Nigeria’s Oando Heart Attack

Oando Plc had the moments under the sun. It was evolving as a critical energy company in Nigeria which one day could cushion the nation into another level. Oando was a promise to Nigeria, a firm that could make it possible for our nation to play at the upstream level in the energy sector. For years, Nigeria had waited to become energy-production independent by building companies that could play major roles in its energy sector.

Men worked in the Nigerian Railways for decades but Nigeria did not acquire any train making capabilities. Nigeria has been producing crude oil but the upstream remains out of hand to Nigeria. If the major oil companies depart today, Nigeria will cease to be an oil and gas sector player. We have not accumulated capabilities indigenously.

But somehow, there was a shining star, named Oando Plc, out of the horizon for Nigeria’s future. Unfortunately, it seems like an effervescence. Oando is losing it as Securities and Exchange Commission (SEC) has started audits into how the company has been operating. The firm has been suspended in both the Nigerian Stock Exchange and Johannesburg Stock Exchange.

Nigerian oil firm, Oando Plc, allegedly declared dividends from unrealised profits and released false financial statements to the public before it was suspended by the Nigerian Stock Exchange, NSE, a correspondence sent to the oil firm by the Securities and Exchange Commission, SEC, shows.

Oando, which was suspended by the NSE on October 19, has been enmeshed in a protracted crisis for a while.

The NSE suspension followed an October 18 directive by the SEC, mandating the Nigerian bourse to sanction the oil firm.

Similarly, the Johannesburg Stock Exchange, following an advice from the Nigerian bourse, also suspended the embattled firm on October 19

But in a letter sent by SEC to the Group Chief Executive Officer of the firm, Wale Tinubu, and obtained exclusively by PREMIUM TIMES, the commission said it found that the oil firm’s 2014 Rights Issue Circular ”contained misleading information.”

According to SEC, its preliminary findings were “weighty and required further investigation by an independent team of auditors”. Consequently, it has assembled a consortium of Akintola Williams Delloite, United Securities Limited, SPA Ajibade & Co, TJADAP Consulting and Associates, and Nasiru Muhammad and Co. to beam high-voltage searchlights on Oando Plc. My take is that Oando will come out largely paralyzed.

It is a shame to Wale Tinubu, a pragmatic young leader with enormous opportunities ahead of him to build a legacy in his nation. The fact that SEC Nigeria is even saying what it is saying publicly tells you that Wale might have been running a house of cards. Yet, it is just an accusation and Oando could be accused wrongly, but the problem is that Oando is not talking. Some of the deals, as reported by Premium Times, are excruciatingly unfortunate.

This is Nigeria’s Wells Fargo, at the moment. The U.S. bank cooked and manufactured millions of fake bank accounts in a real thriller only Hollywood could have made in modern America. That American bankers could create fictitious bank accounts tells me that all human species have the DNA of bad behavior; the only difference is the consequence that evil attracts. America is pushing Wells Fargo hard with the former CEO since gone and other important executives left or leaving, as Fortune notes.

Wells Fargo’s woes continue to get worse. The bank has fired four senior foreign-exchange staff from its investment bank, according to The Wall Street Journal. That’s particularly worrying because the investment bank had until recently been largely immune from the conduct-related scandals sweeping the much larger retail bank, and strengthens suspicions of systematic governance issues. Separately, the bank has been warned by supervisors that it may need to raise its $80 million payout to customers affected by abusive sales of auto insurance products

We will be watching how Nigeria takes action on Oando after the audit. Nigerians do complain that the Nigerian Stock Exchange is underperforming, with many pointing out that the corporate governance regime in our firms is weak. We have a real test to show how we want the NSE to function and why responsible people should be asked to put money in the exchange. SEC needs to help the bourse in order to boost confidence especially of the retail investors which have refused to return since the Great Recession decimated their investments. In a piece in the Harvard Business Review, I put forward on how African governments can improve the auditing of publicly traded companies.

A key step will be for regulators to change the relationships that exist among auditors, public companies, and the exchanges. Specialty insurance companies may need to be created to protect investors from audit-fueled risks, as companies should be required to buy special insurance policies (audited statement insurance, as I call it) to compensate investors if their audited financials are found to be deceptive. The premium charged by the insurer will track the risk profile of the auditor’s work. To reduce the insurance premiums, traded companies must cooperate and engage better with auditors. In situations where the present insurance companies cannot handle this type of risk, African governments and regulators should create opportunities for new insurance companies. These companies should be built for the digital age, requiring public companies to link critical business data like trading and transaction volumes to insurers in real time to help them assess risks. Companies that fail to share such data may be asked to put money in an investor protection fund. For those that prefer buying insurance, they have incentives to lower premiums, which can only be achieved if they allow auditors unfettered access in their firms.

In addition, African exchanges need to revamp the engagement process for how auditors are retained and compensated by traded companies. Public companies in Africa should not be allowed to hire their external auditors; the exchanges should do so for them. The auditors should be paid from a reserve fund carved out from the raised capital by the public companies. This will fix the biggest flaw in the auditing model, where auditors are financially dependent on the companies they audit. Auditors must be first quality to be added into the pool, and then exchanges must ensure there is constant internal competition for jobs. This rivalry will keep auditing costs low while improving quality, since a high-quality audit will be expected to translate to lower insurance premiums, and vice versa.

But no matter what, Wale Tinubu may have to take an exit. I do not think any responsible person will buy Oando shares with him still in charge, irrespective of the outcome of the audit.

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