/ 30 November 2016

Revisionist accounting to the rescue for Gupta-owned Oakbay

Employees of Oakbay march in Johannesburg under the title "Save Oakbay Jobs" to four major banks - Nedbank
Employees of Oakbay march in Johannesburg under the title "Save Oakbay Jobs" to four major banks - Nedbank


With no more than three months to go until the Gupta family’s self-imposed deadline to sell all its South African assets, the only public company in that basket this week reported a financial performance that was much worse than in the previous year.

While it was bad, the performance of Oakbay Resources and Energy, majority-owned by Atul Gupta, would have been downright disastrous but for a significant revision of historical figures.

According to the last published figures, Atul owns 64% of the coal and gold mining company, a stake worth R9.7-billion at current market prices. At this value, a 1% decline in Oakbay’s share price would cost him about R100-million when he sells it.

On Monday, the company published a trading statement on the JSE’s investor news service Sens before releasing its interim results for the six months to the end of August. JSE rules require that shareholders be warned if results will be significantly worse or better than those of previous years.

Since Oakbay narrowly avoided having its listing suspended when both its exchange sponsor and auditors quit, it has scrupulously followed JSE rules, if in a sometimes unusual fashion. In September, it delivered an annual report just hours before the deadline, in which it copied, verbatim and initially unacknowledged, large parts of the strategies of two competing companies, and presented this as its own.

In its warning, Oakbay told shareholders it would report a loss of about R65-million for the six months to the end of August, “being a deterioration of 49.8% in comparison to the previously reported loss for the six months ended 31 August 2015”.

Compared with the figures Oakbay published this time last year, the deterioration is almost 90%. In the interim, the company had restated its losses for the 2015 period, adding R9.2-million to that tally, which all had the effect of making this year’s performance seem comparatively better.

Oakbay similarly restated all its 2015 half-year figures with which it compared itself this week, increasing attributable losses and its loss per share by about one-quarter across the board.

The company did not respond to questions, including why the 2015 figures had been so significantly restated.

The figures published on Monday had not been reviewed by its auditors, Oakbay said on Sens, and the company has no formal coverage by institutional analysts.

In its annual report published on the last day of August, Oakbay said in notes to its financial statements that it had restated some figures after being advised it had previously dealt incorrectly with two accounting rules. It did not detail what effect this had on previous half-year figures, and this week it did not respond to questions on whether its disclosure had been adequate.

Oakbay’s only major institutional shareholder is the state-owned Industrial Development Corporation, which converted interest due on a loan to a 3.57% equity stake in Oakbay, worth R543-million at current market prices.

In late August, the Gupta family announced in a statement it believed “the time is right for us to exit our shareholding of the South African businesses” and said it intended “to sell all of our shareholding in South Africa by the end of the year”. The statement did not say whether that would be by the end of the calendar year or by the end of the financial year in February 2017.

Disclosure: The writer owns 10 shares in Oakbay Resources, bought at an effective value of R304.90 and worth R190 at the time of publication