The arrest of one of Russia’s richest businessmen has led to speculation he is being targeted by the Kremlin as a way of seizing his company, particularly its oil assets.

Shares of the Sistema conglomerate plummeted when it became known that owner Vladimir Yevtushenkov was under house arrest, accused of misappropriation or embezzlement, in connection with his firm’s acquisition of oil producer Bashneft.

Sistema said it considered the accusations against its chairman baseless.

Yevtushenkov’s holding company has major stakes in a range of Russian businesses, including the country’s number one mobile phone operator MTS and utilities, consumer and high-tech.

It also controls Bashneft, Russia’s sixth-largest oil company in terms of output with an overall stake of about 86.7 percent and 72 percent of Bashneft’s voting shares.

Khodorkovsky accuses

The investigation and Yevtushenkov’s detention have raised memories of what happened to Mikhail Khodorkovsky, the head of oil and gas giant Yukos and at the time one of Russia’s richest business owners.

He was jailed for tax evasion and fraud and Yukos was seized. It ended up in the hands of state-controlled energy firm Rosneft.

Khodorkovsky, who is now out of jail and no longer living in Russia, has accused Rosneft of being behind the Sistema investigation. Rosneft denies that, calling it “absurd”.

Khodorkovsky, in an interview with the Russian business daily Vedomosti, alleged that Rosneft’s head, Igor Sechin, was behind Yevtushenkov’s house arrest.

“I don’t understand why Rosneft has something to do with that? This is absurd,” Russia’s RIA news agency quoted a Rosneft spokesman as saying on Wednesday.

Similar sentiments were expressed by President Putin’s spokesman who denied politics had played a role.

But Alexander Shokhin, head of the Russian Federation of Industrialists and Entrepreneurs, a business lobby group, condemned the move as political.

“Whatever the reasons that have moved the investigative committee – either a struggle for an asset or an attempt to return the asset to Bashkortostan … the case takes on a political hue,” he told Reuters.

The incident has certainly spooked investors, hitting share prices in Moscow.

“Such a dramatic turn of events comes as a surprise regardless of the market knowing there was an open investigation into the privatisation of Bashkir Oil and Energy Group,” Sberbank CIB investment bank wrote in a note, referring to the oil company that later became Bashneft.

“The risk of a change in the shareholder structure of Bashneft escalates, a risk that now spreads to Sistema’s other assets,” the bank wrote.

Background

Like many of Russia’s billionaires, Yevtushenkov started his telecoms-to-oil empire in the 1990s, when state assets were distributed to insiders at bargain prices. In 1996, Sistema acquired the nascent mobile system of the Moscow city phone network, now Russia’s largest mobile network, MTS.

With a close relationship to the Moscow city government under then mayor Yuri Luzhkov, Sistema grew rapidly. It now groups together 15 business sectors ranging from oil to Detsky Mir – ‘Child World’- a retailer of toys and children’s clothes. Yevtushenkov became known in the business community at home and abroad for running an efficient, if unwieldy, conglomerate.

It is a 2009 deal, in which he acquired the stake in Bashneft, an oil producer in the Russian Ural mountains Republic of Bashkortostan, for $2.5 billion, that has now come under the spotlight.

In the shadowy world of Russian regional politics, the deal was seen at the time as having the Kremlin’s blessing. The long-serving boss of Bashkortostan, Murtaza Rakhmimov, was removed from power a year later. Yevtushenkov has said both Putin and Prime Minister Dmitry Medvedev were happy with the deal.

with Reuters