Will Oakbay find a JSE sponsor?
Nearly two weeks after the first articles based on the Gupta leaks, those who invested in the Gupta family — including the state-owned Industrial Development Corporation (IDC) — are starting to feel the direct repercussions of the saga.
Economic Freedom Fighters (EFF) leader Julius Malema on Thursday said the email saga showed behaviour “tantamount to, or even worse than, treason”.
But his party’s two-pronged response mirrored a general sense that nothing will come of the revelations. One, South Africans should take to the streets to protest the wholesale theft of their country, Malema said. Two, the EFF has written to President Jacob Zuma to demand that he either drop his bid for judicial review of a state capture inquiry, or agree to moving up the date of a hearing on the matter.
On the corporate front, however, fallout from the emails was felt.
On Monday, the Gupta family’s Oakbay Resources and Energy announced that its JSE sponsor, River Group, was withdrawing its services “due to their revised assessment of association risk surrounding the company”.
River had stepped in as sponsor, a liaison of sorts between the company and the JSE, after Sasfin resigned from the function in May 2016 — and after a long and arduous search.
Oakbay had spent several months at risk of being delisted for being in breach of JSE regulations because no other sponsor would take the job. At the time Sasfin said only that its decision was for strategic reasons. River Group was only slightly more forthcoming. “We don’t believe politics and business should mix,” said River’s Andrew Lianos. River will remain the sponsor until July.
Oakbay told shareholders only that they “will be advised in due course as to developments”.
Without a sponsor it cannot remain listed on the JSE, and eventually its shares will be suspended from trade.
The liability of JSE sponsors is limited once a company is listed, but a newcomer sponsor to Oakbay will have to contend with allegations of share price manipulation that arise from the Gupta leaks. Emails from the 2014 listing suggest that current Oakbay director Ronica Ragavan was involved in what were supposed to be arms-length transactions by Oakbay’s Singapore shareholder Unlimited Electronic & Computers.
Ragavan was herself prohibited from dealing in Oakbay shares under rules designed to prevent share price manipulation.
But, emails show, she set up a loan for Unlimited with a third party in Dubai, which it then seemingly used to buy Oakbay shares worth R185-million.
Unlimited then put small consignments of shares up for sale again. Or, at least, Ragavan instructed Unlimited to instruct its brokers to set up the sale — after helping to set up the brokerage accounts.
At every step, Unlimited appeared to be acting as a proxy for Ragavan.
Also suspicious is the fact that Unlimited seemed willing to take a loss. In one instance, with paperwork apparently drafted by Ragavan, Unlimited offered to sell the shares in Oakbay it had bought for R10 each at a price of R10.05. Such a sale would move the Oakbay share price to R10.05.
But it could not make a profit. About half the mark-up would go to interest on its loan, a small amount because the loan was only 15 days old. The remainder would be wiped out by securities transfer tax — before Unlimited had paid its brokerage fees, transaction fees, or for its money to be moved out of the country.
If no JSE sponsors emerge, Oakbay faces delisting, leaving shareholders with illiquid shares difficult if not impossible to cash in. One of these is the IDC, which thanks to a debt-to-equity conversion deal struck in 2014, now owns 3.57% of Oakbay.
The IDC has lost 36% on that investment to date. It is also due a payment from Oakbay at the end of June, money the company does not appear to have.
The 2014 deal saw interest that had been due on an IDC loan converted into equity, but the original loan amount remained due. In February, Oakbay reported in its financial results last week, it owed the IDC R119-million. A repayment of R37.5-million is due on June 30.
Although Oakbay went into its last financial year with R225-million in cash, it ended the year with only R2.7-million, in part because it repaid the Indian state Bank of Baroda for a R194-million loan, which, unlike the IDC, had no fixed repayment term.
“At the date of this report, the current liabilities exceed the current assets by R15.9-million,” Oakbay’s directors said.
This makes it technically insolvent.
The company also disclosed that after its year-end it had paid R48.3-million into a ring-fenced trust account to make up for a shortfall in its mandatory environmental rehabilitation provisions. These ensure that, once mining ends, the environmental degradation can be remedied.
It did not explain where this money had come from, how it affects Oakbay’s status as a going concern, or whether it will have the funds to make the IDC payment.
Oakbay did not respond to specific questions by the time of publication.
The company will be obliged to provide additional information in its annual report, which, by JSE rules, must be published at the end of August. In 2016 it only barely made that deadline, but at first neglected to disclose that large sections of that report had been copied, verbatim, from two international competitors.
The Mail & Guardian has not been able independently to confirm the veracity of the specific Gupta leaks emails that formed the basis of this article. But the cache contains emails the M&G has verified, including ones seeking comment from the Gupta family sent by M&G journalists.
Disclosure: The writer owns 10 shares in Oakbay Resources, worth a total of R58 at the time of writing