The Truth about Nothing
Editorial - Access Bank Plc vs. AP Plc (Suit No. FHC/L/CS/644/09)
"Our successes and our failures in life can be traced to how well or how badly we deal with the inevitable conflicts that society presents us."
The publication of the application for winding up proceedings against AP Plc by Access Bank Plc based on a motion ex-parte issued on July 13, 2009 represents a ‘conflict’ the Nigerian financial market would have to watch keenly as a test of its resolve to truly move into a regime of sound corporate governance, improved disclosures and a culture of best practice risk management by all quoted firms; and not just our banks.
The development offers much more.
It brings to fore the following concerns:
The recurring status of AP Plc as the poster boy of major issues in the market –
o The Retired Justice Ekop Commission of Enquiry (2002-2003) investigated the privatization of AP Plc and its many fallouts.
o During its sittings, it subpoenaed Alhaji Abba Gana, then MD/CEO of AP Plc who obtained a court injunction that enabled him not to appear before the commission to answer allegations on the handling, mechanism and management of the firm prior to privatization.
o The enquiry invited fourteen (14) banks who appeared before the commission as well as NNPC and the BPE.
o The issues at stake focused on the alleged N23bn hidden debt not disclosed during the privatization of the company.
o AP Plc at this time was sold to Sadiq Petroleum Limited chaired by Chief Peter Okocha with Abdullahi Sule as the Managing Director (he is now the current MD/CEO of Dangote Sugar Plc).
o The commission of enquiry also caused the reporting accountants and financial advisors to BPE in respect of the privatization offer to appear before it.
o Part of the accusation made during the enquiry related to the scandal involving alleged money laundering involving AP Plc and its erstwhile management.
It was stated that AP Plc sourced foreign investment from the AFRIEXIM bank based in Egypt through Fidelity Bank. Fidelity Bank at the Justice Ekop tribunal confirmed (through its GM who appeared before it) that it helped Abba Gana and the rest of its team in AP Plc to launder the AFRIEXIM funds on the streets.
o Under cross examination, the Fidelity Bank official was asked if CBN queried the transaction/action. She answered that there were not sanctioned by the CBN as at the time of her appearance.
o The voice recordings of these proceedings are available for further reference.
o After this, Sadiq Petroleum Ltd. went out and NNPC came back briefly based on its claim of monies being owed it which they wanted converted to shares. This was resisted by the Nigerian Stock Exchange (NSE) who argued that NNPC cannot take over (or indeed appoint a managing director as planned) a company listed on the exchange through such means.
o The proceedings was rounded up and a report was issued which we understand is available (but not yet a public document) at the Securities & Exchange Commission.
o Subsequent to this, IMB Plc had bought the NNPC stake before the bank consolidation which now saw Afribank Plc (through its Afribank Nominees) buy into the equity of NNPC in AP Plc.
o This became another issue of sorts as Afribank Nominees were accused of warehousing the shares for a preferred investor. Nothing untoward could be established here.
o The Purchase of AP Plc by Femi Otedola’s Zenon Oil was thus taken off Afribank Nominees warehoused shares further to which they issued an IPO and rights issue.
African Petroleum Plc (AP) entered the capital market to launch an offer which closed on September 29, 2008, following the approval by Securities and Exchange Commission (SEC), for the company to raise N110 billion in a hybrid offer of 199, 070, 021 ordinary shares at N250 per share, and rights issue of 262, 929, 279 units at N230 per share. The Nigerian Stock Exchange had earlier granted its approval for the public offer.
o This offer was approved by the regulatory organisation (SEC) without an official clarification on its alleged price manipulation alert it issued in February 2008 along with 5 other companies (now famously referred to by proshare in its NCM 2009 report as the ‘February Six’ declaration).
o The companies, according to SEC, are African Petroleum (AP), quick service restaurant and confectioneries maker Big Treat, and chemical and paints maker IPWA, Afroil, First Aluminum and Capital Oil.
o The fears of share price manipulation became visible when Zenon Oil took over 30 per cent stake in African Petroleum (AP). AP's share soon shot up from N80 to an all time high of N300.
