The Telegraph
Since 1st March, 1999
Email This Page
Kremlin-business clash escalates

Moscow, Oct. 30 (Reuters): Russia blocked jailed tycoon Mikhail Khodorkovsky from selling his controlling stake in oil giant Yukos today in a dramatic escalation of a confrontation between the Kremlin and big business.

The scale of the drama, unprecedented since Russia’s switch to capitalism from communism nearly 12 years ago, sent financial markets skidding and sparked concerns that investors would pull money out of the country.

There was no immediate comment from the Kremlin or President Vladimir Putin who met leading investment bankers shortly after the Yukos bombshell was announced.

However, Russian finance minister Alexei Kudrin said today that events concerning oil giant Yukos were beginning to affect the country’s economy.

“The actions by law enforcement agencies must be lawful. Events are beginning to affect the economy,” Kudrin said. “I hope judges will be well-balanced and objective in taking decisions.”

The move by state prosecutors stops Khodorkovsky, Russia’s richest man, and his allies from cashing in their controlling interest in the country’s biggest oil company.

Yukos spokesperson, Alexander Shadrin, said the state had blocked 44 per cent of the company’s shares owned by Khodorkovsky and his allies although they retain rights to vote and dividends.

“This is unalloyed bad news... This puts a question mark over corporate governance in the Russian market as a whole. We are hearing a number of big foreign investment funds are starting to take out money,” said Paul Luke, head of emerging market specialist Convivo Asset Management.

Even Russian officials were worried the prosecutors were going too far. “I do believe the methods are absolutely wrong — the way they were arrested, put in jail and so on,” a senior Russian diplomat said.

Yukos has been the target since early July of legal action by the Russian justice authorities in what many see as a move by the Kremlin to curb the political ambitions of Khodorkovsky who is believed to have his long-term sights on the presidency.

The saga took on dramatic proportions on Saturday when Khodorkovsky, 40 and recently ranked the world’s 26th wealthiest person, was arrested at gunpoint, thrown into a Moscow jail and charged with tax evasion and massive fraud.

The blocking of the shares came just as the company awarded its shareholders a whopping $2 billion in dividends, more than $700 million of it to Khodorkovsky.

Russian markets sank on the news of the freezing of the shares with the benchmark RTS index closed down 8.14 per cent at 496.66. Yukos alone plunged 11.98 per cent at $10.650.

The rouble dipped about 10 kopecks against the dollar.

“It’s horrible. It’s in line with our worst case scenario for Yukos. To have thought this would end with the arrest of Khodorkovsky was at best naive,” said Steven Dashevsky, oil and gas analyst at Aton brokerage. “It’s a case of sell now, think later.” Analysts say it also seems to stop any further negotiations with the world’s biggest oil firm Exxon Mobil Corp which has been discussing taking a big stake in Yukos.

Analysts say the drive against Yukos has been initiated by Kremlin “hawks” seeking to strengthen their influence over Putin, reassert the state’s authority over Russian business and better control coming polls.

Khodorkovsky, one of the “oligarchs” who made their fortunes in the post-Soviet sell-off of state assets, openly supports liberal opponents of Putin in December’s parliamentary polls. Putin is seeking re-election in a separate poll next March.

In another sign of the rise of hardliners — so-called “men in uniform” for their links to the security services where Putin made his own career — Russian media reported the resignation of Putin’s chief of staff, Alexander Voloshin, seen as a Khodorkovsky sympathiser.

Voloshin and like-minded officials left over from the Boris Yeltsin presidency are viewed as tainted by links to oligarchs.

Email This Page