Under siege, the battle for Oando

This is a story of Nigeria’s biggest indigenous oil and gas company, a 61-year-old entity that was morphed over the years by a combined dose of ballsy youthfulness, ruthless ambition and the kind of opportunity that can only be found in an emerging economy.

The story begins with a historical perspective of the company and how it came to be one of Nigeria’s most controversial businesses. It culminates in the recent board room scandal that is threatening its future, as well as the investment and jobs of thousands of Nigerians.


Part 1

In 1956, just 4 years before Nigeria’s independence, a company named Esso West Africa Incorporated was formed in Lagos Nigeria. The company was owned by Exxon Corporation, one of the largest energy companies in the world at the time. During the oil boom era in 1976, 20 years after, the Nigerian government acquired Esso’s interest, making it the sole owner of the company. The government soon changed its name to Unipetrol Nigeria Limited.

Just 9 years earlier, a boy named Jibril Adewale Tinubu (JAT) was born to the household of Alhaji Kafaru O. Tinubu. Alhaji Tinubu was a lawyer, political godfather and retired Police Commissioner in the old Western Region.

Just as young JAT was going through the rigors of primary school education, a young Italian named Gabriele Volpi arrived Nigeria to begin a new phase of life that will eventually lead to him becoming one of the wealthiest and most influential Nigerians. Unknown to the two, their destinies would soon cross paths in a remarkable way.

The young JAT eventually graduated as a lawyer to the pride of his father who had hoped that he would one day help run his practice. But JAT had other plans. He eventually joined the chambers of Sofunde, Osakwe, Ogundipe and Belgore, apprenticing under a then-rising litigator, Babatunde Raji Fashola who became a governor of Lagos state many years after.

In perhaps the first sign of his ruthless ambition, JAT convinced Fashola, his boss, to join him in setting up their own law firm. Fashola would eventually agree and so they formed KO Tinubu and Co law firm, intentionally jacking the name of his father’s law firm in a bid to ride on an established brand. His father was thus, one of the first individuals to taste JAT’s ruthlessness.

But JAT was not really into law, at least not the way his former boss and colleague, Fashola, practiced. He was more interested in oil and gas and soon found comfort in a friend named Jite Okoloko. Jite would later introduce JAT to a deal to supply diesel from Unipetrol to fishing trawlers in the oil hub of Port Harcourt. They had no vessel to execute the trade until another friend, Mofe Boyo showed up with a solution. Mofe, who then worked with an American oil services company that had shipping vessels, introduced them to a ship named ‘The Carolina’ – a ship that cost $10,000 a month to hire. JAT had to borrow from his dad to fund this ship, making this perhaps the first of many borrowings.

 

They soon hired the ship and started their supply business. In that same year, (1994), they formed a company which they called Ocean and Oil Ltd. Business went quite well in the early months until they faced delays in payments from their clients. Soon they started owing their own creditors. The owners of The Carolina, frustrated about being owed, were also facing financial squabbles and wanted to sell the ship.

For the trio, this was a big chance they could not pass on. The trio got a microfinance firm to loan them $100,000 at 10% interest rate per month, which they used to purchase the boat. In typical JAT style, the deal also relieved them of paying their outstanding liabilities to the ship owners.

In the 1990s the Federal Government under the leadership of General Ibrahim Babangida decided to privatize government entities. However, privatization would not start fully until democracy was ushered in 1999, under the President Olusegun Obasanjo administration. This was timely as it coincided with the early exposure of JAT and his friends to the lucrative world of crony capitalism. It so happened that one of the government’s entities listed for privatization in 2000 was Unipetrol.

Mofe Boyo, Deputy GCE, Oando Plc

JAT and his friends, again decided to put together an audacious bid for 30% of Unipetrol, which the government put up for sale. At the time, the CEO of Unipetrol and former Chairman of the NFA, Yusuf Alli, reportedly burst out laughing, joking that it was akin to a tilapia fish trying to swallow up a whole whale!

He will come to taste the corporate ruthlessness of JAT.

At the head of the privatization programme in the new Democracy was Alhaji Atiku Abubakar, the Vice President of Nigeria and a onetime business partner of Volpi. The deal was also being midwifed by a firebrand technocrat by the name of Mallam El-Rufai, the Director General of the Bureau of Public Enterprise. Atiku had encountered El Rufai at a world bank seminar in the UK and soon convinced him to come and run the country’s privatization programme under the auspices of the BPE.

In the corporate world of deals and deal making, politics and business have a surreptitious love relationship. And so, Ocean and Oil Ltd soon acquired 30% of Unipetrol in 2000. The story making the rounds then was that they secured funding from CEPSA, a Spanish Oil trading firm, who were their technical partners.