o The NSE challenged this declaration and accused the SEC of over-reaching. The Director-General of the Nigerian Stock Exchange, Professor Ndi Okereke-Onyiuke, denied any form of share price scam on the floor of the stock exchange, saying that if such existed, the NSE would have been the first to blow the whistle.
o "I am really at a loss about the allegations," Okereke-Onyiuke said. "Nothing was communicated to us with regards to the alleged probe; we only saw it on the pages of newspapers. Honestly, it is a surprise to me. I don't know where this is coming from. I am just reading the papers and I don't know anything about the issue."
o She said there could never have been any price manipulation of shares. "I don't know how somebody can say that there is manipulation in price or anything. I think it is only the Stock Exchange that can say whether there is manipulation or not. We have a trading floor, we have a trading mechanism," Okereke-Onyiuke said.
o Chairman of the House of Representatives Committee on Capital Market, Hon Ahmed Aliyu Wadada, said that there have always been sharp practices on the floor of the Stock Exchange. He sees the planned probe of the equity price scam as coming rather too late.
o "The proposed investigation in the activities of banks vis-à-vis other quoted companies in the Nigerian Stock Exchange, to undertake which the House has mandated the joint committee which comprises the House Committee on Capital Market and House Committee on Banking and Currency is what are informing all these revelations.
o "Because they know definitely we will get to them. And with due respect to the apex regulator, this is rather coming too late because the apex regulator should have reacted and responded to all these issues before now," he said
o On AP Plc’s part, it condemned that the decision of SEC to announce that it is probing the company without informing it in the first place and without having concrete evidence to support its investigation.
o AP Plc went on to denounce SEC’s announcement of investigations and probe of quoted companies without adherence to the proper regulatory practice, stating that the rush to make the announcement was capable of causing panic among investors and adversely affecting the fortunes of the company.
o Further to the announcement to probe the share price scam of the six companies, there were reported panic sales in the shares of the companies under probe. Reports indicated panic sales in Afroil and Capital Oil, resulting in price losses. Afroil (which has since been found culpable) lost N1.30 to close at N24.79 as investors offloaded 837,406 shares in 126 deals in the same week. Investor’s offloaded12.567 million units of First Aluminum, causing a drop of N0.24 to close at N4.66. IPWA which was one of the companies being probed dropped N0.05 to N8.45 as investors dropped 1.3 million shares at the exchange.
o However, AP and Big Treat and other companies being investigated finished strong with unfilled bids and a full 5 per cent surge in price. AP recorded a low and high price of N46.29 per share in July 2007 and N155.57 per share in December 2007.
o At the close of trading Friday, the price closed at N260.50 per share suggesting a price rise of 461.7 per cent from a low price of N46.29 per share in July last year.
o The offer went on without a hitch.
Post offer Realities and the ‘reverse’ allegation of price scam by AP Plc
o On March 25, 2009, the Securities Exchange Commission again instituted a probe into the allegations of share price manipulation made by AP Plc against Nova Finance and Securities Ltd and entities owned Alhaji Aliko Dangote, the Chairman of Dangote Group.
o African Petroleum Plc had alleged that Nova Finance and Securities Ltd. and entities owned by Alhaji Aliko Dangote traded its shares among themselves at a discount over the past eight weeks in order to reduce the stock’s price.
o The Nigerian Stock Exchange (NSE) rules dictates that a minimum of 50,000 shares must be traded before a price can change.
o African Petroleum shares had fallen every day since Feb. 11 and had lost 82 percent of their value since the beginning of January 2009 (outstripping the downward market trend by a mile) and closed at N48.91 on March 24, 2009.
o The Securities & Exchange Commission (SEC) therefore instituted a committee to probe the allegations.
o The Nigerian Stock Exchange (NSE) which had denied any impropriety early on immediately said it had commenced a “scientific and technical investigation” into the allegations as well. It added in an e-mail to the market that, “The Exchange will thoroughly investigate the matter and make its findings and recommendations public in due course”.
o The conclusion of the investigations by SEC, indicted Nova Securities and made recommendations as regards Alhaji Aliko Dangote continued membership of the council of the exchange through its closing remarks in its report reproduced on Proshare at http://www.proshareng.com/articles/singleNews.php?id=1894
o The rest they saw is history.
