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Last Updated: Thursday, 30 October, 2003, 17:38 GMT
Russia freezes Yukos shares
Russian President Vladimir Putin
Mr Putin met key foreign investors in an attempt to allay their concerns
Russian authorities have frozen 44% of the shares in national oil giant Yukos, the company has said.

The action came days after the authorities stepped up investigations into the firm by arresting chief executive Mikhail Khodorkovsky on fraud and tax evasion charges.

Many Russians believe the case against Mr Khodorkovsky, thought to be Russia's richest man, is political.

He has funded opposition groups, breaking what analysts say was a tacit agreement to stay out of politics in return for avoiding investigation of his financial affairs.

A fair and open court hearing will find the arrest of Mr Khodorkovsky illegal and all accusations against him groundless
Yukos board of directors
In Thursday's action, prosecutors are thought to have taken effective control of a stake in Yukos owned by Menatep - a financial vehicle run by Mr Khodorkovsky and key allies, many of whom are now in prison or facing investigation.

The freezing means partners in Menatep cannot now sell or undertake other transactions with the shares although they do still own them and hold dividend rights.

Yukos confirmed that the stake amounted to 44% of the company.

Stock market fall

Earlier on Thursday, Yukos announced plans for a dividend of $2bn, one of the largest shareholder payouts in Russian corporate history.

It's a case of sell now, think later - I think the stock will fall another 10-15%
Steven Dashevsky, analyst at Aton brokerage
Mr Khodorkovsky, who owns 36.6% of Yukos, should receive about $730m.

But the likely bonanza for shareholders did not prevent Yukos shares dropping a further 12% on Thursday as investors fretted about the company's future.

"It's a case of sell now, think later. I think the stock will fall another 10-15% before people start thinking about buying it again," said Steven Dashevsky, oil and gas analyst at Aton brokerage.

Russia's RTS stock market index was down 8% while the rouble fell by 10 kopecks against the dollar.

Both the RTS and MICEX indexes are down more than 20% on the week.

Yukos directors issued a statement standing firmly behind Mr Khodorkovsky.

"The board... declares its full support and belief in the management of the company and states its certainty that a fair and open court hearing will find the arrest of Mr Khodorkovsky illegal and all accusations against him groundless," the statement says.


The case against Mr Khodorkovsky has left Mr Putin facing questions from an anxious business community about the Kremlin's management of the economy.

Mr Putin met key Russian and foreign investors on Thursday in an attempt to allay their fears but, according to Russian news agencies, he also admitted there was little coherence in the government's regulation policies.

Mikhail Khodorkovsky
Khodorkovsky is in line for a $730m dividend from his Yukos shares
A top spokesman on tax affairs in the Russian parliament has told the BBC no Russian company could be squeaky clean under the country's tax laws of the 1990s, so any business could now face prosecution.

The stamp of state control over shares in the country's biggest oil company would be an intervention unprecedented since Soviet days.

It is likely to stoke fears that power politics is gaining the upper hand over economic reform in the run-up to parliamentary elections in December.

Until now, Mr Putin has been well regarded by investors as a source of stability and guarantor of economic reform, but Yukos is seen as a flagship moderniser among Russian corporations.

In his only public comments on the arrest, the Russian president has insisted that the case against Yukos is a judicial matter and part of a general fight against corruption.


Mr Khodorkovsky, through Menatep, was a leading figure among the young business elite - the so-called "oligarchy" - which gained power and influence through murky privatisations in the 1990s.

Investigation of those privatisations would leave few of Russia's new millionaires untouched, analysts say.

The campaign against Yukos was ratcheted up a notch on Wednesday when prosecutors sought to lift immunity protecting Vasily Shakhnovsky, a major Yukos shareholder who was recently elected to Russia's upper house of parliament.

Platon Lebedev, a Menatep partner and major Yukos shareholder, has been under arrest since July.

In a sign of widening political repercussions from the battle, reports on Wednesday said Alexander Voloshin, Mr Putin's chief of staff, had resigned.

The BBC's Bridget Kendall
"With each day the crisis seems to get worse"

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