Company Analysis

SEC, Oando Stalemate: How Much Longer Will Investors Wait?

One troubled cup the new management of Nigeria’s Securities & Exchange Commission (SEC) led by Lamido Yuguda inherited from his predecessor- Ms. Mary Uduk, who held the office of Director-General of the capital market police in an acting capacity, is the commission’s face-off with the management and board of Oando Plc.

Ms. Uduk, former acting Director-General of SEC, handing over to Lamido Yuguda as DG on

Capital market stakeholders are watching with keen interest how Yuguda, a retired director at the Central Bank of Nigeria (CBN), and his team, would resolve a matter already made worse by an intricate web of court cases.

Stakeholders believe only a political solution will save Oando Plc, which has been unable to present its financials, whether audited or not, through the Nigerian Stock Exchange. In the absence of any financials, the share price of Oando Plc has basically stagnated over several months, meaning that it is a no-go area for speculators, just as there has been no dramatic price volatility in the absence of any parameter by which investors determine its health and going-concern status. 

A letter by Oando Plc’s external auditors raising “Going Concerns” issues. Source: Company’s audited statement

One such legal tango was that challenging the sacking of Adewale Jubril Tinubu and Omamofe Boyo as Group Chief Executive and Deputy Chief Executive respectively of Oando Plc. The decision to sack both men, the commission said, was in line with its mandate to protect investors, besides averting an imminent collapse of the company while preventing a potential systemic financial loss to the Nigerian banking system that would arise therefrom.

Oando in a statement to the NSE faulted the May 31, 2019 suspension of a validly convened meeting at a short notice, barely 24 hours from when it was billed to begin in Lagos, arguing it “is not in the best interests of the company and its shareholders who have travelled at great expense, from far and wide, to attend the annual meeting of their company.

Mofe Boyo and Adewale Tinubu

The SEC had also ordered the suspension of the executive management led by Jubril Adewale Tinubu. In his place, another petroleum industry champion and former managing director of Mobil Oil Nigeria- Mutiu Olaniyi Adio Sunmonu, was appointed in an acting capacity.

Mutiu Sunmonu

The commission also ordered the resignation of some board members, while barring Tinubu and Boyo, from being directors of public companies for a period of five years. The SEC equally ordered the convening of an Extraordinary General Meeting on or before July 1, 2019, to appoint new directors, as part of measures to address identified violations.

Expectedly, Oando’s management sought the protection of the Federal High Court, Lagos, insisting that the regulator indeed overreached itself, while SEC has to show that investor protection is primarily at the heart of its action.

There are also issues regarding whether due process was followed or not, even as there has been a lot of media commentary about regulatory exuberance, rascality and even seemingly overstepping the limits of its powers, while the commission insists its actions were based on powers derived from relevant portions of the Investment & Securities Act (ISA 2007).

Alleged Infractions

In its letter, following an investigation and forensic audit, the commission alleged nine major infractions against the board and management of Oando, including corporate governance lapses arising from poor board oversight, failure of internal controls, incidental issues arising from the sale of a subsidiary, suspected market abuse, and insider dealings, related party transactions, payment of interim dividends despite liquidity constraints, false disclosure, non-disclosure of beneficial ownership and tax-related issues.

For example, it noted, that in 2013, Oando Plc reported the sale of its subsidiary, Oando Exploration and Production Limited (OEPL), to Green Park Management Limited without the commission’s approval, (in violation of the provisions of the Investment and Securities Act (ISA) 2007) and the consent of the Minister of Petroleum (As required under the Petroleum Act, 1969).

“In 2012, 2013 and 2014 and 2015, certain insiders of Oando PLC sold shares of the company during “close period” despite having knowledge of active closed periods by the company and contrary to the Rules of the NSE. The insiders include Ocean and Oil Investment Limited (OOIL – represented by Jubril Adewale Tinubu and Godwin Omamofe Boyo), Ocean and Oil Development Partners (OODP – represented by Jubril Adewale Tinubu, Godwin Omamofe Boyo, Francesco Cuzzocera), and ECP African Fund II PC (a Company in which Nana Appiah-Korang wards Director).”

Apology For Inconvenience

For now, and until Oando Plc, an amalgam of petroleum products giants trading under independent identities (Unipetrol Nigeria in which it bought a 30% stake from government in year 2000, followed by the August, 2002 acquisition of a 60% stake in Agip Nigeria Plc and the merger of both entities, christening the combined entity Oando Plc in December, 2003), resolves its issues with the commission, the board is unable to present its financials, whether audited or otherwise since first quarter 2019.

While the cases await adjudication, investors remain in the dark since the company is unable to presented its financials whether unaudited quarterlies or audited full-year, to base any form of investment decision.

The company’s board, hinted of this in a July 20, 2020, press statement pasted on the Nigerian Stock Exchange (NSE), when blamed the delay in publishing its 2019 full-year financials and 2020Q1 management accounts on a subsisting SEC order.

The statement by Ayotola Jagun, Oando’s Chief Compliance Officer and Company Secretary, recalled that on Monday, June 10, 2019, the commission “notified the public and Oando that, further to the Ex-parte Order of the Federal High Court, Ikoyi, Lagos in Suit No: FHC/L/Cs/910/19 in Mr. Jubril Adewale Tinubu & Anor v Securities & Exchange Commission & Anor, it had suspended the Company’s 2018 Annual General Meeting (AGM) till further notice.

