InvestIQ: African Petroleum (AP) Shareholders Scape Goating Alhaji Dangote

African Petroleum (AP) Shareholders Scape Goating Alhaji Dangote
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Chukwumah Biosah on 29/11/2010 01:10:00
 
I read this morning that some shareholders of African Petroleum Plc, have
resolved to stop Alhaji Aliko Dangote from listing Dangote Cement on the London
Stock Exchange. The Shareholders are set to petition the London Stock Exchange
not to allow Dangote Cement to issue Global Depository Receipts (GDR) to be
listed on the London Stock Exchange next year (2011).  The aggrieved AP
shareholders list the following issues as their reasons for petitioning the
London Stock Exchange:
Alhaji Aliko Dangote is a man of questionable character, who has no sound
business practices and thus should not be allowed into the London Stock
Exchange, stressing that if allowed; he would manipulate the shares of other
companies like he did to the shares of African Petroleum Plc.
The shareholders stated further that Aliko Dangote is a crook and law breaker,
who despite the court warrant of arrest on him, still behaves as if he is above
the law. Also, Alhaji Dangote is not a man that can be entrusted with position
of authority. He was sacked from the council of Security and Exchange Commission
over his involvement in the manipulations of AP shares.
Furthermore, the shareholders averred that allowing Dangote into the London
Stock Exchange will not bring anything to the exchange but confusion and trouble
as he is more known as harbinger of trouble.
Aliko Dangote will tarnish the image of Nigeria outside, having destroyed the
Nigerian Stock Exchange; he is also planning to go and destroy London Stock
Exchange and tarnish the image of Nigeria”.
Accusation of Stock Manipulation of AP Stock
The share price manipulation allegation was first revealed on March 24, 2009
when AP alleged in advertisements placed in many newspapers that Nova Finance
and Securities Limited had illegally acted at Mr. Dangote's request to force a
decline in the price of AP shares. The allegation detailed how for eight weeks
starting on 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 $259 Billion Naira to AP shareholders as highlighted in the
graph below:
The SEC found the allegations credible, and suspended Nova from all capital
market activities for one year, effective April 16, 2009. Also, SEC disqualified
Mr. Eugene Anenih, Managing Director of Nova from being employed in the
securities industry for five years. It also fined Nova ₦190,000.
Although the commission clearly linked Mr. Anenih to Mr.Dangote, it did not find
Mr. Dangote's directly linked to the unethical behavior and effectively
exonerated him.
AP Stock Price Trend Post Revelation of the Manipulation Incident:
After the manipulation incident was exposed, AP stock price halted its decline
and rebounded from the downtrend. For the next 3 months from March 24, 2009
through July 1, 2009, the AP stock gained N55.32k or 103% (from N54.18k to
N110.00K) before running into head winds on July 2, 2009. As reflected in the
graph below.
Although there was no adverse news that was publicly disclosed 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 appears that
precipitous declined was specific only to the stock price of AP. For example,
from July 2, 2009 through 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 N25, or 14%
(from N175 to N150.4k); and the NSE all share index lost 4,270.7 or 15.7% as
reflected in the graphs below.
Therefore, the evidence indicates that AP stock price performed worst than it
peers and NSE all share index. However, after the second decline was halted on
October 7, 2009, AP stock price stabilized and tried to stage another comeback. 
From October 8, 2009 through April 6, 2010, the stock gained N17.39k or 58%
before reversing the positive trend. It appears the second decline must have
been influenced by a petition written by Mr. M.S.C. Aviomoh, former Executive
Director & Information Technology about internal problems at AP.
Mr. Aviomoh’s Petition:
In July 2010, Mr. M.S.C. AVIOMOH, the former Executive Director Finance and
Information Technology of African Petroleum Plc wrote a petition titled
“UNMERITED PERSECUTION IN AFRICAN PETROLEUM PLC BY THE CHAIRMAN – MR.
OLUFEMI OTEDOLA”. The petition which was addressed to The Director General of
the SEC, The President of the NSE, and the Inspector General of Police Louis
Edet House and made the following unflattering claims:
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 station, thereby resulting in losses to the company.
The Executive Chairman of AP forced the company to pay for products in advance.
The amount outstanding as at 31st December 2009 was N10 Billion. The interest on
this was N3.2 Billion
AP loss on Petroleum Products Price Regulatory Authority (PPPRA) rebate on
imported products was N32 Billion, because the company purchased products from
the Chairman instead of direct import that would have been more profitable.
AP losses due to companies owned by the Chairman inflating invoices billed to AP
caused approximately N4 Billion in losses
Companies owned by the Executive Chairman were owing African Petroleum Plc the
sum of N15 billion (cost of unsupplied products plus interest on the advance
payments for the unsupplied products).
Internally as of September 2009, the AP had total net loss of N9.7 Billion as
opposed to a profit of N957 million the company intended to report.
As stated in the bible {Matthew 12:25} “Every kingdom divided against itself
is brought to desolation; and every city or house divided against itself shall
not stand” It appears that Mr. Aviomoh’s petition dealt the final blow to
the AP stock price. As reflected in the graph below, all rallies the stock had
attempted since Mr. Aviomoh’s petition have failed.
Conclusion
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 for “all it is worth”, 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.  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 N102M 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 it low of N96 in
February of 2009.
In an article I wrote in January 2008 “African Petroleum Nigeria Plc Stock at
Nose Bleed Zone”, I stated that at the current price of N217.35k and a PE
ratio that was 200% greater than the industry average, AP stock price was
overvalued”.
It appears that the claims made in Mr. Aviomoh’s petition about AP and its
management (which management has not publicly refuted) has done more to tarnish
the image of the company than the unethical stock manipulation by Nova. While
the shareholders of AP have the right to blame anyone for the decline in the
stock price, it is incumbent on the shareholders to properly analyze all issues
that might have contributed to the decline of AP shares instead of blaming the
company’s misfortunes on Alhaji Dangote.