Tuesday, July 29, 2014

Grasping the Yukos Episode

Once upon a time....some fine Russian gentlemen sat down....devised a method of moving oil and natural gas at a very profitable rate....selling it to Europeans.....turning the company into a stock-owned asset....and convinced a lot of folks to buy into the whole....thus getting fairly rich.

Somewhere in this sorrowful and wicked story.....there's some disagreement by the CEO and some President of a country.  The President thinks the CEO is getting too deep into politics, and decides "enough is enough".  Cops are called...prosecution lawyers are drafted into the scheme....and the CEO of Yukos is caught, and dragged into court.  Avoidance of taxes is the charge....guilty situation....then the country's leadership walks in and seizes a publicly owned company.  The assets are resold, and they just walk away from the stockholders....thinking this is a done deal and nothing will ever come back on this.

Well....yesterday....the fat lady sung....as we say in America.

The court decided that the stockowners of Yukos are owed something....less than the hundred billion they felt....but at least fifty billion dollars. Yeah, BILLION is the right word.

It's a shocker.

A bunch of Russian reactions....most acting like it's not ever going to happen, and this is a pretty bogus court.

Well....I'm not a Russian expert or a journalist.....but I can kinda guess the script to this episode.  It took ten years to get to this point and the stockholders are probably sitting there with a smile.  They never felt it'd be concluded....but now?

So, here's the anticipated script left for this.  Every month of delay....more cost is added (they've actually put an incentive into this....if you delay it....time equals more fines).

Some Russian lawyers will likely show up in thirty days....talk for an hour over this and simply walk out of the court.  I wouldn't expect any Russian action for a minimum of six months.  But the court said that there's only a window of six months to work out some further negotiation and at that point.....the stockholders can ask for legal documents.

The legal documents? Basically, you take that and walk into any country....present it as your legal standing and ask to take over Russian public property (oil pipelines, ships, aircraft, etc).  No, you can't grab their embassy or embassy cars.  But you could walk into some German court and start to demand various natural gas pipelines.  By owning them....you force someone to come into the room and talk.  It only takes one pipeline episode....to flip the Moscow lawyers for Putin into a negotiation phase.

You see....there's one other odd event going on.  Russia wants to open up a Wall Street-like market, and trigger some requirements for Russian wealth to stay in Russia....falling into this Wall Street market system.  Long term....it makes sense economically.  But you sit there and think there's this problem a year or five years down the line where the Moscow government might be forced to cough up $50 billion....where does the fifty billion come from?

Basically.....you have to invent a tax on Russian wealth.  You got five billion in your pocket.....you might be expected to cough up $500 million this year.....to secure your part of the invented tax element. Your buddy across the street?  Same way.

Fifty billion is a lot.

So, this is likely making the billionaires in Russia nervous.  They probably didn't agree with the Yukos episode but just kept quiet.  Now?  Who got all the wealth out of the Yukos deal when they sold it off?  Well....no one in the financial world will say.

Could it take another ten years to reach maximum crisis? Yes.  The Russians might be stupid enough to draw this out to 2024.  But the fifty billion will have easily turned into two-hundred-and-fifty-billion after ten years.  I suspect the court believes it might happen.  For the Yukos investment crowd.....half will be dead by that point.....but the survivors will get way more than they ever expected.

I'm guessing Putin and his staff are simply saying they won't pay it.  But after they've watched an asset or two seized....especially natural gas or oil related....it'll turn into a bigger mess.

All of this leads back 2003, and you have to wonder if the Putin team understood what they were doing and grasped the long-term implications.  Fifty billion is a fair sum and to find yourself inventing taxes to cover a random act of stupidity from a decade ago.....well....it's a tough episode.  Especially after the aircraft shoot-down in Ukraine, and the whole civil war business in the Ukraine.

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