No Yukos

Oligarch arrest shows Russia back to siege economy

Bashneft is no Yukos. The arrest this week of Vladimir Yevtushenkov echoes that of Mikhail Khodorkovsky, and the subsequent expropriation of Yukos, then Russia's largest oil group, more than 10 years ago. The owner of Sistema, the investment vehicle that controls Bashneft, was arrested September 16 on charges of money laundering.

But the Yukos affair was political - an oligarch had dared oppose Putin, and paid the price. Excuses were found to bankrupt the company and jail its owner. Save for the little help provided by a few Western banks and oil groups, it remained a Russian affair. This time, it's different. Bashneft is smaller and less political. Yet its greater integration into Western business and finance makes it a harder target.

In the current Russia, it makes sense, from the Kremlin's perspective, to strong-arm or convince Yevtushenkov into selling out to state-owned oil major Rosneft. Bashneft has expertise that Rosneft craves.

If Yevtushenkov voluntarily "agrees" to sell his oil group, he would have to take the matter to his board. The deal would have to be fair - at the very least, it should be at a price undisturbed by the Russian authorities' actions. Bashneft lost $2 billion of market capitalisation on September 17. It stood at more than $9 billion before the arrest, for an enterprise value of $11 billion. The parent company of Bashneft, Sistema, would also have a say. It counts heavyweights such as former UK minister and EU commissioner Peter Mandelson among its directors.

If Yevtushenkov resists, Russia could try to take the asset anyway. Rosneft lacks the money to buy its smaller rival. It must pay back more than $30 billion in debt by the end of 2015, is cut off from Western financing and technology, and had to beg the Russian government for a $40 billion lifeline. In case of expropriation, Moscow would face a myriad of lawsuits in Western courts. But sanctions have created a siege mentality in Russian governing circles. The temptation to rip off Bashneft and Sistema shareholders will be strong - whatever the price Russia would have to pay in the long term.