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Ownership tussle: SEC orders forensic audit of Oando Plc

by Editor

October 19, 2017 | 1:51 am
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The Securities and Exchange Commission yesterday announced it has ordered a forensic investigation into the operations of Oando Plc. This follows its investigations of two petitions “received from Alhaji Dahiru Barau Mangal and Ansbury Incorporated”

Mangal and Ansbury Investment Incorporated, had petitioned SEC, citing gross abuse and mismanagement by the management of Oando.

In a statement issued 18 October, SEC said it ‘carried out a comprehensive review of the petitions and made the following findings amongst others; Breach of the provisions of the Investments & Securities Act 2007; Breach of the SEC Code of Corporate Governance for Public Companies; Suspected insider Dealing;

Related party transactions not conducted at arm’s length; Discrepancies in the shareholding structure of Oando Plc among others.’

SEC said that its findings were weighty and therefore needed to be further investigated.

“After due consideration, the Commission believes that it is necessary to conduct a forensic audit into the affairs of Oando Plc.”

SEC says a ‘consortium of experts made up of auditors, lawyers, stockbrokers and registrars’ will carry out the forensic audit. No date has yet been given as to when this consortium will be set up, or how long they will be given to complete the audit, but sources at SEC said that the auditors have already been appointed. Though no name has been given, sources have told BusinessDay that the odds are in favour of Pwc.

However, SEC also gave a directive to the Nigerian Stock Exchange (NSE) to suspend trading on the shares of Oando Plc for 48 hours, after which a full technical suspension should be placed on the shares until the forensic investigations are completed.

The SEC directive “implies that investors would not be able to execute a Buy or Sell mandate on Oando Plc shares, till Friday the 20th of October 2017. Every transaction done from Friday, will be at the same price, as there would be no price change on Oando shares untill the technical suspension is lifted, or until a further directive is issued,” said Capital Bancorp Plc analysts, in their note to clients.

Uche Uwaleke, Associate Professor and Head, Banking and Finance department, Nasarawa State University, noted that the measures SEC has taken are in the overall interest of investors, the market and the economy.’

Industry operators however told BusinessDay, that the suspension of Oando from trading does not have immediate impact on its business activities, as regards crude oil production, drilling and other exploration activities. “There is no much of an effect now “, said an oil and gas industry watcher. But if the controversy is not cleared on time, industry watchers warn that it could impact on its capacity to raise fresh funds to sustain its operations.

“Already, the investigations could trigger banks to place cautionary notice on lending more money to the company, which could impact on its working capital position.”

Oando’s troubles started in connection with a controversy surrounding the ownership of some Oando shares bought through an investment vehicle at the time the company bought ConocoPhillips’ Nigerian business for $1.65 billion in 2014.

Sources close to the company told BusinessDay that the petitioners are not satisfied with the shareholding structure which has emerged post acquisition, and have petitioned SEC accordingly.

At Oando’s 40 th annual general meeting, which held in Uyo on Monday, September 11, 2017 the shareholder disagreement resulted in protests and counter protests from different shareholder groups.

The petitioners, Dahiru Mangal and Ansbury Inc, had requested a postponement of the company’s 40th Annual General Meeting, pending the close of the investigation but SEC had allowed the AGM to hold, while it carried on its investigations.

Speaking at the AGM, shareholders requested a quick resolution of the issues with the petitioners, to enable Oando’s management focus on building the brand.

Oando auditors, Ernest & Young, in their report at the AGM, had also expressed concern over the company’s going concern status.

“We are drawing attention to note 45 in the financial statements, which indicates that the company reported a comprehensive loss for the year of N33.9 billion ( 2015: loss N56.6 billion) and as at that date, its current assets exceeded current liabilities by N14.6 billion (2015: N32.8 billion net current liability). The group recorded a comprehensive income of N112.4 billion for the year ended December 31, 2016 (2015: loss N37.8 billion) and as at that date, its current liability exceeded current assets by N263.8 billion (2015: N260.4 billion). As stated in the notes, these conditions, along with other matters, indicate that a material uncertainty exist that may cast significant doubt on the company (and Group’s) ability to continue as a going concern.”

