JP Morgan and Afren

Many think that a certain decomposing dead body smell is coming from the remains of Afren. This has largely come about through the stories and leaks with a source from JP Morgan.

I fully admit it wasn’t until pretty recently that I first started to invest in Afren, mainly as I saw a nice trading opportunity. I had heard and knew the rumours about massive dilutions, the company on the ropes needing massive cash injections. It’s fair to say I saw the risk, but also a short term gain.

After my third trade I researched Afren a little more to see what potential it had as a longer term recovery stock, which is where it became more interesting….see the first blog here http://icebergshares.blogspot.co.uk/2015/02/gkp-v-afren.html

As an investor and somebody who is generally very sceptical about how the financial industry works. My mind started to churn in its slow ponderous way as to what angle J P Morgan was playing….Everything seemed to be coming from J P Morgan. Their meddling started awhile back but intensified with a news article on the 28^th of January.

“The company, which operates in Nigeria and Iraq, needs the money to meet funding requirements that are higher than its market capitalization, analyst Zafar Nazim wrote in a note to clients.”

http://www.bloomberg.com/news/articles/2015-01-28/afren-may-need-to-raise-450-million-for-funding-jpmorgan-says

This was further reinforced on the 27/02 when Julie Miecamp and Luca Casiraghi again released a Bloomberg article painting Afren in the worst possible light.

“Ashmore Group Plc, JPMorgan Asset Management and Pacific Investment Management Co. are among creditors offering to provide Afren with the cash it needs to avoid a possible default as soon as Friday, said the person, who asked not to be identified because the talks are private.”

http://www.bloomberg.com/news/articles/2015-02-26/ashmore-pimco-said-to-seek-control-of-afren-in-creditor-talks-i6mfn9l1

Afren themselves admitted in January that they suffered from liquidity issues caused by the very low Oil price (at the time below $50) but refused to really expand on how severe the problems were. They did request an extra month to make a $50m bond payment so we know this was a real issue.

However the actual amount needed has remained a mystery.

We have confirmation then that JP Morgan are a Bond Holder….Would the bond holders like to see Afren in as much trouble, to take over as much of a valuable company as possible ? If the bond holders are offered warrants at a % of a 5-10 day share price, would they like the price as low as possible ?

Um….it’s worth thinking about.

So let’s dig a little deeper, Mr Zafar Nazim JP Morgan business analyst. Has he made some good calls in the past or has he maybe pushed a certain angle?….

In 2012 we had an interesting story, which (it will come as no surprised to learn) concerned a large company which was struggling to refinance its bonds, which were held by JP Morgan….

“In a footnote in its 2011 financial statements last week, DIFCI said it sold one of its discontinued businesses held-for-sale after the financial year ended to a 'related party.' It did not name the business…This sale could only be of SmartStream given the magnitude of impairment,' JP Morgan analyst Zafar Nazim said in the note, adding that other businesses held for-sale by DIFCI had minimal associated goodwill balances”

http://www.tradearabia.com/news/BANK_217072.html

It all seems very sensible until we get.

“No deal has been made yet. It is in the middle of the process," Mohammad Al Shaibani told Reuters on Friday on the sidelines of a business forum.

"I think that more than one entity is looking at it, among them are some of the Dubai government-related companies. They are showing a keen interest in this process," he said. JP Morgan had said in a research note earlier this month that, based on a footnote in its 2011 financial statement, DIFCI has likely sold SmartStream to Dubai or the ICD, resulting in a $68.8 million (Dh252.7 million) impairment provision”

http://gulfnews.com/business/investment/difc-investments-still-working-to-sell-software-firm-smartstream-1.1025092

So just over 2 weeks later we find out that Mr Nazim had been telling porkies and was very wrong about the current state of the company. I wonder whether JP Morgan gained from this in anyway?

So back to Afren, we have a series of JP Morgan related stories spreading doom and gloom around Afren. Certainly one of the credited people from JP Morgan has a less than perfect record about getting his facts right. We have a conflict of interest where JP Morgan is a key decision maker in the bond holders and yet it’s telling its clients to sell and itself will benefit from a low SP.


More eagle eyed investors will also have noticed that JP Morgan has been the major player on both sides of the L2 order book for Afren, sometimes being on both sides at the same time, a practice which is generally frown upon due to its ability to force price movements.


Is all of this coincidence?

We have an Oil price which is materially higher than it was when Afren made its RNS statement.  It’s declined one takeover offer and had a deadline today, which has been and gone without an RNS statement saying it had defaulted.

Now  I am not saying that everything is rosy, Afren certainly needs some money, does it need the $450m (or changed to $350m a few weeks later) that JP Morgan claims ? probably not in my opinion. Do I trust JP Morgan to be telling me the truth…probably not.

Its always worth digging a bit with these things and never, never trusting the investment banks. As soon as it suits them it will be BUY BUY BUY 100p target. Pay attention to the oil price and consider whether you might want to take a bit of a risk.

If you smell something around Afren consider it might not be Afren’s decomposing corpse, but might be the layers of sh*t being sprayed by certain bold holders. A quick thunderstorm of news might well wash it all away.