Insider trading use at "Oil Terminal"

Suspicions of use of inside information, prior to it being available to all investors, are looming over a trade by which "Fondul Proprietatea" (FP) decided to reduce its stake in "Oil Terminal" (OIL), about two weeks ago, from 10%, to 8.45%.

The trade occurred on June 9th, three days after the meeting of the Board of Directors of "Oil Terminal", which decided to summon the Extraordinary General Shareholder Meeting (AGEA). The most important item on the agenda was the increase of the company"s share capital, with a contribution in kind from the State, through the Ministry of the Economy, consisting of two plots of land, one of 254,261 sqm and one of 129,334 sqm, located in Constanţa. The proposal is an important piece of news which could affect the investment strategy of the company"s private investors, as they would be forced to participate in the share capital increase with cash, or risk seeing their holdings diluted.

The increase of the state"s stake through the contribution of the two plots of land dilutes the other shareholders, meaning that selling ahead of the information being published gives the seller a concrete advantage.

Even though it was important, the information only became available to domestic investors on June 10th, when the notice to attend of the General Shareholder Meeting was published on the website of the Bucharest Stock Exchange. Meanwhile, however, (on June 9th), the Proprietatea Fund decided to sell 9.02 million shares of OIL, at an average price of 0.3681 lei/share, according to the report posted on June 10th, on the website of the Bucharest Stock Exchange. The sale seems to have been quite "inspired", coming after two days where the stock of OIL rose 15% a day.

In fact, on June 9th, the price of the shares of OIL reached the highest level since the beginning of the year (0.3685 lei/share). (At the time, the rise of the price of the stock of OIL, caused confusion among analysts and brokers who couldn"t find any explanation for the evolution of the stock, given the absence of news concerning the company"s activities).

On June 14th, when the shares of "Oil Terminal" resumed trading, their price fell 14.99%, to 0.3054 lei/share (the average price displayed on the website of the BSE). The Proprietatea Fund sold the shares of OIL on June 9th, at an average price of 0.3681 lei/share, for 3.32 million lei, gaining 566,203 lei, whereas, had it sold them on June 14th, it would have earned 2.75 million lei.

"The session of the Board of Directors of OIL for the summoning of the AGA, for the purpose of increasing the share capital was held on June 6th, and the Proprietatea Fund can"t claim it never knew that the General Shareholder Meeting would be summoned, since its representative, Istvan Kocsolade, attended the meeting of the Board of Directors. Without him, the quorum of the meeting wouldn"t have been met, nor could the meeting of the General Shareholder Meeting have been decided", sources which did not wish to be named said.

Such a situation represents a violation of the capital market legislation which prohibits "any person which owns privileged information from using the information in question for acquiring or selling, on its own behalf or on behalf of a third party, either directly or indirectly, securities which that information pertains to".

The buyer of the block of nine million shares was not reported on the Bucharest Stock Exchange. However, it would have been interesting to know who was so motivated to buy the shares of OIL, just as their price reached this year"s high.

The Proprietatea Fund and the "Broadhurst" investment fund have challenged the amount at which the two plots of land were valued by the experts hired by "Oil Terminal". This is why, at the General Shareholder Meeting of July 16th, the agenda includes the proposal to have the Office of the Trade Registry of the Court of Constanţa appoint an appraiser belonging to the ANEVAR (Romanian Association of Real Estate Appraisers).