AP plc published its abridged results showing no improvement in its working capital situation, no change in its PAT, increase in its short term borrowings and trade debtors and an increase in its turnover.
The company had planned an AGM for tomorrow, July 22, 2009 for 1000hrs at the Civic Centre, Victoria Island before the publication of the court order restraining it from passing, sanctioning, or approval of any resolution declaring dividends.
So what is the issue here?
Would a claim of close to N5bn be enough to render AP plc insolvent?
Is there any basis for such an action and should the market pay more than a passing attention to a civil case that has the potential to become a media war for all the wrong reasons, riding on the back of the Aliko Dangote vs. Femi Otedola disagreements?
Yes, it is possible but this would be an un-informed point of view.
Proshare has thus taken this approach to help the investor and market stakeholder navigates away from the ‘drama’ and focus on the key issues.
First, this is and must certainly not be construed as an extension of the Femi Otedola v Aliko Dangote war. In actual fact, as the case made above as shown, they both have issues to answer to the shareholders of AP Plc.
It is a fact of reality that Femi Otedola is the current Chairman of AP Plc and has steered the organisation to deliver the results for 2007 and 2008 which reflect fairly the operating environment it has conducted business. It does not however take away from it the historical perception of AP as a ‘near’ if not ‘factual’ negative working capital operation.
The case before us is a civil matter between a lender and a customer and the clear fact of the case is the non-dispute of liability but the price module used in determining the value.
The unspoken case however relates to the traditional approach of Nigerian firms to owe, hide under legal interpretation of their counter claims and the almost inevitable private settlements that would occur.
The new angle however to this case, one that makes it such a compelling interest for Proshare is on three fronts; viz:
Banks had hitherto sought to conduct such businesses outside the public space, choosing the allegiance to relationships far more than principles;
The CBN had never before now been shown as a cautious arbiter unable to resolve the debacle without going to the legal courts or the court of public opinion; and
The test it represents for the new regulatory and corporate governance regime Nigeria seeks to embrace as part of its reaction/plans for managing the post global market meltdown consequences.
We are sure that a lot of commentary will emerge in the days to follow and it is therefore incumbent to properly define the argument involved here.
1. A party has entered into a civil business transaction and has challenges of interpretation of what constitutes a debt. The letters exchanged from both parties have clearly spelt out the admittance of liability but a dispute over exact amount;
2. The principle of paying the portion undisputed was not complied with. We are to assume that this aggravated the issue otherwise it should not have degenerated to such a state as each party would have loved to preserve the hard earned relationship built over time;
3. there is no criminal intent or action here and as such this remains a ‘regular’ matter for the courts for which the market must stay clear of introducing ‘prejudice’;
4. The antecedents of AP plc as described above was neither presented nor designed to introduce prejudice but to present the facts of a company that has a factual and public history of challenges for which the current board and management should not be held accountable for except for the events that occurred since February 2008 following the intervention of the SEC;
5. The right of investors to be made aware about the consequences of the decision possible in this ‘unusual’ step by a bank on a quoted company presents a compelling reason to start the review.
We believe that it is in the interest of the parties to resolve the matter through the court processes since the CBN does appear reluctant to be able to successfully guide the parties through a resolution nor has the NSE found a means of intervening without prejudice.
The investor in AP Plc should therefore expect that the company would find a means of resolving this issue and take steps to ensure that its legacy of conflicts does not impair the markets perception of value which it hopes to clarify at its AGM tomorrow.
The shareholders would also hope that the company would and is able to move on from this experience to deal with the more serious issue of building the company up and forging a better relationship with Access Bank Plc as a testament to its resilience in the market.
We, on our part, call on all sides to step up to the plate and make compromises to ensure that the matter is resolved (either through an arranged settlement or through the courts through an accelerated hearing) and lessons learnt.
The insolvency issue raised about AP Plc is not the same as bankruptcy. It however presents investors a new way to see the market, regulators and the commentators.
We retain a watching brief on this suit. Stay tuned.