How a Tory MP made £370,000 from oil firm with debts of £470million
As small investors suffer share price crash from £4.25 to 2p
SMALL investors who put their faith in Gulf Keystone Petroleum have been huge losers as hopes that the troubled oil company will strike it rich in Kurdistan have so far come to nothing.
Despite this lamentable state of affairs, a handful of men at the top of the business have been making large sums.
Intriguingly, they include Conservative MP Nadhim Zahawi, who before the Gulf Keystone debacle was probably best known as the multi-millionaire founder and former chief executive of online pollsters YouGov. He is receiving upwards of £240,000 a year from the heavily-indebted company, even as small shareholders have seen their investment all but wiped out.
The company, which initially listed on the junior AIM market in 2004 before moving to the main market a decade later, was popular with private punters. It has 35,000 shareholders, most of them individuals of modest means. Sadly for them, Gulf Keystone has seen its price crash from a high of 425p in 2012 to just over 2p today, wiping out more than 99pc of its market value.
Having tried and failed to find a buyer, Gulf Keystone is next week to restructure its $600m (£470m) debt, converting $500m of it into equity. It has also launched a $25m fundraising, some $20m of which was underwritten by its major shareholder Capital Group. The company says it was over-subscribed, suggesting it has won backing from investors. But against this troubled and uncertain background for the company, it is inevitable that the extremely generous payments to Zahawi, 49, should come under the microscope.
Zahawi, who has been the MP for Stratford-on-Avon since May 2010, is chief strategy officer for Gulf Keystone, a role he has held since October 2015. He is on a salary of £20,125 a month, for working between eight and 21 hours per week. In addition to that, he has received a string of bonuses between January and June this year, adding up to £78,246.38, plus a payment of £52,325 made in September 2015 for 210 hours work, backdated to July last year.
In other words, the MP has made more than £370,000 this year and last from Gulf Keystone, on top of his parliamentary salary.
An ordinary MP earns just under £75,000 a year – a sum that is dwarfed by Zahawi’s extensive business and property interests. He owns a sprawling 31-acre estate in Warwickshire, with stables run as a livery yard. This brought him a brush with controversy in 2013 when he claimed expenses for electricity used by the riding business and a yard manager’s mobile home, which he later said was a ‘mistake.’
He ALSO owns a buy-tolet property in London that is divided into three flats, another house he rents out, three commercial properties in the capital and two in Surrey. The consultancy business he runs with his wife Lana, 50, Zahawi & Zahawi, has net assets of just under £175,000 and he earns a further £40,000 a year as a non- executive director of recruitment firm SThree.
Previously, Zahawi acted as an adviser to Afren, another oil company that went under last summer. The Serious Fraud Office is now considering launching an investigation. Zahawi told The Sunday Times he had ‘ absolutely nothing to do with the executive decisions’ at that company and that his role was to help find a buyer for assets in Kurdistan, which ended up being written off as worthless.
Born in Baghdad to Kurdish parents in 1967, Zahawi left Iraq with his family as a nine-year- old boy, under threat of persecution from Saddam Hussein’s regime. He grew up in Sussex and was educated in London. Before entering Parliament, he was an entrepreneur: an early venture, selling Teletubbies clothing, went under and backers including former Tory grandee Jeffrey Archer, lost their stakes.
Zahawi’s brother-in-law, Broosk Saib, was the man for whom Archer bought shares in Anglia Television during takeover talks in 1994. Archer nicknamed the brothers- in- law Bean Kurd and Lemon Kurd.
Zahawi went on to act as an aide to Archer and to co-found YouGov with Stephan Shakespeare, another of the disgraced Tory peer’s lieutenants. The pair were reported to each have holdings worth £ 5.7m in YouGov when it floated on AIM in 2005. Zahawi still has an undisclosed holding in the company, whose shares have risen by an impressive 376pc in the past five years.
That performance is in stark contrast with Gulf Keystone, where the business is struggling and small shareholders are furious.
Listed in the tax haven of Bermuda, Gulf Keystone has annual meetings in Paris and has been dogged by controversy over governance. Absurdly, when Jon Ferrier, was appointed chief executive last year he could not sit on the board – as it is incorporated in Bermuda, only two UK directors were allowed on the board and the quota was already full. This has now been resolved by altering the bylaws.
Of course, operating in the Kurdistan area of Iraq was never going to be easy. ‘The company has been hit by a liquidity crisis because it was not being paid regularly by the Kurdistan government, which had Isis on its doorstep,’ said one insider. Its difficulties were compounded by a falling oil price.
The new management cannot be blamed for the mistakes of the past, but Ferrier has lost no time in taking rewards before any recovery is in sight. He was paid £530,000 last year, including a £211,000 bonus, despite only taking the helm in June.
M&G dumped its entire 5pc stake in April, offloading more than 49m shares at about 6p a share. Small investors, for their part, are furious.
‘I don’t know how you would describe the situation of investing in what you believed to be a fair market, only to have your pocket picked by moneyed thieves with the wherewithal to do it,’ said one. ‘This is now, but the emphasis and wider story in the future should be about how the AIM market was once an outlet for investing in bold technologies and companies but has now become the plaything of spivs.’
As for Nadhim Zahawi, the rationale for paying him so handsomely is the contacts he has in Kurdistan, along with his expertise as a chemical engineer and oil industry specialist. Gulf Keystone’s directors are understood to feel the difficulty in navigating tribal rivalries make it worthwhile to shell out for his services.
WHETHER or not paying so much to the MP makes commercial sense for the company is one issue. The question of how Zahawi fits in his work alongside his parliamentary duties, is quite another. His constituents might well join small shareholders in feeling they are being short changed. Zahawi declined to comment but sources said he does much of his extra work in his spare time, including Sundays, which is a working day for the Kurdistan regional Government.
‘Gulf Keystone has been a bad story any way you look at it, says Justin Urquhart Stewart, co-founder of Seven Investment Management. ‘It is in a difficult geographical place and in a difficult political place. There are far too many questions with too few credible and reliable answers. Why are they paying an MP £20,000 a month? That is another reason not to own shares.’
Supporters of Gulf Keystone claim that underneath the difficulties there is a very good oil field, and, with the balance sheet being cleaned up and money to invest, it should be able to carry on producing 40,000 barrels a day, increasing to 55,000 in future. They argue the current board and management team have been brought in to fix the problems foisted on them, and are not to blame for the current woes.
That may be so, but it is hardly a consolation to the shareholders who have suffered so badly.