Monday, September 02, 2019 / 08.30PM / By News /Image Credit: EcoGraphics
Serving as a guarantor to a commercial loan could prove to be terribly tricky business in Nigeria as Dr A.B.C. Orjiako, a director of Shebah Exploration & Production Company is learning the hard way. Dr Orjiako's faith in investing in the local upstream Oil & Gas business is fast turning into a nightmare as the local press has over the past week, spread him over a blackened charcoal grill concerning the recent legal suit filed against him and Shebah E&P by the Asset Management Company of Nigeria (AMCON).
The issues have been fairly muddy in the local media, but a review of the specific matters surrounding the loan may provide some clarity and educational moments/ learning points.
This is a case resulting from an application by Mojisola Owoseni of Lexavier Partners, legal practitioners, legal counsel to AMCON in suit number FHC/ABJ/CS/945/19 against ABC Orjiako, Shebah Exploration & Production Company Limited, with RC No 499348, and Allenne Limited.
In the application, AMCON asked the court to grant Francis Chuka, a Senior Advocate of Nigeria, right to exercise its function as Receiver/Manager of Dr. Orjiako's assets in Nigeria and abroad, including Shebah Exploration & Production Company Limited.
Mr. Chuka was appointed by AMCON as Receiver/Manager on July 30, 2019, with the mandate to "take possession of and preserve all its assets and undertakings" by Dr. Orjiako.
The assets and undertakings included his personal properties at Nos. 10C and 25A Lugard Avenue, Ikoyi, Lagos; an oil vessel, MT Trinity Spirit, used as a floating, Production, Storage, and Offloading (FPSO) facility in Ukpokiti Oil Field belonging to Shebah Exploration & Production Company Limited.
Parties to the current suit are the following:
1. Asset Management Company of Nigeria and,
2. Shebah Exploration & Production (E&P) Company Limited.
3. Dr A.B.C Orjiakor
The Federal High Court holden at the FCT Abuja granted the Asset Management Corporation of Nigeria's application to take over the assets of Dr. A.B.C. Orjiako. The order was given by Honourable Justice Taiwo O. Taiwo and issued on August 15, 2019.
By this order, banks are mandated to henceforth prevent all further withdrawals of funds and other debit transactions from the defendants' accounts domiciled with the banks.
They are also expected to furnish the Receiver/Manager within seven (7) days from the date of the notice with comprehensive statements in respect of each accounts while the order is expected to be binding and enforceable against the banks.
The Background-Main Facts
In 2012 Shebah E and P obtained a $150million loan facility from a consortium of banks (AFREXIM/Diamond- now Access/Skye- now Polaris) led by AFREXIM.
The loan facility was meant for work over and drilling campaign at the Ukpokiti field (OML 108) operated by Shebah E&P.
In the offshore Niger Delta, Shebah drilled a successful horizontal well, the first of its kind and tested 4000 barrels per day of oil and condensate production but encountered large gas reserves.
Then, the company decided to find a solution to the huge Associated gas based on professional oil field best practices before continuation of the oil/ condensate production. Shebah required more funds to commercialise the gas to avoid excessive flaring while producing the discovered oil. Then, AFREXIM led consortium of lenders, could not provide further facilities to Shebah to conclude the operations. In 2014, Shebah approached Zenith Bank, which appraised the situation and provided a $200million loan facility fully approved by its board to rescue the situation.
Zenith proposed to pay the consortium of banks $50million to reduce their collective exposure, enhance the facility to $300million, provide Shebah with additional funds to monetize the gas and produce the discovered oil.
The enhanced facility would have had Zenith join and lead the syndicate with $200million, while the consortium of existing lenders would have reduced their exposure and stay at $100million (about $33million each).
In line with Shebah's need, Zenith is noted to have further requested a moratorium period of 9 months to conclude the projects and extend the facility tenure to 5 years. This was meant to spread the cash flow and enable easy repayment of the enhanced facility. Unexpectedly, the AFREXIM consortium rejected the $50million offered by Zenith Bank on the grounds that Zenith should not lead the syndicate and they were not willing to extend the tenure of the facility which was remaining about two and half years as at the time of Zenith's offer.
The AFREXIM consortium allegedly rejected all the efforts being made by Shebah and proceeded to file an action to call the facility in 2014 (just two years after final draw down). The call of facility ahead of the maturity triggered the default on the loan. On February 19, 2016, Mr. Justice Phillips of the London High Court delivered a judgement in favour of the AFREXIM consortium for the repayment of the $150million loan facility.
The judgement creditors then registered the judgement in Federal High Court in Lagos and applied for enforcement of the judgement. The defendants (Shebah Exploration & Production and ABC Orjiako) immediately opposed the registration and the enforcement of the judgement based on their convictions on rule of law and on the fact that they would like to negotiate an out of court settlement and pay back the loan under a restructured arrangement. This case still subsist before an Honourable Justice of the Federal High Court Lagos and the next hearing date is in October, 2019.
Contrary to the Syndication agreement by the AFREXIM consortium, Polaris Bank is believed to have unilaterally transferred its share of the judgement facility to AMCON.
Notwithstanding the unilateral action by Polaris Bank, some legal analysts have argued that AMCON should have joined the existing court case in the Federal High Court Lagos, but instead it initiated a fresh action in the Federal High Court Abuja, not minding that the same case had already received a ruling in London and was subject to a contested enforcement proceedings in the Federal High Court Lagos.
It is by the fresh case that AMCON is alleged to have obtained the Ex-Parte order which was reported by various media platforms.
Post Court Judgment Developments
Since the Judgment the AMCON/Shebah case has become one of the major financial flash stories in the country, and remains one with a delicate contour as it is still in court.
Lessons on Developments
A few learning moments from the episode shows that:
The reports of AMCON's purported move to impound the personal assets of Orjiako and Shebah could cripple efforts to meet the debt obligations. This portends a strong detour from the government's policy of encouraging direct domestic investment in the real sector and creating a less adversarial relationship between regulators and cooperative commercial debtors.
This post was updated at 08.30PM, Monday, September 02, 2019 to include Op-ed received from Olusegun Adeoye an Economist and Public affairs Analyst based in Abuja.
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