Where did €50 million go in six months?
THE LISTING and track record of Ocean Tankers Public Holdings Ltd on the Cyprus Stock Exchange (CSE) has raised questions on transparency, particularly in terms of informing investors about the risk associated with purchasing a company’s stock.
In February 2009, OTs announced that it had an estimated net profit of €10 million in 2008, while three months later that amount dropped to €6.7 million. Authorities are looking into whether the company misled investors.
According to Politis, the problem began with the listing of Ocean Tanker on the CSE in 2006, when an exception to the entry requirements was applied to let the company in.
According to the relevant CSE law, investing in shipping companies involves some additional risk and therefore such companies must operate for a number of years before listing on the CSE. According to this rule, shipping companies must have audited accounts, function normally and have relevant activity for at least five consecutive years prior to their entry, with an average positive position for the five previous years.
Ocean Tankers, however, was incorporated in Cyprus in June 2005 and was accepted in the CSE in 2006, based on an exception that allows the CSE’s Board of Directors to take the responsibility upon themselves and admit a company that does not meet the requirements.
The exception states: “a recently incorporated issuer may be introduced provided that the Board judges that sufficient evidence are provided to the investors to allow a correct valuation of their titles.”
As such, the CSE Board let Ocean Tankers list and had the duty of ensuring that the company would provide sufficient information to allow investors to make informed choices.
Some of the financial information recently publicised by Ocean Tankers, however, may have misled investors on the company’s financial viability.
Specifically, on February 27, 2009, Ocean Tankers announced that its projected net profit for 2008 was $14.1 million, roughly equivalent to €10.4 million.
In May 2009, the final accounts were published, showing that the net profit was actually €6.7 million – a marked difference from the preliminary projections.
At the time of listing, the company’s capital was initially estimated at €93.5 million, but then on April 30 it was announced that the company held a capital of €42.3 million, which begs the questions over where the remaining €51.2 million went and if investors had been informed.
According to Politis, the difference can be explained by the sale of eight million Ocean Tankers shares by its Executive President Michalis Ioannides on October 27, 2008.
In the same year Ioannides took out a loan for $30.15 million, which is another challenge to the argument that the company is financially viable.
Ocean Tankers, however, issued statements defending the company’s financial viability and explaining that Ioannides’ loan had not affected the company’s liquidity.
“OT and the Board of Directors would like to inform the investing public that there is no viability issue and the company will continue to be an active economic unit,” read a statement issued by the company on May 7.
“Mr Ioannides’ loan is not short-term but long-term, according to a contract signed between him and the company and its payment will start on January 1, 2010 and will be completed on January 1, 2015.
“It is noted that Mr Ioannides has the option to capitalise his loan to the company in a possible future share capital increase. According to the above, the company has no liquidity problems and continues to be a profitable and active unit,” the statement continued.
