Rizgar Khoshnaw, Washington — 23 Apr 2015 – My objective/purpose for this article is to warn the Kurdistan Regional Government KRG of what they might face in the very near future. Also, certain actions/practices taken by foreign oil companies operating in Kurdistan will have an adverse affect on the KRG if this continues without properly watched, investigated, audited and questioned. Yesterday, I read a news report, issued by Mr. Tony Hayward, CEO of Genel Energy, discussing his company’s position and activities, among other issues. This is what Mr. Hayward said, ” Low oil prices will trigger consolidation in the oil industry of Iraq’s Kurdistan….. adding his firms could be both a consolidator but could also be a potential acquisition target.”Ironically, it was only two days ago that I had written the KRG about Genel Energy and Mr. Tony Hayward and now we see him issue this news press!
Let me explain the four indirect messages that Mr. Hayward is trying to relay/convey to the KRG:
1- He is telling the KRG that “don’t worry” about the fact we have spent over $2 Billion of investor’s money in two years and we have nothing to show for it and we are in the process of spending another $500 Million of the newly issued unsecured corporate bond;
2- He is advertising himself and his company to possibly be sold! And with his stock being down 50% already, and have very hefty debt, no one will get near this company and buy them;
Mr. Hayward knows very well that his company is way over valued and he is trying to justifies the lack of progress of his company as well as his company’s stock that is down 50% already. Genel Energy went public (means selling share of the company to the public- IPO) and collected $2.1 Billion in immediate cash. Not only this money is already gone, but Genel Energy has collected another $500 Million two weeks ago from investors, by way or selling unsecured bond to the public;
3- Mr. Hayward might be setting the ground for another bond issuance in the near future, which means taken on more debt and that is not healthy for any company to do especially when the company is not generating enough income to continue its operations without borrowing heavily from investors;
4- Mr. Hayward is buying himself a little more time and try to figure out how to get out of this dilemma he is in with his operation in Kurdistan.
The most disturbing issue here is that once the newly sold unsecured corporate bond is spent, which will take only few months, then what will Genel Energy do and where will they turn this time to borrow more money?
What the KRG needs to worry about is the fact that Genel Energy was able to get this $500 Million “unsecured” corporate bond two weeks ago and its implications. What does “unsecured” bond mean? Bond means borrowed money from investors and will pay it back within a specified time with a certain interest rate. If the company fails to pay back the investors, then the investors can recover their money by selling what ever the company has. But in the case of the “unsecured” there is zero collateral (100% risk) and the investors have absolutely nothing to collect if the company defaults and the investor will lose 100% of their money.
I would love to meet those investors that have placed so much faith and trust with this company to give them $500 Million without single guarantee that they will see this money again!
Companies all over the world, small and large, go bankrupt all the times and it is nothing unusual. But, my fear is that what will the KRG do if indeed Genel Energy reached a point where they have no more money and no other means to get money to continue their operations and close the door and declare bankruptcy? This means that investors will end up losing almost $3 Billion that they have invested in Genel in only three years or so! The KRG will lose not only its reputation/credibility, but will be facing lots of unhappy investors that will be looking for answers.
I wish I knew how, and why, the KRG allowed and agreed that Genel issue such bond? If Genel Energy was not able to pay back this bond, which I am going to say they will not be able to, then the investors will be looking to sue someone in international court and this could result in the KRG getting involved/dragged in this lawsuit! And I am certain his will not bode well with the KRG. From studying the balance sheet, and all related information about this company, I honestly do not see much upside to this company and I only see trouble ahead. Doing the technical and fundamental analysis shows me possible trouble a head for Genel Energy in more than one issue. I will explain what “technical” and “fundamental” analysis means in a later article when I will concentrate on Genel Energy stock activities and its future. Furthermore, I do not know how Genel Energy came up with having over $5 Billion in assets?? Anyone analyzing this company closely and carefully will conclude that this $5 Billion in assets makes absolutely no sense at all and the company is not worth anywhere near this amount and will never be worth that much.
I would like to mention, that for more than ten years, in the 1990s, I was a stock trader/stockbroker with great deal of experience in the financial markets field and I am very qualified to discuss this issue. I know how to analyze and interpret anything that is related to stock market and financial instruments. I would also like to make it known, and very clear to all, that I never had and do NOT currently, or past, hold a “short” position in Genel Stock, never traded it and will never trade/buy/sell the stock. Furthermore, I do not have a single family member and/or friends that owns, or have interest, in Genel Energy stock directly or indirectly.
Here are some facts about Genel Energy:
1- Genel Energy has a total of 223 employees
Genel, on its balance sheet, claimed to have spent/paid $82 Million in year 2014 for its employees salary. If we use very simple/basic math, take the $82 Million and divide it by all 223 employees, we will get $367,700 of annual salary for each employee!! Does anyone believe that Genel Energy is paying Kurdish employees $367,700 a year? It looks very suspect to me! Who is getting paid these millions? Why do they have such high labor cost, especially in Kurdistan when an Engineer is paid no more than $1,000 a month in salary?
2- Established/created in Kurdistan on April 1, 2011
3- Went IPO ( sold shares to the public) on June 2011 – Only 2 months after been created which is extremely unusual and unheard of! Usually companies must operate, and be in business for years prior to selling shares to the public and Genel Energy did their IPO only two months after inception. It normally take many months to write/prepare the prospectus (prospectus means= document that describe the company and its operations) for the stock and yet only two month after being created they went public?
4- Genel raised $2.1 Billion in IPO and three years later, they have issued another $500 Million bond! Why? Where did the $2.1 Billion go?
5- On Genel Energy’s balance sheet, we see them listing the physical assets only ( land, equipment and plant) of $1.8 Billion and that is way too high since land is FREE from KRG and they have very little equipment and machines. So, where are the $1.8 Billion assets Genel is talking about?
Bottom line, after analyzing and studying Genal Energy and its balance sheet and operations/financial, I foresee bad news for the company in the very near future! I hope the KRG would take note of what I am saying here since I do not think the new KRG finance minister, Mr. Rebaz, knows a thing about stocks and bonds or even finance and economics at any level!
Now, lets get back to the $500 Million unsecured corporate bond issue.
What is very interesting about this unsecured corporate bond is that the company that is involved in this bond, Nordic Trustee, has been avoiding my e-mails in the past two weeks! I had initially sent them one e-mail and they answered me the very next day, but once I started to questions this transaction, they (about 12 company executives) all disappeared and never wrote me again. I will write another article about this issue later. One could easily conclude that they could possibly know something is “not right” about this bond or they would not completely ignore my questions and e-mails. Are they worried about something?
We must keep in mind that since Genel Energy is a public company, anyone can get any information about all of their activities, and financial, and it is completely legal and normal. Investors must know at all times what is happening to their money and investment. I honestly and truly feel that investors in Genel Energy will not recover their investments that they made in the stock and bond- totaling $2.6 Billion so far!!! I have many reasons to say this, but I will publish more about this subject on a later date.
Rizgar Xoshnaw, a senior Kurdish writer based in Washington.