A Mystery is Afoot in Mother Russia

Longtime Cake Eater readers will know that I periodically come back to Mikhail Khodorkovsky's troubles because I find the situation to be emblematic of how life moves in Putin's Russia nowadays---lots of brilliant chess moves, but no payoff in seeing how the match ends because the curtains will have been pulled long before that point. Khodorkovsky's tale is long, but I'll try to hit the high points quickly: local boy makes good in new captialist system, overreaches with his oil company at a time when Mother Russia needs cash, annoying those in charge---whilst simultaneously funding opposition parties---is arrested at gunpoint on his private jet in Siberia just days before he was to merge his company with another rival, and then spends years trying to clear his name of tax evasion and fraud charges, only to fail and wind up in a Siberian prison camp. And it ain't over yet. Khodorkovsky is biding his time, working on his PhD in prison whilst trying to be a bit of a martyr for democratic causes, and Putin's prosecutors have ginned up some more charges of embezzlement and money laundering, to try and keep him in jail.

This is the stuff of a Jeffrey Archer novel. It's awesome and it's interesting. You could make this stuff up, but if you did, well, you'd be Jeffrey Archer and I think we've all learned the hard way that one of him is sufficient enough to supply novels about trashy tycoons.

Khodorkovsky isn't the hell-bound-for-democracy-saint his human rights lawyers make him out to be, but neither is he the devil Putin claims is intent on robbing all that is good and holy about Mother Russia (i.e. her natural resources). The truth lies somewhere in between and a big mystery has evolved over the past couple of days in regards to selling off the last of Yukos'---Khodorkovsky's company---properties. Rosneft, the Russian state oil company, via seizures and less than fair market priced bidding at Yukos' many fire sales, has pretty much acquired Yukos, and all its assets, lock stock and barrel. This has lead to much speculation that all the charges against dear old Mikhail were trumped up (which, to be truthful, they probably were) and that Putin was simply trying to bankrupt the company so the state could profit.

But there's a twist---because you were waiting for the twist, weren't you?-----the Yukos office building in Moscow, all twenty-two floors of what appears to be unispired concrete, went on the block on Friday, in what was to be the final nail in Yukos' coffin. Everyone assumed that Rosneft would pick it up on the cheap, like it has all the other remnants of Yukos, but, surprisingly, when all was said and done, Rosneft was outbid by an obscure company no one knows anything about.

Curious.

{...}All of Yukos' production assets and refineries now belong to the state-controlled oil company OAO Rosneft, which has dominated the liquidation auctions that began in March. Once an underachiever among Russian oil companies, Rosneft has become the biggest producer in Russia, pumping 2.1 million barrels per day - or the same as Nigeria or Iraq.

In a fitting echo of the many murky twists in Yukos' downfall, the final auction on Friday came to an unexpected end.

Lot number 13, which included Yukos' 22-story, green-and-brown Moscow headquarters, should have been a victory lap for Rosneft. The towering downtown building would have made an appropriate home for the new oil giant that emerged from Yukos' remains.

But an unknown company won the auction after a grueling 2 1/2 hours of bidding that saw the opening price nearly quintuple - an unheard of result for the auctions, all of which have appeared to be closely scripted.

After 706 back-and-forth bids from Rosneft's subsidiary Neft-Aktiv and OOO Prana, the mysterious company made the winning bid - US$3.9 billion. By the end the auctioneer, who called three breaks in the bidding, was sounding hoarse. {...}

According to an article in Saturday's FT, which has since disappeared behind the subscriber wall, the building isn't worth that much.

The last bankruptcy sale of Mikhail Khodorkovsky's Yukos ended in mystery yesterday when an obscure company bought an auctioned lot, including Yukos' headquarters building, for almost $4bn, in what looked at first glance to be the most expensive property deal in recent history.

The company, Prana, bid nearly five times the starting price of Rs22bn ($852m) to head off state-controlled Rosneft in 707 rounds of bidding.

Observers were baffled by the price paid for the lot, which, at first glance, inclused only the office building, and a couple of shell companies.

Moscow property experts estimated Yukos' tower block was worth no more than $300m. "It's not new. It's not in the centre. This sum just does not fit the building, said Constantine Demetriou, head of capital markets at Jones Lang Lasalle in Moscow.

{...}Rosneft had widely been expected to snaffle the headquarters to cap its takeover of Yukos. The state-controlled oil major has faced little competition in previous bankruptcy auctions in which it has snapped up all of Yukos's remaining production units and refinieries in bidding often lasting less than ten minutes.

The break-up of Yukos over $33bn in back-tax demands has helped propel Rosneft to the position of Russia's biggest oil producer.

But yesterday's price bring the total raised from the Yukos bankruptcy sale to Rbs824bn. This substantially exceeds the company's total debts of Rbs709bn, fuelling Yukos shareholders' claims the company was bankrupted illegally to benefit the state and Rosneft.{...}

So, the questions that immediately come to mind are: who would pay so much for an office block that's not worth anywhere nearly as much as it was bought for, and why would they do it? Was there perhaps something more valuable included in the lot? Could very well be:

{...}Alexander Temerko, Yukos' former vice president, said he had information that trading entities included in yesterdays' lot held more than $4.5bn in cash from oil sales by Yukos' two remaining production units.{...}

{all my emphasis}

So, what the fuck, my devoted Cake Eater readers, eh? Can one not have some serious fun trying to imagine what, precisely, is going on behind the scenes here? After plotting for months from his Siberian prison cell, did Mikhail Khodorkovsky manage to hold onto some of his assets, because only he truly knew their value, via an outside buyer? Which, if true, would make him a playa' again---big time. How did Rosneft manage to miscalculate so egregiously? Did they have any clue what they were up against? Or were they simply outplayed?

It's good fun to imagine what went down, no? Because, God only knows, we're never likely to know what actually happened.

Posted by Kathy at May 15, 2007 12:04 PM | TrackBack