Investors who either hold Russian shares or are considering doing so all have the same question rattling around in their heads:
"Was YUKOS the end of it?"
By "it," of course, they're talking about the expropriation of YUKOS assets to pay a back tax bill that ballooned in the end to more than $28 billion -- more than the company's earnings during the time frame in question. The ferocity with which the Kremlin went after YUKOS was widely believed (and scarcely denied) to have been Russian President Vladimir Putin's retribution of billionaire controlling shareholder Mikhail Khodorkovsky for his sin of becoming politically active and supporting an opposition party.
Any hope that YUKOS (OTC BB: YUKOY) might have been the end of the road was dashed when mobile telecommunications leader VimpelCom (NYSE:VIP), owned in part by Telenor (NASDAQ:TELN), was slapped with a tax bill. None of the other bills have been even in the same galaxy as YUKOS', with VimpelCom's being reduced from an original claim of $158 million down to $17 million.
There are two things to be remembered, one good and one bad. The first is that the grounds upon which the tax authorities went after YUKOS were incredibly broad. YUKOS' tax structure conformed to the law, so instead prosecutors went after it using a slippery definition of intent to deceive. The question becomes whether the tax authorities feel they have received the green light to bend the law as they choose in going after other companies.
I would suggest that the end result for VimpelCom demonstrates that while they may try to do so, they wouldn't have the same cover from the top reaches of the Kremlin to do so, a la YUKOS. MTL (NYSE:MTL) shares cratered in December when the company announced it was being investigated by Russian authorities, but shares rallied when it clarified that the investigation wasn't over taxes.
The other thing to remember is this: While it in no way excuses the excesses committed in the coring of YUKOS, Russian tax officials have been battling widespread tax evasion among companies and citizens for years, since the collapse of the Soviet Union. In no small way, what is going on now is a response to more than a decade of impotence at the tax ministry. An investor holding any Russian company should reasonably assume that at some point, a bill for back taxes will come due. This isn't a prediction; it's a logical conclusion.
One thing about the chill of government intervention on Russian commerce is that it has depressed share prices by introducing fear. We have a product that seeks out opportunity where others flee -- it's called Inside Value , and a free trial is a click away.
Bill Mann owns none of the shares mentioned in this story. He worked in Russia in the mid-1990s. For a complete list of holdings, please refer to Bill's profile.
