Witness Testimony Summary: Pavel Maliy
Bio:
From April 2002 through May 2004, Mr. Maliy was a director at the Directorate for Corporate Finance at YUKOS-Moscow.
Testimony dates:
February 1, February 3 and February 8.
Testimony Summary:
Mr. Maliy testified about the proposed YUKOS listing on the NYSE, securing a credit rating from Moody's and Standard's, as well as the YUKOS/Sibneft merger. Testifying about the proposed YUKOS listing on the NYSE (internally named "Voyager"), Mr. Maliy explained that the project was being developed through 2002. According to Mr. Maliy, PricewaterhouseCoopers, UBS, Akin Gump, Group MENATEP and various consultants actively participated in the project's development. Mr. Maliy testified that his role in the project was to coordinate interaction between attorneys and various YUKOS departments and to ensure that all deadlines were being met.
Mr. Maliy testified about some of the information found in the draft SEC Form F-1. He confirmed the widely known fact that YUKOS crude oil, after being transferred into Transneft pipeline and mixing with crude oil from other companies, became an export mixture called "Urals." That crude oil was of lower quality than Brent and, when compared to Brent, was sold at a discount. Mr. Maliy testified that it was a well-known fact that crude oil prices in production regions were lower than those on international markets. Mr. Maliy confirmed that most of the crude oil YUKOS exported was through Transneft's pipeline network - 91% in 2000, 86% in 2001 and 91% in 2002. Examining financial details, Mr. Maliy explained that this information was borrowed from YUKOS' US GAAP consolidated statements and was verified by PwC. Mr. Maliy insisted that no one ever asked him to distort or doctor any information that was being added to the draft. Mr. Maliy explained that the project was halted in early 2003, but would not speculate what may have prompted it.
Mr. Maliy testified that the Directorate of Corporate Finance was laying the groundwork for a YUKOS Eurobond issue. To do that, YUKOS needed to secure a credit rating, with the company choosing Standard & Poor's and Moody's as the agencies to rate the company. Mr. Maliy described in detail how the process for securing a credit rating progressed. He testified that he worked closely with Mr. Bruce Misamore, YUKOS' CFO, in preparing a presentation, called a "rating book," for these agencies. YUKOS business-plans and financial information were given prime attention. Mr. Maliy explained that, besides YUKOS' US GAAP statements, rating agencies examined the company's cash and cash equivalents - the company's most liquid assets found on its balance sheet, and interviewed the company's managers. Credit agencies analyzed the company's revenues, profits and crude oil production volumes, as well. Mr. Maliy testified that two goals were achieved with the publication of YUKOS' rating - in addition to the published the rating, the agencies published the basis for their decisions. Mr. Maliy testified that the ratings awarded to YUKOS were the highest amongst Russia's corporate borrowers and on par with Russia's sovereign credit rating.
Explaining the impact of the YUKOS/Sibneft merger on the proposed YUKOS listing on the NYSE, Mr. Maliy testified that it would have required everyone "to start from zero," adding that Sibneft would have represented about 30% of the newly created company. Mr. Maliy testified that YUKOS and Sibneft officially merged on October 3, 2003. On that date, YUKOS became the owner of 92% of all outstanding Sibneft shares. In return, controlling shareholders of Sibneft received 26.01% block of shares in the newly created company. Mr. Maliy explained that the merger had both cash and stock components, with YUKOS paying $3 billion USD in three tranches to Sibneft majority shareholders, the final $1.25 billion USD paid on October 3, 2003. According to Mr. Maliy, at the time of the merger Sibneft had more liabilities than cash on hand, while YUKOS had about $4 billion USD more in cash and securities on its balance sheet than it had in liabilities. Prior to the merger, Sibneft conducted extensive due diligence, with Skaden Arps and Citibank acting as its legal and financial advisers, respectively.