Nigerian oil services company, Japaul, has gone from best to worst performing stock on the Nigerian Stock Exchange in almost a blink, after questions were raised over a deal with private equity firm, Milost.
The company’s share price fell 8.3 percent to N0.88 (88 kobo) Tuesday, according to Bloomberg data, making it the worst performing stock of the day.
The price decline wiped off some N570 million from the company’s market capitalisation which hit N6.07 billion Friday, March 9.
“Momentum is fizzling out for Japaul,” a source said on condition of anonymity given the sensitivity of the matter.
“The price has peaked and it is downhill from here,” the source added.
Two calls made to a phone number on Japaul’s website went unanswered.
In what appears a typical pump and dump scenario, Japaul’s shares had rallied some 177 percent since disclosing a $350 million financing deal with US-based private equity firm, Milost, only to retreat after questions trailed the ingenuity of the deal.
The February 20 announcement of the deal set the tone for the oil and gas services company to rally for two straight weeks, jumping 53.9 per cent in the week ended March 9 to emerge the best performing stock.
It was reported that Milost will invest $250 million in equity and add another $100 million in convertible loans.
But the numbers for the deal do not add up.
The company reported total assets of N27 billion, total liabilities of N51 billion and a net loss of N2billion in the 3rd quarter of 2017.
A $350 million (N126 billion) investment in the same Japaul would amount to acquiring the firm 100 percent, which does not make any sense.
“Rather than invest over N100 billion in Japaul why didn’t they (Milost) just set up a new oil and gas servicing company that will be free of any liabilities,” a market source familiar with the matter asked rhetorically.
“This has every appearance of a typical pump and dump scenario,” the source said.
“Pump and dump” (P&D) is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price.
Once the operators of the scheme “dump” sell their overvalued shares, the price falls and investors lose their money.
As stated in a report March 12, BusinessDay called a New-York phone number available on Milost’s website, but after being asked for comment, the lady who answered the phone disconnected the call and two subsequent calls to the same number went unanswered.
Calls made on Tuesday also went unanswered.
Milost has also made other questionable investments since the turn of the New Year, from its $250 million promised investment in Resort Savings and Loans to the $1.1 billion acquisition of real estate firm, PrimeWaterview.
Resort savings and Loans has a market capitalisation of N5.6 billion, according to data on the Nigerian Stock Exchange (NSE).
The mortgage provider has not published a financial statement since the 3rd quarter of 2015 when it reported net profits of N34.2 million on revenues of N1 billion and shareholder funds of N2.92 billion.
Its total assets for the period came in at N10.1 billion, but Milost is prepared to invest N90 billion in the company.
“The unfounded nature of the Resort deal suggests there is zero possibility of the transaction happening,” one source familiar with the matter told BusinessDay.
“The Japaul deal is no different and it leaves the door open to question the financial standing of the company (Milost),” the source said.
Private Equity firms rarely go for control deals in Nigeria- deals where they acquire over 50% of a company.
“In cases where they do, they are reluctant to go as high as 95 percent but Milost is doing deals that are even above 100 percent,” another market source speaking anonymously due to the sensitivity of the matter told BusinessDay.
Resort was not readily available for comment.
Milost’s biggest announced deal yet is the $1.1 billion (N360 billion) acquisition of real-estate firm, Primewaterview holdings.
But even that deal has its faults, sources claim, as the said firm lacks the requisite assets to command an acquisition of that size.
A phone call made by BusinessDay to the number found on Primewaterview’s website was not answered when contacted at around 6:30pm on Friday. It was more of the same on Tuesday, with the company unable to comment.
The real estate company has completed about 741 housing projects, predominantly three-bedroom apartments across Lekki and Oniru, as deduced from its website.
For all its swashbuckling outlay which come to around $1.7 billion (N612 billion at N360/$), Milost is relatively unheard of among private equity players who question the ingenuity of some of these investments.
BusinessDay sources at the Central bank couldn’t immediately confirm if Milost obtained a Certificate of Capital Importation (CCI) for its announced investments.
A phone call and text message to CBN spokesperson, Isaac Okorafor went unansweredTuesday.
A CCI provides statutory evidence of capital inflow into a Nigerian company.
CCI’s are Central Bank of Nigeria (CBN) certificates issued by banks.
As deduced from its website, Milost Global was founded by Mandla J Gwandiso in 2015 and is headquartered in New York City, with more than $25 billion in committed capital.
Gwadiso also serves as the Chief Executive Officer and Chairman of the Board of Directors of Precise Acquisition, Inc.
Between February 2009 and February 2013, he was an independent consultant to Sichuan Hanlong Group Co., Ltd where he was the Lead Advisor.
From March 2013 to November 2015, he served as the President & Chief Executive Officer of Sigur Capital Inc.
LOLADE AKINMURELE
