Petrofac’s woes deepen

Shares in the oil-services firm have plunged after an investigation into corruption took a troubling turn. Alex Rankine reports.

Shares in Petrofac have tumbled to their lowest level since the global financial crisis after the oilfield services provider announced the suspension of its chief operating officer Marwan Chedid as part of an ongoing Serious Fraud Office (SFO) probe. Chedid and group chief executive Ayman Asfari were both questioned under caution last month as part of a wide-reaching SFO investigation into bribery, corruption and money laundering at Monaco-based Unaoil. Petrofac has disclosed that it engaged Unaoil for consultancy services in Kazakhstan between 2002 and 2009, but says that an independent review conducted last summer “did not find evidence confirming the payment of bribes”. However, the SFO has now rejected the findings of the review and says that it does not consider Petrofac to have cooperated with its investigation.

Shares had fallen on news of the SFO probe in May, but there was no suggestion of “outright panic in the ranks of investors”, says Nils Pratley in The Guardian. SFO investigations “tend to take ages” and firms can often clear up the matter with a deferred prosecution agreement (DPA) and a fine if they admit criminal activity (which Petrofac doesn’t). Yet that semi-reassuring view has now been blown out of the water by the firm’s latest update. The SFO’s language about lack of cooperation “could mean that the option of a DPA will not be offered”, while “Petrofac’s day-to-day operations will be hampered by Chedid’s absence”. A move also to suspend Asfari might have pleased the SFO, but “with his network of contacts in the Middle East plus a role as a UK trade ambassador”, Asfari is “the public face of Petrofac and the man who makes the company tick”.

“Reading between the lines, the fraudbusters wanted Mr Asfari’s suspension too,” says Alistair Osborne in The Times. Chairman Rijnhard van Tets says that the decision to keep Asfari in his post signals Petrofac’s desire to cooperate with the investigation while “ensuring Petrofac continues to deliver for its clients”. “How could it do that if Mr Asfari, the owner of an 18.2% stake, was suspended too?” Still, the outlook isn’t promising. The firm may be exonerated – “the SFO gets plenty wrong. But no surprise the shares tanked”.

Petrofac’s ordeal could be a long one, says The Daily Telegraph’s Jillian Ambrose. The investigation could “drag on to the end of the decade, gradually eroding its market value and future earnings. In a worst-case scenario, the FTSE 250 group, worth £3bn earlier this year, could be reduced to a £1.2bn shell”.

Glencore’s Bunge jump

Glencore is considering a takeover bid for US grain trader Bunge. The Anglo-Swiss commodities group has money to burn after rising commodity prices eased its debt burden, leading chief executive Ivan Glasenberg to suggest in February that there was scope for a $20bn dividend. “Since then, he’s obviously had a change of heart about how the company should spend its loose change,” says Gillian Tan on Bloomberg Gadfly. He now favours a deal to help Glencore “expand its presence in the less-volatile business of agriculture”.

Bunge would offer exposure to a low-risk sector that is strongly tied to global population growth, says Andy Critchlow on Breakingviews. Yet the financial logic behind the deal “is a bit fuzzy” and Glencore may struggle to make a convincing return on its investment without axing jobs, not exactly a “popular trade in the United States right now”. With commodity prices stalling and lingering doubts over China’s economic strength, “Glencore may be better off holding onto its money”.

Nor is it clear that a tie-up is good for Bunge, says the Financial Times’ Lex column. “This is a weak point in the cycle… to sell out.” Bumper crops have put traders’ profits under pressure, but management should not be “too quick to wave the white flag” before the commodities cycle turns. “Glencore shareholders might end up with that dividend after all.”

City talk

 The City has given new M&S boss Steve Rowe an “optimistic thumbs up” as he gets to grips with the group’s fashion business, says Jim Armitage in The London Evening Standard. Yet buried away “in the small print on page 363 of yesterday’s figures, hidden behind a filing cabinet guarded by a three-headed dog”, was the mention of falling margins owing to “higher-than-anticipated waste”. “Translated, that means M&S had to chuck more unsold food away.” M&S claims it’s a blip, but rivals smell blood in a division that has been its one bright spot. “The price war in food is hitting upmarket Waitrose hard.
Is it now coming for M&S?”

Aviva shares are close to a nine-year high, “so obviously it’s just the right moment to embark on a share buyback programme”, says
Neil Collins in the Financial Times. The insurer will spend £300m buying back its own stock, exhibiting the sort of ill-judged timing “that might contribute to the miserable returns in its internal investment funds”. Still, at least the buyback will offset the dilution from the last lot of executive rewards in March. To be fair, the shares have more than doubled since chief executive Mark Wilson took over in 2013, but it will take a while to restore the group’s former glory.
The shares “are still only half the price they were at the turn of the century”.

Aberdeen boss Martin Gilbert seems vexed at paying £97m of advisory fees for his firm’s tie-up with Standard Life, says Alex Brummer in the Daily Mail. “If he was really so troubled he could have held an open tender among investment bankers and given the opportunity to the lowest bidder.” One of the second-tier houses would have done the job for half the price or even less. But they might also have devised a management structure for the new firm that didn’t have a needless doubling up of two co-chief executives. “Not a chance.”