One of the justifications for governance structures within a publicly listed company is to save it from the exact situation, Lekoil, one of Nigeria’s local oil company found itself – avoiding being scammed.
Details regarding how the London Stock Exchange listed company was separated from $600,000 of its funds remain sketchy, but this development calls into question the company’s elaborate governance system administered by the board.
Governance is board function
“The Board will meet regularly and be responsible for strategy, performance, approval of any major capital expenditure and the framework of internal controls,” the company states on its website.
Lekoil’s Board makes decisions on matters relating to major capital expenditure, management structure and appointments, strategic and policy considerations, corporate transactions and finance.
The company’s Board is composed of seasoned business people with a range of experience covering oil and gas sector, legal and financial services
Olalekan Akinyanmi, the company’s CEO, for example, has over 20 years’ experience in the oil and gas industry, including six years spent at AllianceBernstein L.P. in New York, a research analyst and portfolio manager covering Energy and Materials worldwide.
Akinyanmi has held senior positions at UBS Investment Research and has been involved in successfully negotiating and raising the first round of equity capital for the company’s operations.
According to the company, its Board meets monthly and approves any major capital expenditure and the framework of internal controls and company’s performance. It also adopts and reviews comprehensive annual budget for the group and examines monthly results against the budget and monitors deviations.
The Board also maintains and identifies major business risks faced by the Group and determines the appropriate courses of action to manage them.
Since a system of internal financial control can only provide reasonable, not absolute, assurance against material misstatement or loss, the Board regularly reviews the system of internal financial control operated by the company.
According to regulatory announcement on January 13, the fraud was brought to the attention of the company by Qatar Investment Authority who came to confirm the details of the loan with the company.
Why corporate governance failed
Analysts wonder why such an elaborate system couldn’t carry out a careful due diligence on a company purported to be assisting the group procure a loan.
“When engaging consultants, a company conducts due diligence on their track record, find out about similar projects and even confirm that these projects were satisfactorily completed. It is not clear how much of this was done,” says Chuks Nwani, a Lagos-based energy lawyer.
Lekoil Limited through its subsidiary Lekoil 310 engaged Seawave Invest Limited to arrange $184 million financing for the development of Ogo fields, but it is unclear how thorough the due diligence conducted had been.
“Lekoil’s due diligence on the parties involved in the Transaction included, inter alia, meetings with individuals who, the Company now understands falsely presented their credentials as QIA representatives and interaction with individuals purporting to be carrying out legal and technical due diligence on behalf of the QIA (again, falsely).
“In addition, at the behest of the Company’s Non-Executive Directors, a third party due diligence report, based predominately on open source information, was commissioned by Lekoil on Seawave Invest Limited (“Seawave”) in its capacity as introducer of the Counterparties and lead adviser to the Company in relation to the Facility Agreement. In addition to the work of its in-house specialists, Lekoil also sought advice in relation to the Transaction from its retained UK legal counsel,” the company states.
The company further notes: “Lekoil is urgently seeking to establish, alongside its legal counsel and Nominated Adviser, the full facts of this matter, and pending this clarification, the Company has requested that its ordinary shares be suspended from trading on AIM with immediate effect,” after paying $600,000 as initial arrangement fee to Seawave.
Nwani also says most companies pay “very limited upfront fees” at this stage of an arrangement.
Nigerian companies including banks have often failed to institute strong governance structures, which have led founders raid the corporate till when they feel an itch.
A leading cause of the collapse of many banks in Nigeria, a decade ago, was indiscriminate award of loans to questionable characters. Some others gave loans to themselves through proxies and write-off the loans on the back of depositor’s fund.
An internet search shows that the record of Seawave Invest is sketchy. It calls itself an “independent consultancy firm specialising in cross-border transactions with a focus on exclusively (on) Africa. The firm is based in Bahamas and targets opportunities primarily in sub-Saharan Africa and the MENA region.
It claimed it was registered in the Bahamas and has a corporate office in Ghana.
Curiously, the company claimed it has partnered several companies on its websites but did not list specific projects it has undertaken for the companies. It did not also list the name of any personnel in the company in it corporate profile.
This feeds the assumption by many that someone in Lekoil gave the job to Seawave Invest based on personal relationship.
Lekoil says it will be contacting the relevant authorities across a number of jurisdictions without delay, “with regard to what appears to be an attempt to defraud Lekoil.”
While only $600,000 is involved, it could easily have been $600 million and could rupture the company’s plans as well as take a wrecking ball to its reputation.
ISAAC ANYAOGU
