AP: Texas

12/19/2004

By PAM EASTON  / Associated Press

A judge Saturday night upheld a temporary injunction halting the Moscow auction of a key production subsidiary of Russian oil giant Yukos.

U.S. District Judge Nancy Atlas rejected an appeal from Russian state-controlled natural gas giant Gazprom after an emergency hearing Saturday.

Atlas ruled that overturning the order would have done irreparable harm to Yukos, but upholding it would not cause such harm to Gazprom.

Yukos filed for Chapter 11 bankruptcy Tuesday in Houston in a last-ditch effort to block the auction scheduled for Sunday in Moscow, which Gazprom believed it was positioned to win.

"All we are asking for is the ability to complete the bidding process," Michael Goldberg, a Houston attorney representing Gazprom said. "If we don't bid, we won't win."

Russia pledged to proceed with the auction, saying the U.S. order is irrelevant on Russian soil.

The Russian government planned to sell the subsidiary, Yuganskneftegaz, to pay off some of the $27.5 billion in back taxes it says is owed by Yukos, Russia's largest oil producer.

Yukos attorney Zack Clement said the judge "offered a well-reasoned opinion, which we appreciate greatly."

After talking with Gazprom officials late Saturday, Goldberg said the Atlas' ruling would not be appealed Saturday night to the U.S. 5th Circuit Court of Appeals in New Orleans.

"There is no jurisdiction in this case, and this is not the type of case that a Texas court should be deciding about Russian assets," he said.

U.S. Bankruptcy Judge Letitia Clark granted Yukos' request Thursday for a temporary restraining order delaying for 10 days the auction.

"Why wouldn't Russia want to stop the auction?" Atlas asked during the appeals hearing. "What's the emergency?"

Goldberg told Atlas he meant no disrespect, but it wasn't any of her business.

Clement told the judge the rush to auction is a way for the Russia government "to take our biggest asset and sell it to their cousin" at half price. Gazprom is 40 percent owned by the Russian government.

After the restraining order was issued, banks — including Deutsche Bank, ABN Amro, BNP Paribas, and Dresdner Kleinwort Wasserstein — froze between $10 billion and $13 billion they had pledged to loan Gazprom for its bid, Russian and other news reports said Friday.

Citing what it called high-ranking Western financial sources, the ITAR-Tass agency reported that the banking group had decided to freeze the deal at least until the U.S. court reaches a final decision.

Hugh Ray, an attorney for Deutsche Bank, said the bank was not financing Gazprom.

"We are not even advising Gazprom on how to bid," he said.

Goldberg said Gazprom would have to look to other funding sources to pay for the subsidiary if banks put on hold billions of dollars in credit the company needs for the purchase.

Atlas said she was sympathetic to Gazprom's claims of irreparable harm but a bankruptcy is "a device for protection of assets" and Yuganskneftegaz is "an enormous asset" for the oil producer.

"There is no way any of us can know what will happen tomorrow," she said.