The deal cost $19 million at the time and was as usual laden with a lot of controversy. How they got the Spanish firm to fund this transaction is as complicated and mysterious as their complex shareholding structure. The Labor Union at the time kicked, saying that the government was selling the firm at a giveaway price. Some claimed that the cash left when they bought Unipetrol was more than the 30% equity they paid for, suggesting that the deal was free. The annual report however, showed that this was not the case. Most of the cash was bank overdrafts.

JAT soon became CEO with his two friends on the board as executive directors of Unipetrol. As board members, they soon structured a technical services fee of 4% of profit, to be paid by Unipetrol to Ocean and Oil Ltd.

Two years later, the trio again led Unipetrol to the acquisition of 60% ownership of Agip Oil. Just like in the Unipetrol deal, they had no cash and had to rely on loans to fund the transaction. They obtained a syndicated loan of N8b, from a consortium of banks led by First Bank Nigeria, to pay for the acquisition of Agip. In 2003, Unipetrol Nigeria Plc merged with Agip Nigeria Plc and was rebranded “Oando”.

Thus, began a journey of complex deal making, alliances and acquisitions that spanned across continents. The trio, still in their thirties, became celebrities in the corporate world which was at the time dominated by banking whiz kids. They had plans to dominate the oil industry and had already courted government officials and banks. Their popularity soared and most Nigerians saw them as role models. Soon, their fans would be invited to join the train.

To make sure that their popularity at the time did not go to waste, they immediately launched a combination of a rights issue and public offer in 2004. Oando initially planned to raise N5 billion but the frenzy and hype that followed the whiz kids, helped them to raise a whopping N16 billion. The rights issue, which was oversubscribed by N11 billion, was a record at the time.

However, unknown to a lot of investors, at a rights issue price of N95, they were paying the trio, 38x the earnings per share of the company. By the time the offer was over, the multiple had risen to 48X. The new shareholders were on board but had no controlling interest as the trio still retained control (43%) of Oando via a holding company named Oando and Oil Development Partners (OODP). Within 11 years of owning this company, JAT and his friends had changed the shareholding structure of the company a total of 12 times. Out of the 12, 6 of the changes was via Bonus issues. Oando, under the management of JAT, changed the shareholding structure every year except 3, since he became the CEO in 2000.

The company would also own several subsidiaries and assets under complex shareholding structures, most of which were registered as tax havens. They had also embedded several voting rights and agreements that gave investors in their SPVs no say on the management of Oando.

Here is an excerpt of what a typical agreement looked like: “Ownership of the Class A shares by the company provides it with 60% voting rights but no rights to receive dividends or distributions from the applicable Operating Associate, except on liquidation or winding up. Ownership of the Class B shares entitles the Holdco Associates to 40% voting rights and 100% dividends and distributions, except on liquidation or winding up”.

It’s that complex. By the end of 2013, Oando’s share price had crashed from the Public offer price of N95 to as low as N19, due to the effect of multiple bonus issues, right issues, scheme of arrangement, poor results and bad decisions.

In 2010, the audacious trio will again take a decision that would perhaps alter the course of the company’s history forever.



Part 2

Flashback: After the merger, Jite, one of the founding members of Ocean and Oil Ltd, was now also the MD of Oando Energy Services, a subsidiary of Oando that was into drilling and provision of services to upstream oil companies. Oando held 51% equity in that company.

Jite was said to be the ‘brain force’ driving operations in Oando and basically oversaw the day to day running of the business. JAT, was the face of the business and was tasked with pursuing and closing deals while Mofe was, by some account, in charge of putting up all the complex legal structures that facilitated deal making. Mofe honed his skills while at the law firm of Chief Rotimi Williams’ Chambers, a leading Nigerian law firm, where he specialized in shipping and oil services and worked on several joint venture transactions between the NNPC and IOCs.

In 2006, just as the new Oando was still basking in the outcome of its Public Offer and Rights Issue, opportunity came knocking again, this time in the form of a notorious government entity, the National Fertilizer Company of Nigeria (NAFCON).

The company was moribund and the government of Obasanjo decided to sell it. And so, crony capitalism will once again play its part, in yet another block buster corporate deal.

