May 28, 2011
This article uncovers the way in which a predator feasted on over-optimistic small investors led by a hero to the punting class, Greg Blank.
In the share market, fact is sometimes stranger than fiction. Take the case of the JSE-listed oil exploration company SacOil Holdings, which in the past year rocketed from oblivion to stardom – but this week showed signs of falling back into obscurity.
A year ago, SacOil’s share price bumped around 15c with weekly trade averaging just R35 000. Then came a sixteen-fold surge to over 250c, based on market talk that the real price explosion would come after April’s listing in London with another five-fold increase predicted.
Instead, it’s turned really ugly. This week SacOil’s price was down to 40% of its peak. This unexpected drop forced the company to postpone a share issue it had hoped would bring in up to R500m. The directors have laid an official complaint with the JSE, asking it to investigate who has been manipulating the share price. Many small-time traders sucked into the game have lost everything and are now wondering how they’re to meet their losses.
With the dust starting to settle, much as SacOil’s executives may think otherwise, it looks like the business only played a bit part. The real story driving the rise and fall of the SacOil share revolves around the king of market optimists and his legion of followers on one side; and a better resourced predator who saw an opportunity to turn a juicy profit on the other.
Leader of the SacOil supporter’s club is Greg Blank, the closest thing Johannesburg has to movieland’s Gordon Gekko. Blank tells me he came across Sacoil early last year after noticing its application for the rights of “Block Three” in the DRC, a large tract in the far eastern part of that turbulent country. His research suggested if this held anything like adjacent areas in Uganda where massive oil discoveries had been made, little SacOil could be sitting on a bonanza.
Blank has backed a lot of winners (and losers) in a lifetime of trading, but is still bemused after riding a position from 15c to 250c in under a year and still ending up losing a fortune. Blank believes his mistake was following the advice of billionaire hedge fund manager Stanley Druckenmiller who reckons “when you find a good thing, ride it for all you’re worth.” The cynical would say greed brought its just deserts.
Apart from his large position in the shares, Blank doubled up by piling into Single Stock Futures, particularly in the run-up to SacOil’s April listing on the London Stock Market’s AIM board. Once British oil analysts ran their numbers, he thought, SacOil’s true value would be appreciated and the price would surge still higher. The company’s executives felt the same way. The London listing was deemed so valuable that CEO Robin Vela received an “AIM admission bonus” of shares worth R14m and fellow director Colin Bird got R5.5m.
Sacoil then hired Russian investment bank Renaissance Capital to introduce it to prospective UK shareholders and the executives set off on a fund-raising roadshow dreaming of how they would invest the hundreds of millions in fresh capital into African oil prospects.
Then the unexpected happened. London investors, and counterparts back home, kept their hands in their collective pockets. Worse, someone at one of these large institutions worked out that the “longs” – Blank and a rag tag group of golf club tipsters – were up to their eyeballs in highly geared futures. Using a bigger balance sheet and a block of stock borrowed from an unsuspecting Sacoil shareholder, the predator started selling “short”, forcing the price lower and squeezing the over-extended speculators into capitulation. Eventually, as Blank puts it, “we all just ran out of money. ”
JSE Surveillance Department head Peter Redman confirms that trading in the share is being investigated after Sacoil laid an official complaint this week. It might uncover price manipulation. Then maybe not, as in this business every example of seemingly obvious abuse evokes an equally logical response. For his part, Blank remains convinced Sacoil is worth many times its current price. Perhaps. But few stocks recover quickly from this kind of battering. And once a shark has smelt blood, he rarely forgets its source.
