immediately respond to a call for comment. But Gazprom spokesman Alexander Stepanenko said Wednesday that the court filing would not affect the company’s plans.

“It is not our problem. No one has canceled our instruction to bid in the auction,” he said.

Hugh Ray, a Houston attorney representing Deutsche Bank, didn’t return a call for comment on Thursday’s ruling.

The injunction Clark issued emerged from the first U.S. court action stemming from Yukos’ fight against what has been called a Kremlin-sponsored breakup.

A key question was whether the bankruptcy petition was properly filed in Houston instead of in Russia, but Clark sided with Yukos.

In court filings, Yukos accused the Russian government of driving down the value of the company from $40 billion to $2 billion in less than six months by asserting that more than $27 billion in back taxes was due and preparing to sell the company’s core asset to the state-run gas company for a fraction of its value. The company labeled the campaign “expropriation.”

Chief Financial Officer Bruce Misamore, an American, said Yukos decided to file for bankruptcy protection in Houston “because our company is being rendered insolvent by unlawful Russian government actions which ... have destroyed billions of dollars of value for investors,” many of them American.

Some observers regard Moscow’s targeting of Yukos as retaliation for former Chief Executive Mikhail Khodorkovsky’s funding of opposition political parties and complaints of government corruption.

But Russian President Vladimir V. Putin has characterized the effort as a crackdown on corruption and dubious accounting.

Khodorkovsky is facing trial on fraud and tax evasion charges. He has been imprisoned 14 months.