Oando Plc has secured a court order restraining
Nigeria’s apex capital market regulator, Securities and Exchange Commission
(SEC), from going ahead with its announced forensic audit of the operations of
the indigenous energy group. The court order also restrained the Nigerian Stock
Exchange (NSE) from placing Oando’s shares under technical suspension. The
order was served on SEC and NSE on Tuesday, October 24, 2017.
According to
Ripples, documents obtained have however outlined preliminary findings by
SEC, showing how Oando allegedly manipulate its share prices through creative
accounting profits amidst several contraventions of the extant rules and laws
governing the capital market.
The documents
indicated several violations of the Investment and Securities Act (ISA), Rules
and Regulations of SEC and the Code of Corporate Governance.
According to the
reports, Oando had allegedly engaged in creative accounting by reporting
unrealized sales as profit, declared dividend on the basis of this, floated a
rights issue with the misleading information and subsequently restating its
accounts to reflect the unrealized sale, leading to its historic loss of N184
billion in 2014.
In 2013, Oando had
undertaken the disposal of Oando Exploration & Production Limited (OEPL) to
Green Park Management Limited. However, it did not record such divestment with
SEC, which has approving authorities over divestments, mergers and
acquisitions.
While it had not
secured the necessary approvals to validate such divestment, Oando went ahead
to report the unrealized earnings from the sale in its 2013 and 2014 audited
financial statements.
With the reporting
of the OEPL uncompleted transaction as part of the group earnings, Oando
recorded profit of about N6 billion from the sale of OEPL that erased the
operating loss of N4.68 billion leading to a profit of N1.4 billion in 2013.
With this, Oando quickly undertook a rights issue in 2014, using same
unrealized earnings to boost its report. In 2015, Oando turned round to restate
the accounts for 2013 and 2014, after the uncompleted transaction of OEPL
failed to scale through.
SEC also
discovered manipulation of dividend payment by Oando as the company failed to
remit dividends en-bloc to Registrars, one of the many reasons for growing
unclaimed dividends. According to SEC Rules and Regulations, Rule 44(1),
dividends declared shall be paid en-bloc by the issuance of a check or transfer
of funds to the registrar not later than seven working days after the annual
general meeting where the dividend was declared.
SEC’s
investigation also showed that Oando’s Group Chief Executive Officer, Wale
Tinubu was the one fixing the remunerations of the other executive directors
which is in violation of Part B, 14.3 of the SEC Code of Corporate Governance.
The last board evaluation of Oando was also done by KPMG five years ago in
2012, a violation of Part B, 15.1 of the SEC Code of Corporate Governance.
The Commission
also discovered insider abuse as certain persons classified as insiders within
the provisions of Section 315 of the Investment and Securities Act (ISA), 2007
and who were in possession of confidential price sensitive information not
generally available to the public, had between January-October 2015 traded on
Oando’s shares prior to the release of the company’s 2014 Financial Statement,
where the company reported a loss of N183 billion.
In a statement
made available on Tuesday, Oando accused SEC of bias, alleging that the
contraventions were not weighty enough to warrant forensic audit or suspension
of the company’s shares.
“Each of the
alleged infractions has a penalty as prescribed by the respective provisions of
the ISA, SEC Code, SEC Rules and Regulations, NSE Listing Rules and CAMA; none
of them whether singularly or together warrants the suspension of free trading
in the securities of the Company or the institution of a forensic audit,” Oando
stated.
According to the
company, it had always been above board and steadfast in its submissions to the
SEC with respect to its Annual Corporate Governance Report filings regarding
its compliance with the requirements of the Code prior to and post May 2014.
“The SEC had never until now communicated to the company the specific areas of
non-compliance with the code from a review of our filed annual reports and the
actions needed to remedy the non-compliance”, it said.
Oando noted that
although a formal annual board evaluation was not carried out for the 2015 and
2016 reporting years, the board did carry out an internal appraisal of its
effectiveness as part of the investigation initiated by the Nigeria Stock
Exchange in 2015-2016 and prior to that, as part of its successful
participation in the pilot of the NSE’s Corporate Governance Rating System (CGRS)
in 2014.
“The company is of
the position that even if it had breached provisions of the SEC Code, SEC is
under obligation under s.1.3 (d) of the said code to notify the company
“specifying the areas of non-compliance or non-observance and the specific
action or actions needed to remedy the non- compliance or non-observance.” The
company only received such formal notification from SEC requiring compliance
with the SEC Code on these matters on October 18, 2017, five months after the
commencement of its investigation. The company has since put remedial actions
in place to cure this breach,” Oando stated.
Oando argued that
the penalties for breach of the provisions relating to payment of dividends are
prescribed in Rule 44 (4) (a) and (b) of the SEC Rules and do not require a
forensic audit, noting that no shareholder or whistleblower, has petitioned SEC
or complained about not having received dividends due to them from the company.
Oando stated that
it had clear and robust insider trading policies which it has communicated to
all known insiders of the company, pointing out that the question as to whether
insider dealing occurred in the shares of the company is a matter for the SEC
to raise with any affected insider since the company cannot be guilty of
insider dealing since it only issues securities and is not involved in the
trading of its own securities.
“Furthermore, as a
public company with fully dematerialized shares, listed on both the Nigerian
Stock Exchange and the Johannesburg Stock Exchange all trading in the securities
of the company takes place on the floor of both exchanges through the
respective depository, clearing and settlement agencies. Any investigation into
whether or not there has been a breach of Insider trading rules is a question
of fact which would be better addressed through an inspection of trading
records of the Exchange rather than through a forensic audit of the company,”
Oando noted.
According to
Oando, it reversed the sale of OEPL when it became obvious that certain
conditions subsequent could not be satisfied within the period stipulated in
the Sale and Purchase Agreement (SPA), namely ministerial consent.
“The 2013 and 2014
position had to be restated in the 2015 audited financial statements to show
that the transaction, previously recorded as a sale had been reversed in line
with IFRS. The treatment of the transaction in 2013 as a sale and its
subsequent reversal in the 2015 financial statements were in full compliance
with the accounting treatment under IFRS”, the company said.
According to the
company, the latest actions taken by the SEC were prejudicial to the business
of the company as it would hinder the ability of the company to enter into new
business transactions and affect the confidence that existing stakeholders have
in transacting business with the company.
Oando noted that
it had received numerous queries from critical stakeholders, including its
lenders as a result of the SEC’s actions and an indefinite technical suspension
of its shares as well as an open-ended forensic audit will negatively impact
the ability of the company to conduct its day-to-day business and meet the
expectations of all its stakeholders.
It pointed out
that by two letters dated August 24th and August 28th, the chairman of Oando
petitioned the DG of the SEC alleging bias and lack of due process in the way
and manner in which the SEC has conducted this investigation.
“The current
action by the SEC, despite its internal findings, confirms that the SEC appears
to be working to its own conclusion rather than looking at the facts before it
and acting in the best interest of the company and the minority shareholders
whom it claims it seeks to protect,” Oando stated.
News
Source: - Ripples | October 24, 2017.
Photo Source: - The Guardian | October 25, 2017.
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