Being friends with people like James Ibori at the time was enough to make any eagle-eyed businessman own just about anything. Ibori was Delta State Governor and was said to have ostensibly approved Obasanjo’s second term via the Governor’s forum. Mike Orugbo, was said to be one of such close friends of Ibori who had his eyes on NAFCON. Orugbo was a former NNPC executive and owner of an engineering servicing firm that serviced oil companies. This was thus a big break. Mike would soon lead his company, O’secul Nigeria Ltd to bid to acquire the assets of NAFCON in a deal that cost about $152 million. The deal was said to be financed via a $150m loan from Oceanic Bank, while Mike secured the $2million. Rumors will later have it that James Ibori through one of his cronies, the accountant Henry Imasekha backed the deal. This would be denied as is typical with transactions like this, the opaque nature ensured no evidence was gotten to confirm the rumor. A new company, Notore Chemical Industries Limited will later own the assets taken over from NAFCON in 2005. As fate would have it, Jite Okoloko, a friend of Ibori’s would be called to come and be the MD of Notore Chemicals Ltd. Thus, ended a chapter in the fascinating story of Oando.

With Jite now gone as executive director (he still remained as director) it was left to JAT and Mofe to take the company to its next chapter. An inkling into Oando’s next chapter will surface in a 2009 Financial Times interview of JAT. By 2009, Oando was already the market leader in the downstream sector and was posting group revenues of N337 billion up from the N183 billion it reported just after the famous Public offer and Rights Issue. Its earnings per share had also risen from N2.65 to N11.32 within the same period. The sky seemed to be the limit. As a leader in the downstream and midstream of the oil and gas sector, the next step was to conquer the upstream market, where they already had an interest, but needed to, as you’d expect take the lead. And so he was asked by the FT journalist, “where do you want to be in terms of production?”

His response was succinct and assertive: “We have a plan to get 100k bpd. I think we have a five-year plan to get 100 thousand barrels per day by 2013, with 300 million barrels of reserves”. Bemused, the reporter asked

“Now, how do you get to this?”

JAT responded: “By a combination of exploiting our licenses, and producing our own fields, as well as acquiring assets, just like we did last year, when we acquired a 15 per cent stake in two blocks [from Italy’s Agip] for 200m naira ($1.3m). There are more of those acquisitions to come.”

Of course, more was to come.

Flashback: JAT had built a craving for acquiring just about anything he wanted with only cash as the snag. And because of his reputation, that was the least of his problem. He had already found the holy grail to raising just about any cash he needed. Add that to providing just the right vehicle & alliances. The hard part was perhaps dealing with regulators. That, he also had balls for.

In 2005, just as Nigerians were still basking in the oversubscribed offer, the trio set their sights on the south side of the continent. They came up with yet another audacious plan to list on the Johannesburg Stock Exchange, never before done by any African owned company. Just 39 years old at the time, critics again, joked at the sheer audacity of this move. But to JAT, it was an important part of raising capital. They knew they had to build a solid reputation as not just a Nigerian entity but one with the right corporate governance and structure to list not just in the second largest, but in the largest stock exchange in Africa.

This model would become handy a few years down the line.

For now, listing on the JSE gave them access to capital to fund rig ownership, invest in upstream assets, and expand their midstream business.

Referring to the FT interview, being able to own an asset that produced 100kbpd could only arise if there were upstream assets available to buy. By 2010, Oando had direct and indirect interest in a whopping 44 subsidiaries, most of which held its interest in Oil Blocs, Gas Companies, Rigs and so on. But he needed to go for the juggernaut.

As the Jonathan administration secured a new 4-year term in 2011, the Ministry of Petroleum resources, under the leadership of a rising power broker, Diezani Allison-Madueke, oversaw the divestment of the interest of IOCs in oil blocs. IOCs were selling their holdings in “juicy” oil blocs to local Nigerian business, in what would eventually become one of the biggest economic scams in Nigeria’s history. Oando wasn’t going to miss out on this sale and thus set their sights on what was perhaps the biggest of them all. Conoco Philips (COP), an American Oil company, was divesting from OML 131 and valued its stake at about $1.7 billion. To show its commitment to acquiring the asset, Oando needed to stump up about $435 million, representing 25% of the purchase consideration. JAT had a grand plan and this involved a strategy from one of his play books.

Rather than have Oando Plc purchase OML 131, he would use a different entity. In 2012, riding of the reputation of listing on the JSE years ago, JAT would lead Oando to acquire a Canadian Entity known as Exile Resources Incorporated via what is called a reverse listing. A reverse listing is an acquisition of a listed coy by a private company, resulting in the private firm listing its shares on a stock exchange. It’s basically used by private firms to list their shares on the stock exchange without having to pay the expensive cost of public listings and going through tough regulatory scrutiny.