“Following the SEC’s suspension of Oando’s AGM, the Company has been unable to appoint Auditors to commence the Company’s 2019 audit exercise. The mandate given to the Auditors at the 2018 Oando AGM, by the shareholders, was to audit the Company’s FYE 2018 financials and not any other year,” he added.

The suspension of the AGM, Jagun continued, means the directors are unable “to lay before the shareholders for approval, the company’s 2018 Audited Financial Statements, (while the shareholders are unable) to re-appoint the auditors of the Company to hold office for the 2019 financial year.”

Since then also, the half-year result has fallen due, just as companies on the NSE are preparing to present their 2020Q3 reports for which they have announced board meetings and closed periods.

That Notwithstanding

In telephone interviews with Investdata News, shareholder group leaders, and investors lament the continued face-off, which they hope the new SEC management will address, given that, as Boniface Okezie, President of the Progressive Shareholders Association, put it: “when elephants fight, it is the grass that suffers.”

“It is appalling,” he lamented, that “nobody is able to say this is the state of the company and whether it is still a going concern.”

For Adebayo Adeleke, a shareholder rights activist, the lingering faceoff “has the potential to cast a shadow over the regulator’s oversight functions and regulatory compliance by listed entities.”

Adjudicatory timelines of the court cases, he lamented has been further slowed down and even put on hold by the outbreak of the Coronavirus (COViD-19) decease, with the attendant forced holiday, expressing confidence “that Alternative Dispute Resolution that may lead to out-of-court settlement are ongoing.”

Unfortunately, Adeleke further told Investdata News, “the issue has also cast a negative shadow over investors’ appetite for Oando shares. The garb of uncertainty is apparent in its current share price. Its inability to hold AGMs and pass resolutions that will help oil its operations are key issues. Corporate actions also are impossible under the impasse.”

But Alhaji Gbadebo Olatokunbo, a founding member of the Nigerian Shareholders Solidarity Association (NSSA), believes the SEC’s query and sanction only confirm “that things were not right” in Oando.

“Don’t forget that the company isn’t the only in its sector on the NSE. Compare Oando results for many years back with others, you would then start to wonder, or even suspect that things weren’t right with the company.”

He linked the SEC’s intervention to unease in the board that led to one party reporting the other, “if not, we would not have known anything and most of the inside bad dealings must have been on for a very long time before it became a public issue.”

Olatokunbo believes the SEC should be allowed to do its job, and that the courts “should not prevent a regulator from performing her statutory responsibilities. Therefore l do not believe in sentiments in the face of unethical practices, for justice would take place at the end of the day, no matter how long it takes to get the justice.”

Recall that in 2017, some shareholders, led by the South-South Coordinator of the Oando Shareholders Solidarity Group (OSSG), Clement Ebitimi, staged a protest at the 40th AGM of the company in Uyo, Akwa Ibom State to express their discontent with the state of its affairs.

Eroded Value

Oando Plc, once a darling of many investors, successfully raised funds repeated to financing its growth and diversification from petroleum product marketing to an integrated energy giant playing deep in exploration, among others in the value chain.

This was also helped by the enormous trust built by the company, which helped the robust growth in top and bottom-lines as it expanded.

For example, Oando Plc in its audited financials for the year ended December 31, 2005, reported a turnover of N196.96bn, a 91.69% growth compared to the previous year’s N102.75bn. During the same period, Mobil Oil Nigeria, also listed on the NSE, posted N50.91bn, with a net profit of N2.35bn, up by 94.53% from the previous N1.2bn. Investors expectedly reacted positively and Oando’s share price closed at N84.01 per share.

On Friday, October 30, 2020, for example, Oando’s shares closed at N2.75 each, a heavy blow to those who bought the shares during any of the last three capital raising exercises. The share price, according to Investdata Research, however, represented a 22.22% gain in the month of October, even as it represents a slide from N4.95 per share at the end of April 2019, which remains its peak ever since. This was also a significant value erosion for those who, for example, participated in the N70 per share rights issue of February 19, 2010; or even that of December 3, 2014, when investors Oando raised N48.77bn at N22 each via rights to finance its $1.65bn Conoco Philips assets acquisition, among others.

For Adeleke, it should not surprise anyone that the shares of Oando are trading below its book value, as investors trade cautiously “to avoid being locked in under the current uncertainties.”

A Political Solution

For Okezie, only a political solution leading to an out of court settlement, will resolve the matter quickly for the sake of the company and its suffering shareholders, since “no external auditor will go near the books,” lamenting the lack of a visible succession plan in the company. For him, whatever compromise is finally agreed on must ensure that the company is not destroyed.

Put differently, Adeleke expects that “the current changes in the leadership of SEC may be favourable in terms of openness to dialogue and resolution of the issues.”

Indeed, a source close to the commission told our correspondent that a political solution to the quandary is, indeed, being considered by the new management.

But how soon the stalemate is resolved is anyone’s guess, even as shareholders can only pray that the compromise does not take forever. In such uncertain times and with no financials to gauge Oando’s current going concern status, hastening the process by all stakeholders for the good of Nigeria’s economy has become urgent to remove the veil of uncertainty, for the good of the market and investors.

However, the issue remains: How soon will reason prevail? Only time will tell.

This research/investigation/story was supported by the U.S Embassy via the ATUPA Fellowship by Civic Hive.

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