At least one Western bank participating in a consortium that was planning on financing up to $13 billion of Russian gas giant Gazprom‘s bid for the Yukos unit Yuganskneftegaz (“Yugansk”) have decided to postpone their participation in the consortium as a result of the temporary restraining order that Yukos obtained Thursday evening in its chapter 11 case filed on Tuesday evening in Houston. Here are the earlier posts on the Yukos bankruptcy case and the TRO.
Meanwhile, Russian authorities are preparing to proceed with the auction and to ignore the U.S. Bankruptcy Court order. Gazprom, which is predominantly owned by the Russian government, was expected to buy the Yugansk unit at the auction scheduled for Sunday. However, the TRO may chill enough members of the consortium of Western banks that are financing the bid that Gazprom could be effectively prevented from bidding unless it finds alternative financing. And $13 billion in acquisition financing is not easy to find on a weekend.
Nevertheless, Gazprom announced on Friday it is going bid in the auction anyway and has placed a $1.8 billion deposit with the Russian government as a condition to its participation. Three other Russian companies have also registered to participate in the auction.
My bet is that the auction proceeds and that the Russian government steps in to assist Russian financial institutions to provide funding for the successful bidder, if necessary. However, the Yukos bankruptcy case has already succeeded in the sense that it has reminded the Western capital markets that investment in Russian companies remains a high risk proposition. Unless or until the Russian government embraces the reforms necessary to provide Western capital markets with confidence that business transactions will be handled in accordance with the rule of law, Russia’s post-communist economic development will continue to be constrained by the lack of investment from the West.