Oando acquired 94% of Exile and changed its name to Oando Energy Resources (OER). Just like the JSE listing, JAT and Mofe now had another company listed in an even more prestigious stock exchange. But this wasn’t all about prestige. OER would be the vehicle that would own most of Oando’s upstream assets and would also own beneficial interest in several other entities incorporated in tax havens such as the British Virgin Islands. To secure the funding for the $435m, JAT had a grand plan. He would need to secure funding from a combination of banks and High Net Worth Individuals (HNI). This would help him pay the $435 million and buy him time to look for the balance $1.35 billion and even repay the initial $435 million. Typically, deals like these are funded with a hybrid of debt and equity. The equity part is from the company’s cash or from new equity. But Oando in 2012 had a net current asset (liability) of negative N161 billion. That, sort of balance sheet for a project or asset finance of this nature was a no-no. In fact, it technically had no cash. The N13 billion cash in the bank was zilch if you netted off the N48.5b it owed banks in overdrafts. But snags like theses don’t deter JAT and Mofe. In fact, it spurred them and they were after all, corporate titans already. So, JAT and Mofe rolled out their grand plan. They would pull up a list of highly influential people whom they could call up for cash. The Italian, who had come into Nigeria around the time JAT and Mofe were teenagers had grown to become one of the most influential business men in Nigeria. He basically controlled the ports. This was 2012 and Gabriele Volpi, friends and business partners with Atiku and many other politicians had the cash they needed. Volpi had just the right vehicle to do this deal – his company Ansbury Investment Ltd, registered in Panama, another tax haven.

Thus, in 2012 Ansbury would acquire 60% of Oando and Oil Development Partners (OODP). OODP also owned 43% of Oando Plc and were the majority shareholders of Oando Group. Volpi, via Ansbury, therefore indirectly – or so he thought–, owned about 26% of the Oando Group. Ansbury would even do more than investing via equity. The kids he had met through his politician friends had impressed him enough to invest. Ansbury thus lent OODP another $50 million (N7.7 billion) to help augment funding for the $435 million Oando needed to show firm commitment for buying COP.

Another VIP on their contact list was a notable power broker in the ruling political party, PDP, whom the Economic and Financial Crimes Commission (EFCC) once accused of running a smuggling ring. Alhaji Dahiru Mangal, reportedly funded the election of former president late Umaru Musa Yar’ Adua, right from his gubernatorial election days, and was a HNI.

Through a special placement by Oando, Mangal would acquire 4% of Oando Plc using 5 different proxies as shareholders. In typical Oando fashion, OODP which owned 94% of OER, lent its subsidiary $200 million at an interest rate of 5% to pay for the 25% deposit. The $200 million from OODP was presumably from the sale of shares to Ansbury. OER will eventually pay the $435 million after adding the $200 million from OODP to another N27.2 billion from Nigerian banks.

By 2013, Oil prices was trading well above $103 a barrel, and the prospects of owning COP became even more salivating for all parties. Everyone wanted this deal to proceed no matter what, but Diezani, the new power broker in town stood in the way. However, with Volpi and Mangal already part of this transaction, Diezani would eventually bow to pressure, approving the deal in June 2014.

So, in July 2014, Oando (OER) successfully paid for the acquisition of COP, one of the biggest oil deals ever to take place in Nigeria.

JAT and Mofe did it again, against all odds.

Oando’s share price soared to N29, a 100% gain from the N15 it traded at a month earlier. Investors perhaps turned a blind eye to the crushing debts the company was carrying. By Nairametrics estimates, Oando had borrowed up to N200 billion to finance this transaction. Their loan book had also ballooned from about N113 billion in 2012 to about N470 billion by the end of 2014.

In that same year, crude oil experienced a massive correction that would see prices go from $100 when they closed the deal, to $55 by December. Investors soon became jittery and the share price plummeted to about N17 by the end of the year.

A defiant JAT later tweeted in December saying that “The COP acquisition was a master stroke for us. It will take billions of dollars and decades to replace these assets. And to think we only just started… Excited about our next stage of development and the African indigenous hydrocarbon renaissance.”

Of course, this was in December 2014 when no one knew how bearish the oil market would turn. But in his mind, he and Mofe probably knew the biggest battle yet, for them, was lurking.

It would be a battle for survival that will require all the skills he had acquired for nearly 2 decades as CEO of Oando, to confront. The battle on many fronts would center on the survival of Oando and his reputation as a board room maestro.

The closure of the COP transaction was to become the opening of a new vista of multiple setbacks. It would precipitate the squabble between JAT, Mofe and 2 of the most feared businessmen in Nigeria, Alhaji Mangal and Gabriele Volpi.


 

For Part 3 and continuation, click here.

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