Why President Buhari Must Investigate Stock Manipulation In The Capital Market – Forte Oil In Perspective

Posted by African Examiner Featured, Latest Headlines, News, Press Releases Thursday, June 18th, 2015

By Abdul-Warith Afekade Blessing Agbomhere – Mr President, permit me to seize this opportunity to congratulate you as you begin your journey as the captain of this ship called the Nigerian State. Indeed, your leadership qualities and capabilities become clearer with each passing day for all to see. Notwithstanding the sorry state of our nation’s economy – owing to selfish and corrupt practices orchestrated by public officials saddled with the task of governance, your emergence during the last election has brought hope of better things for Nigerians now and in future. Be that as it may, it is pertinent therefore to inform you that like minded Nigerians will do all within their purview to assist your government in this fight against corruption, whilst hoping for the change and a new beginning Nigerians desire. Sir, you are no doubt aware that pervasive corruption in all facets of our national life, prior to your emergence, had brought this country to a standstill and still daily manifest in the inability of some State Governors to pay workers salaries, unwarranted fuel queues and high cost of petroleum products across the country, bad roads, poor power supply, unemployment, dilapidated infrastructure, increased medical tourism abroad and incessant strikes by labour unions. There is no gainsaying the fact that most public institutions in the country which include but not limited to the Bureau of Public Enterprises (BPE), Nigerian National Petroleum Corporation (NNPC), Civil Service, etc, are still riddled with corrupt tendencies which if not checked would immensely hamper the developmental agenda of your administration.

It is therefore in this light, that we bring to your attention issues of alleged sharp practices, otherwise known as “stock manipulation” in the Nigerian Stock Exchange (NSE)/Capital Market. It is unfortunate that even though the manipulation of stocks has become a recurring decimal in the operations at the NSE for years, stakeholders have rather turned a blind eye on the nefarious activity to the detriment of Nigerians – whom the are supposed to serve – all in a bid to illegally skim off billions for themselves and their cronies. Several hundreds of billions have been cornered through this illicit deals, particularly by the top management of the NSE in collaboration with their billionaire counterparts. Mr President, you will recall that the issue of stock manipulation is not new in the Nigerian tabloids, as accusations in this regard were rife in 2009, when the Chairman of the African Petroleum (AP) – now Forte Oil – petitioned the Securities and Exchange Commission (SEC) on alleged unwholesome practices by the Chairman of SEC, Alhaji Aliko Dangote. The share price manipulation allegation was first revealed on March 24, 2009 when AP alleged in advertisements placed in several newspapers that Nova Finance and Securities Limited had illegally acted on SEC Chairman’s request to force a decline in the price of AP shares. The allegations as contained in the advertorials had detailed how for eight weeks – starting from February 11, 2009 through March 20, 2009 – Nova orchestrated cross-deals of 50,000 shares at a time. These transactions allegedly forced the shares of AP to decline from N293.98k to ₦54.18. A decline of N239.80, or 81.6% and a combined loss of N259billion by AP shareholders.

Consequently, upon investigation, SEC found the allegations credible, and suspended Nova from all capital market activities for one year, effective from April 16, 2009. Also, SEC disqualified the Managing Director of Nova from being employed in the securities industry for five years. It also fined Nova ₦190,000, but clearly exonerated Mr. Dangote. Although there was no adverse disclosure about AP, the sudden trend reversal of the AP stock price on July 2, 2009 was baffling. Was the reversal peculiar to AP, or was it an industry phenomenon? A comparison of the AP stock price trend against its peers and the NSE All Share Index during the same period, revealed that although most of its peers exhibited slight downtrends or flat movements during the aforementioned period, it appeared that precipitous decline was specific only to the stock price of AP. For example, from July 2, 2009 to October 7, 2009, while AP stock price declined by N80.00k or 72.7%; Oando stock price basically reflected a consolidating pattern gaining only N0.44k, or 0.5% (from N89.11 to N89.55K); Chevron stock price lost N24.87k, or 26.2% (from N94.83k to N69.96K); Total stock price lost amounted to N25, or 14% (from N175 to N150.4k); and the NSE’s All Share Index lost 4,270.7 or 15.7%.

Furthermore, Mr. President sir, we became curious as to how the management of AP realized they were the only ones affected. Could it be as a result of a deal gone sour? Several questions became expedient as to how only one company became penalized. In a separate petition against the management of AP in July 2010, entitled: “UNMERITED PERSECUTION IN AFRICAN PETROLEUM PLC BY THE CHAIRMAN – MR. OLUFEMI OTEDOLA”, the following revelations were no less stunning coming from a Director of the company, who alleged in the petition addressed to the Director General of SEC, President of NSE and the Inspector General of Police, that:

1) In 2009, some of the companies owned by the Executive Chairman of AP, Mr. Femi Otedola were selling products to AP at prices higher than the retail pump price at gas stations, thereby resulting in losses to the company.

