IDC millions at risk as Oakbay share valuation becomes tricky | Fin24
 
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IDC millions at risk as Oakbay share valuation becomes tricky

Jul 11 2017 11:55
Liesl Peyper

Cape Town – The severe fluctuations in the share price of Gupta-owned Oakbay Resources and Energy in a period of just over two-and-a-half years will make it difficult to determine the true valuation of the company, according to Melanie De Nysschen, corporate finance principal at Bravura Capital.

This raises concerns about the Industrial Development Corporation’s (IDC's) ability to recover funds, following the conversion of the R256m loan to Oakbay into equity.

The IDC told City Press over the weekend that it expects Oakbay to permanently delist from the JSE, as the company struggles to find a JSE sponsor as a result of “negative public opinion”.

Oakbay is in the process of delisting but has yet to make a public announcement about this. The JSE requires a company to formally announce its delisting in a SENS announcement.

On June 23, Oakbay requested voluntary suspension of its shares on the JSE after being abandoned by another JSE sponsor, River Group.

Sasfin, Oakbay’s previous sponsor, also severed ties with the company in the first half of 2016, following the four big banks’ decision to terminate their business relationship with Oakbay.

Speaking to Fin24 by phone, De Nysschen said there has been considerable noise about the real valuation of Oakbay, as a company’s market capitalisation is determined by its share price.

“It is puzzling that a company such as Oakbay’s share price could move from R10 to R50 and then again to R5 over the period of its listing. How do you trace it back to the valuation of the underlying assets of the company?”

De Nysschen pointed out that Oakbay listed on the JSE on November 28 2014 at R10.05 per share. “The shares shot up on very thin trade from just over R11 in April 2015 to R50 in May – in a period of one month.”

A graph of Oakbay’s trading extending from its listing in November 2014 until the suspension of its shares on June 23, showed an improvement from just over R10 to about R11.15 in April 2015. There was a rapid jump in the value of the shares from R11.15 on May 15 to R50 on May 18 2015.

The share price gradually declined from May 20 2015 to about R30 in February 2016, before dropping significantly from R30 on February 9 2016 to R7.55 the very next day.

“In April this year there is a doubling of the share price on thin trading volumes,” said De Nysschen, “when the share price increased from R9.15 on April 6 2017 to R18 the next day."

On May 5 it dropped to R10.50 and it gradually started trading lower to R5.80 on the last day of trade on June 23.

The Financial Services Board said in a media release on July 3 that its investigation of possible market manipulation related to Oakbay was proceeding to “enforcement action”.

It pointed out though that the person under investigation is unrelated to Oakbay.

IDC in an ‘invidious’ position

Although volatility in the pricing of closely held shares is not unheard of, the rapid movements in Oakbay’s share price puts the IDC in an invidious position, said De Nysschen.

In the event of a voluntary delisting, she explained, a company needs to make an offer to its shareholders. “The offer must be fair and the fairness needs to be determined by an independent JSE-approved expert.”

The determination of Oakbay’s valuation may require another discussion as to the real value of the company. “What will it be based on?” De Nysschen said.

At R10.05 a share, Oakbay’s shares listed at nearly double the underlying asset value placed on the mineral asset by the then appointed competent person. The IDC converted the loan into Oakbay shares at R9 per share, a 10% discount to the initial approved listing price of R10.

“The question is, will the IDC get anywhere close to the initial valuation at which they converted the shares?”

The IDC lent Oakbay R250m in 2010 and the state-owned financier later agreed to convert the interest Oakbay had accrued into Oakbay shares.

GRAPH: Oakbay share movement


Delisting requirements

De Nysschen said before a company can initiate a delisting, it is required to send out a circular to its shareholders notifying them of a general meeting.

More than 50% of the shareholders must agree to the delisting and the reasons for removal must be clearly stated. The company then needs to make an offer to shareholders.  

Oakbay’s shareholding structure consists of an 80% stake held by Oakbay itself, with just over 8.4% held by Action Investments, 5% by Saranya Investments, a Mauritius-based company, and a 3.6% shareholding by the IDC.

Because Oakbay is a controlling shareholder, it and any of its associates and concert parties are likely to be excluded from voting on the delisting in terms of JSE listings requirements, leaving the minority shareholders to vote on the continued listing status of the company, De Nysschen said.

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