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Yukos Crisis: Going Long/Short as Capitalist vs. Government Conflict Plays Out

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NEW YORK (–Russian President Vladimir Putin’s crackdown on Russia’s second-largest oil company, Yukos, has roiled oil prices worldwide and slashed Yukos’ stock price by more than 50% in the past year. But Russia’s economic strength may be unimpaired and the spread between government and private businesses makes for long/short opportunities.

So argues Anton Khmelnitski of Brunswick Asset Management, a firm that manages long/short equity and other Russian funds. Fundamentals remain strong and the long-term outlook is positive, he said in a report. Accordingly, the manager favors long positions, but with a focus on stocks that have less “oligarch risk.”

Mr. Khmelnitski said he sees the conflict between Mr. Putin and jailed former Yukos chief Mikhail Khodorkovsky in the broader context of the state vs. capitalists in Russia, where the government holds large chunks of key parts of the economy. In particular, the state owns 61% of the banking and 54% of the gas industry, as measured by market capitalization.

Yukos vs. Gazprom

In the past, the private sector traded at a premium to the state sector, but now it is at a slight discount. State-owned stocks include the local businesses of Gazprom, which attained new highs this year even as other companies languished. The gas producer was up 60% year-to-date as of June 30.

Mr. Khmelnitski regards Gazprom as still undervalued, however, in view of its substantial real assets. The government is expected to change the two-tier equity structure that is keeping down the firm’s market value.

Middle Eastern instability has enhanced the importance of Russia’s energy resources to the global economy. There are now a number of funds dedicated to investing in Gazprom alone (see ).

“By September, better fixed-income performance, some dissipation in the tensions in the banking sector and above all more clarity on the ‘Yukos situation’ should act as a positive catalyst,” Mr. Khmelnitski wrote in his review of the fourth quarter.

He added: “On the long/short strategy the currently high levels of volatility and the ‘Yukos situation’ also means that trading opportunities will continue to arise mainly in the form of valuation spreads between government and the private sector stocks.”

While earnings and cash flow suggest that private issues should be at a premium to state companies next year, there may be more government interventions and therefore oligarch-led firms carry extra risk, he argued.

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Contact Robert F. Keane with comments or questions at

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