2) The Executive Chairman of AP forced the company to pay for products in advance. The amount outstanding as at 31st December 2009 was N10billion. The interest on this was N3.2billion.

3) AP losses on Petroleum Products Pricing Regulatory Agency’s (PPPRA) rebate on imported products was N32billion, because the company purchased products from the Chairman instead of direct import that would have been more profitable.

4) AP losses due to companies owned by the Chairman inflating invoices billed to AP caused approximately N4billion in losses

5) Companies owned by the Executive Chairman were owing African Petroleum Plc the sum of N15billion (cost of unsupplied products plus interest on the advance payments for the unsupplied products).

6) Internally as of September 2009, the AP had total net loss of N9.7billion as opposed to a profit of N957million the company intended to report.

Therefore, Mr President, going by the petition and the revelations above, there is no doubt that the initial decline of the AP stock from N293.00k to N54.00k was caused by Nova’s unethical cross trades as established by the SEC, but it should be noted that the SEC was unable to directly link Alhaji Dangote to the stock manipulation and therefore exonerated him. In retrospect, due to the protracted bear market experienced by the NSE in 2008, it is not inconceivable that the stock price of AP would have experienced significant downtrend if it wasn’t that AP stock was halted for trading during most of 2008 as a result of a secondary stock offering (Stock Manipulation). For example, Mobile Oil stock price declined by N300, or 74.6% from the stock price peak of N402 in 2008 to its low of N102 in March of 2009; Oando stock price declined by N197 or 76.4% from its peak of N258 in 2008 to its low of N61; and Chevron stock price declined by N294, or 75.4% from its peak of N390 in 2008 to its low of N96 in February of 2009.

It should be noted however, that in January 2008, when the current price of N217.35k and a Price Earnings (PE) ratio that was 200% greater than the industry average, indicated that the AP stock price was over valued. It may therefore appear that the claims made in the AP Director’s petition about AP and its management (which the management has not publicly refuted) has done more to reveal the alleged corrupt practices of the company than the unethical stock manipulation by Nova.

Subsequently, Mr President, in July 2014, the NSE had announced that it had concluded its review of the prices of stocks, as part of its plans to improve liquidity and deepen the market, with the announcement of new securities that will join the league of High Priced Stocks. The stock announced was that of Forte Oil Plc. The Head, Market Operations of the NSE, Mr. Ade Ewuosho, had confirmed that “…to move the price of any stock upwards or downwards, the brokers needed to have a volume of 50,000 shares and above. However in September 2012, the NSE introduced a pilot programme for its new market structure with the rollout of market making, where stockbrokers could move prices of some high priced stocks with 10,000 shares. These High Priced Stocks are securities that have traded an average of N100 or more per share in four out of the last six months period”. Also justifying the inclusion of Forte Oil Plc in the High Priced Stocks, the bourse’s Head of Market Surveillance, Mr. Abimbola Babalola affirmed that a review of trading activities of the company in the last six months show that the company met the criteria set by the Exchange.

Despite the blow dealt to stocks in the oil and gas sector, Forte Oil (FO) remained firm, refusing to tank territories not seen since 2013. Whilst most stocks hit their multiple one year lows in December 2014, FO at worst dipped below N200. Forte Oil has a year low of N82.4 which it touched back in January. Again while most NSE’s 30 stocks took a pounding, FO only dropped to N175 on November 10th roaring past N200 again. Mr. Otedola owns directly and indirectly 6% and 19% of the equity of the company respectively as at December 2013. That is a combined 25% plus holding. Mr Otedola also became the largest shareholder in Forte Oil (formerly called African Petroleum) in 2007 when he acquired a 28.7% stake in the company from the NNPC, for $120million. He subsequently appointed himself as Chairman of the company.

It is against the above backdrop that we suspect some form of STOCK MANIPULATION and therefore demand answers to the following questions:

1) What was the criteria referred to by the Exchange in including Forte Oil as one of the high priced stocks?

2) Could it also be that Mr. Otedola buys his own stock all in a bid to soar its prices, thereby manipulating innocent Nigerians into buying FO’s stocks?

Finally sir, we urge you to investigate and save us from the cabals in both government and private institutions, so that we can all benefit from the change promised by your able administration whilst craving for a new Nigeria.

Thanks for your anticipated action.

Signed: Abdul-Warith Afekade Blessing Agbomhere

Executive Director, Gatekeepers Foundation