But a source at Oando had told BusinessDay that since the 2016 report, Oando had sold down significant assets, in a bid to pay down its debts and put it in a strong position to compete again. As at half year 2017, Oando had short term debts of N455 billion, long term debts of N331 billion, and a cash balance of N73 billion.

The company’s net debt position of N712 billion was slightly less than half of the N1.79 trillion it stood at, as at the end 2015. Oando also had total equity position of N650 billion, resulting in a total debt to equity ratio of 1.09:1.

Some protesters at the AGM had demanded that Wale Tinubu step down and allow competent hands to manage the affairs of the company to save millions of Nigerians from further loss of their hard-earned money.

However, some other shareholders demanded that the management reconcile with aggrieved investors and majority shareholders, so as to save the company from collapse.

National Coordinator of Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie said, “We are aware of the petition written to the Securities and Exchange Commission (SEC) by the majority shareholders of this company. We demand that the management reconcile with them and give them the three vacant positions on the board. This will save this company from collapse.”

In his response Wale Tinubu stated that the protests were uncalled for.

But on September 21, the House of Representatives Committee on Capital Market and other Institutions, had issued a two-week ultimatum to the Securities and Exchange Commission (SEC) to resolve the impasse over Oando. This was after holding separate meetings with the management team of SEC, and representatives of Concerned Shareholders of Oando Plc, Nigeria and Proactive Shareholders Association.

Tony Nwulu, deputy chairman, House Committee on Capital Market and other Institutions, had threatened that the Committee would be compelled to conduct open investigative public hearing if the Commission fails to resolve and reconcile the parties within the timeline.

Some shareholders had written a six-page petition to the Committee, frowning at the purported flagrant disregard for corporate governance, and insider abuse.

Olufemi Timothy, President, Renaissance Stakeholders Association of Nigeria Incorporated, who accused the regulators, including SEC and the Financial Reporting Council of Nigeria (FRCN) of being complacent in the discharge of their constitutional mandates, called for an independent probe of the accounts of the company.

Timothy alleged that the company has not been paying dividends to the shareholders since the 2013 financial year, adding that the “external auditor’s report reported expressed strong doubts about the going concern of the Group.

“The Group has negative working capital of over N263 billion, consequence of current liabilities above, lighter than current assets, meaning that the management was unable to service its obligations financially.”

“Claim of creditors is higher than the owners shareholders equity, meaning that the group could be liquidated by the creditors anytime, if urgent action is not taken.

“With accumulated losses of over N159 billion, shareholders could not get a dime as cash dividend. No hope of redeeming these reserved losses.

“Court cases as projected by the management may take claims of over N608 billion, which is for greater the assets of the entire group, meaning that the group is at a very high risk of liquidation if the court cases against the company succeeds.

“Cost of litigations is very high. Litigation has damaging consequence on our company’s reputational risk under the current management. Management was increasing entitlements, remunerations, despite lack of working capital.

“Both current liabilities and long term liabilities stood at over N799 billion. Management was selling assets of the company, especially money-spinning assets such as downstream (Marketing) business without meaningful improvement in debts situation. It was planning to sell its share in OER which unfortunately is the last asset belonging to the company,” the petition read in part.

They also urged the leadership of the House to, “as a matter of urgency, save our investment in Oando Plc, look into these matters, cause an action to intervene in Oando plc by ordering/remove the present management, to vacate office, allowing for proper investigation of the corporate governance abuses, financial mismanagement as noticed in the published full year audited financially statement.”
Oando, in a statement yesterday, said the company has received communication from the Nigerian Stock Exchange (NSE) that the Securities and Exchange Commission (SEC) has issued a directive to immediately suspend the trading of Oando shares, a directive to which the NSE has complied.
“The Company is currently reviewing subsequent correspondence received today October 18, 2017 from the NSE and SEC and will provide a full statement of the Company’s position as soon as possible. The Company remains committed to act in the best interests of all its shareholders,” Oando said in the statement

Definitions

Technical suspension

Technical suspension is the interruption of price movement in listed shares for a specified period, so that any dealings in the shares which occur during the period of the suspension will not result in any change in price, which change may have occurred, had the suspension not been implemented.

Full suspension

A full suspension is the halt of trading activities in a listed security for a period of time.

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by Editor

October 19, 2017 | 1:51 am
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